10 Essential Tips for Creating a SaaS Business
An increasing amount of businesses are getting started with cloud-based services, which means that a constantly growing industry of software-service is going to potentially skyrocket. In fact, The Gartner CRM Guide published back in March that in 2025, the number of more than 8- percent of customer-relationship management positions will become available.
To make your software company as successful as possible for this uprising in business technology, consider our 10 tips below.
1. Follow the Strategy of KISS (Keep It Simple, Stupid)
Saas, or software-as-a-service, need to be simple and self-explanatory in order to be valued by your customers. In order for your business to do well, your sales and marketing need to focus on return investment, rather than flashy features.
2. Offer a Number of Packages
Since starter SaaS products should be free, but limited in functionality and usage volume, it’s important that you offer a number of packages to your customers that will increase your revenue.
3. Research, Study, Analyze, and Improve
Saas users share a variety of important information about their product usage, in addition to their varying behaviors and needs. Research and data help shop what kind of product functionality is popular and what isn’t. As well, it also helps define the packages you offer and how to segment users. At the same time, it’s important that you continue testing, usually A/B testing, to see what improvements are working and which ones aren’t.
4. Create a Community
Successful and profitable products use APIs that are flexible enough to easily integrate third-party software. However, better products have a community of developers that create plugins that promote and further develop third-party plugins. Interoperability not only increases the value of a product but also offers resale opportunities and manufacture deals that a successful company needs.
5. Be Careful About Amount of Professional Services You Offer
Professional services are a great idea to offer as they can increase revenue and conversions, but can increase the cost of your sales. As a double edged sword, it’s important that you offer the right amount of professional services.
6. Stay on Track With your Current Customers
Besides being on the lookout to create new customers, it’s important for Saas companies to continue revenue growth from its existing customers. On average, a Saas company should strive for its up-sell to hit between 10 to 25 percent of new ACV, with a gross monthly rate of one percent.
However, in order to actually achieve this, it’s important for a team to constantly monitor their current customer usage levels, send them surveys and product updates, as well as inviting them to customer-advisory sessions.
7. Watch and Manage Your Dashboard
As a SaaS company, you should constantly be tracking your key performance indicators, or KPIs. The most crucial measurements that you will want to keep your eye on include cash flow, churn rate, monthly recurring revenues, customer lifetime value, customer acquisition cost ratio, ACV/MRR pipeline, and the average ACV/MRR per salesperson.
8. Align Incentives
You also need to create incentives and compensation plans that align with your KPIs. This means that you will need to compensate your salespeople differently depending on a few factors like the type of booking, customer type, term of the contract, term of the payment, and more. You will also need to compensate your customer-success managers for maximizing upsells and limiting gross churn.
9. Focus on Growth
If you operate a SaaS business with usual gross margins of more than 79 percent, your valuation will be mostly dependent on your annual revenue growth rate. Average SaaS companies grow at a rate of around 25 percent year over year. They are also usually valued at about four or five times their forward revenues. A company with a similar revenue that grows at around 50 percent year over year would be valued at twice as much. So, if you have the working capital, you should invest greatly in your company growth.
10. Exhibit Your Future Profitability
Many SaaS businesses do not become profitable because they use all of their resources to grow larger. Of course, you want your company to get larger but you must also show a path to profitability. You need to offer proof that your business model is not flawed and you plan to become profitable within the next year or two. At the very least, you should show that you can become profitable while growing at an average rate. One of the best methods you can use to show your potential profitability is by becoming profitable every few years prior to investing more in growth.
Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.