SaaS Riches: How to Make Money Online Selling Software Subscriptions

Are you looking for a way to make money online without a huge upfront investment? Selling software subscriptions can be a lucrative online business model. With a software-as-a-service (SaaS) business, you can sell access to an app or software platform on a recurring subscription basis.

In this comprehensive guide, we’ll cover everything you need to know to get started selling SaaS and making money with a subscription-based online business.

How SaaS Businesses and Subscriptions Work

SaaS stands for “software as a service.” With SaaS, you host a software application on your servers and sell access to it on a subscription plan. Customers pay a recurring fee, usually monthly or yearly, to use your software.

Some examples of popular SaaS companies include:

• Salesforce – CRM and sales software
• Slack – Team communication app
• Dropbox – Cloud storage
• MailChimp – Email marketing platform

The subscription plan gives customers ongoing access to use your software. It’s an alternative to selling one-time software licenses.

SaaS offers many benefits, both for you as the business owner and for your customers:

Benefits for SaaS business owners:

• Predictable, recurring revenue
• Ability to scale quickly
• Lower customer acquisition costs
• Easier to provide upgrades and new features

Benefits for customers:

• Pay-as-you-go model, no large upfront costs
• Access to latest software versions
• Flexibility to adjust subscription as needs change
• Don’t need to install or maintain software themselves

With the SaaS model, you can build a profitable, scalable software business. Even if you’re just starting out or a solo entrepreneur, SaaS presents a huge opportunity. Keep reading to learn how to capitalize on this business model.

Validating Your SaaS Idea

Before spending time and money building out a SaaS business, it’s important to validate your idea. You want to make sure there is a target audience willing to pay for your software subscription.

Here are some tips for validating your SaaS idea before you get too far along:

Conduct Market Research

Research your target customer and the problem you’re trying to solve. Is this a big enough pain point that people would pay for a solution? Are there existing solutions already? You’ll want to find a niche or a unique selling proposition.

Look for market statistics, growth projections, and spending habits of your target audience. This will help assess the viability of your SaaS idea.

Analyze Competitors

Thoroughly research competitor products and how much they charge. See what features they offer and what their customers are saying.

This will help you identify unmet needs or areas where you can provide something better, faster, or cheaper. You want your SaaS to stand apart from competitors.

Create Surveys

Create online surveys using a tool like SurveyMonkey or Typeform. Reach out to people in your target audience and get feedback on their challenges. Also ask if they would be interested in a product like yours.

Build a Landing Page

Use a landing page builder like LeadPages to create a page showcasing your product idea and allowing interested visitors to sign up. Include a pricing table to gauge interest at various price points.

Driving traffic to the landing page and getting sign-ups helps validate that people want your proposed solution. Those leads can also become your first beta testers.

Develop an MVP

Consider creating a minimum viable product (MVP) to let prospective users try a basic version of your software and provide feedback. This takes more effort but gives you direct customer validation.

Follow a lean methodology by releasing an MVP with just core features. Then iterate based on user feedback before investing more time into full-fledged development.

Choosing Your SaaS Business Model

There are two primary ways to build a SaaS business:

1. Launch a New SaaS App

This involves coming up with an original idea and creating the software yourself or outsourcing development. The benefit is you own the intellectual property and retain all subscription revenue.

The downside is this takes more time and technical expertise, especially for creating the backend and hosting infrastructure. You also take on more risk launching an unproven concept.

2. Sell Access to an Existing Platform

Alternatively, you can sell access to an existing software platform that already has hosting and the core app built. Options include:

• White label SaaS: Generic platforms you can customize
• Affiliate SaaS: Resell access as an affiliate and get a commission
• Franchise SaaS: Get a turnkey business under a franchise model

The benefit here is faster time to market. You don’t have to build the software or worry about technical hurdles. However, revenue potential is lower since you don’t own the platform.

Consider your skills, budget, and interests when deciding which approach is best. Both models can lead to a successful, profitable SaaS business.

How to Build a SaaS Application

If you decide to build your own SaaS app from scratch, follow these steps:

1. Choose a SaaS Framework

Don’t try to build a SaaS platform completely from scratch. Leverage an existing SaaS framework that provides the core infrastructure and boilerplate code you need.

Some popular options include Laravel Spark, AppMySite, Odoo, and SaaSBoilerplate.

This allows you to focus on your unique app functionality rather than recreating the foundations.

2. Plan the Architecture

Decide on the overall architecture and stack for your SaaS app. Will it be cloud-based or self-hosted? What languages and frameworks will you use?

Map out the high-level components like the frontend, backend, APIs, database, caching, payment system, data storage, etc.

3. Design the Database Schema

Plan out the database schema and models that will power your application. These should align to the core entities that will be used like customers, plans, subscriptions, etc.

