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How To Build a SaaS Company

How To Build a SaaS Company

Do you remember the days when buying software had you going to the store, buying the software all boxed up in it’s fancy packaging and then installing it on your PC? Hopefully, once installed the software would work perfectly, that is, if you had a look at the system requirements beforehand.

Sure, the advent of the internet changed things a bit. You could buy the software, download a copy and then install it on your machine. But times have moved on, and now many developers and software products are moving to a SaaS model.

But what exactly is a SaaS model and what sales models are there? With this post, we’ll look at these questions in more detail.

What Is SaaS?

 

Software-as-a-service (SaaS) is a billing and delivery model for software which is so superior to the traditional method for selling software licenses that it restructures businesses around itself. In terms of the model, the software is licensed on a subscription basis and is centrally hosted. For this reason, it’s sometimes referred to as “on-demand software”. This solves many of the problems that arise from installation, configuration, and compatibility issues. 

Generally, there are two ways to sell SaaS, low-touch sales and high-touch sales. Now, this may sound like a simple choice between the one or the other. Actually, the selling model dictates almost everything else about the SaaS company and the product, so it’s crucial to get the decision right. A mismatch here between the product or market and the selling model, can take years to correct. New call-to-action

Low-Touch SaaS Sales

Low-Touch SaaS is designed for the majority of customers to purchase it without continuous one-on-one interaction with a human being. The primary sales channels include the software’s website, email marketing, and often a free trial for the software. Here, the free trial is optimized to give customers a low-friction start to sustainability using the software. So, for example, if a user uses the software and it seamlessly solves the problem the user needs to solve, it’s likely that the user will subscribe to the product. 

Because the software basically sells itself, these products sometimes do involve sales teams, but they’re more focused on successfully onboarding customers and convert them to paying users by the end of the trial. As such, they’re more structured as so-called “Customer Success” teams which are less focused on convincing customers to buy the product. 

To reduce the amount of human interaction, these products are often optimized to avoid incidents and by creating educational resources that users can use to solve less complicated problems or issues, if any. Despite this, low-touch SaaS products still have excellent customer support teams because, ultimately, the longevity of the product depends on the long term satisfaction of customers. 

Low-touch SaaS is usually on a monthly subscription and priced in the region of $10 per month for B2C products, and $20 to $500 for B2B products. Although average contract value (ACV) isn’t normally used with these products, the ACV usually comes to about $100 to $5000. A more important metric, however, is the monthly recurring revenue (MRR), or, in other words, the revenue the business makes constantly on a monthly basis. 

High-Touch SaaS Sales

 

In contrast to low-touch SaaS, high-touch SaaS is designed around an intensive process to convince businesses to adopt the software, put it into operation, and continue using it.

 

This requires that the business almost always relies on sales team, which are often subdivided into specialized roles, for example:

  • sales development representatives (SDR), who find prospects for the software.
  • account executives (AE), who own the sales process for specific customers.  
  • account managers (AM), who are responsible for the happiness and continued performance of a portfolio of accounts.  

These sales teams are usually supported by marketing teams who are responsible for generating leads for the sales team to close. 

Also, customer support is more heavily utilized across high-touch SaaS compared to low-touch SaaS, and although it’s certainly possible to sell these products to consumers, the majority is sold to businesses. 

With regard to small to medium businesses, high-touch SaaS generally has an ACV of $6000 to $15000, while at the high end, enterprise deals start in the six figures and have no ceiling. The most important metric here is the annually recurring revenue (ARR), which is essentially all of the non-churned revenue of the business, minus certain non-recurring expenses. 

Hybrid Models

It’s also possible to successfully run a low-touch and high-touch business with the same product. A common form of this hybrid model is where one sales model adopts certain elements from the others. This could, for instance, be where a low-touch SaaS has a customer success teams which look more like inside sales teams. 

Keep in mind, though, that these models are increasingly rare and that the most common result is that only one of the models gain traction and the other fades away. This leads to unnecessary wasted costs and resources.

Final Thoughts

If you’re thinking of selling a software product, in the current market, SaaS is simply the way to go. But it’s crucial that, before adopting this model, you understand the business of SaaS. This will let you make better decisions for your product and your business. 

If you need any further information, be on the lookout for our other articles about how to grow a SaaS business, and why SaaS businesses work.

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