Keep the schema normalized and flexible to allow for future growth. Use diagramming tools to visualize relationships.

4. Build the Backend and APIs

The backend handles key functions like user auth, business logic, APIs, processing payments, emails, etc. Build this out first along with API endpoints the front-end will consume.

Use modern frameworks like Node.js, Django REST Framework, or Laravel. Write clean, maintainable code and thorough documentation.

5. Create the Frontend Interfaces

With the backend APIs ready, now you can start bringing the customer-facing application to life. Prioritize MVP features first.

Use a JavaScript framework like React for building the pages and UI components. Follow best practices for UX design to delight users.

6. Incorporate Billing and Payments

One of the most important parts of a SaaS is taking customer payments. Integrate a subscription billing provider like Stripe, Chargebee, or Recurly.

Building your own payment solution is complex. Let experts handle PCI compliance, credit card processing, and managing renewals.

7. Set Up Monitoring and Analytics

Monitoring tools like Sentry and New Relic provide visibility into app performance, errors, and outages. Analytics like Mixpanel give product usage insights.

These are must-haves for a data-driven SaaS. Roll them out early to start gathering data.

How to Price Your SaaS Product

Pricing will directly impact your SaaS business’s revenue. Follow these best practices when determining pricing:

• Charge per user – Price based on number of user seats to scale with adoption. Offer discounted annual plans.
• Offer a free tier – Attract users with a forever free plan for basic usage. Upsell to paid plans for premium capabilities.
• Bundle features into pricing tiers – Good, better, best packaging.
• Survey customers – Test different price points to see what provides the most value.
• Offer free trials – Let customers test drive your software to experience the benefits firsthand.
• Segment pricing – Provide discounted education, nonprofit, and team pricing when applicable.
• Communicate the value you provide – Ensure customers understand why your solution is worth the price.

Also consider pricing metrics like customer lifetime value and churn rates. Price competitively but also support healthy margins long term. Adapt pricing as needed based on market response.

Marketing Your SaaS App

Marketing will make or break your SaaS launch. Here are proven strategies to get the word out:

Create a Website

Have a polished, professional-looking website that communicates your value proposition. Make it easy for visitors to sign up for a free trial.

Content Marketing

Publish blog posts, guides, email newsletters, and other content to attract and engage prospects. Establish thought leadership.

SEO

Optimize your SaaS website and content for relevant search terms so you rank highly in search engines like Google.

Paid Ads

Run paid ads on platforms like Facebook, Instagram, and Google to get your offer in front of targeted audiences.

Email Marketing

Collect leads through your website and nurture them via email campaigns. Convert them into paying customers.

Partnerships

Partner with complementary companies to do cross-promotions, affiliate sales, and co-marketing.

PR Outreach

Build relationships with bloggers and media contacts. Pitch your product for reviews and mentions in their publications.

Social Media

Leverage platforms like Twitter, LinkedIn, and TikTok to build an audience and share content. Use paid ads to amplify reach.

Retargeting Ads

Remarket your SaaS to visitors after they leave your website to capture more leads.

Consistent, multi-channel marketing is key. Track conversions to see which efforts deliver the best ROI. Refine over time.

Developing a SaaS Sales Process

To turn prospects into paying users, you need an effective sales process:

1. Optimize Your Website

Ensure your website has clear calls-to-action for visitors to sign up for a trial or demo. Make this process easy and frictionless.

2. Deliver Valuable Content

Provide free, downloadable content like ebooks, whitepapers, cheatsheets, and tools. Capture leads with a content upgrade offer.

3. Automate Lead Nurturing

Set up email workflows to engage prospects automatically. Educate them over time on solving their problems with your SaaS.

4. Schedule Product Demos

Once leads indicate interest, invite them to a demo. Show your product’s capabilities tailored to their use case.

5. Make Your Pitch

Have a sales script ready to convey your value prop, differentiators, and pricing. Make your best case for why they should buy.

6. Provide Free Trials

Offer a time-limited free trial with access to key features. Reduce friction to let leads experience your product firsthand.

7. Offer Discounts

Early customers may need extra convincing. Consider promotional discounts for annual plans or multi-seat packages.

8. Handle Objections

Be prepared with rebuttals for any concerns raised around pricing, features, adoption, etc. Overcome obstacles to close the sale.

9. Deliver Excellent Onboarding

Set up customers for success. Provide resources and proactive support to quickly get them realizing value.

Refine this workflow over time. Nurture relationships and make it as easy as possible for customers to buy and see ROI.

Scaling Your SaaS Business

Once you gain traction, focus on scaling your SaaS intelligently:

Reduce Churn

Churn measures how many customers stop subscribing. Minimize churn by delighting customers and resolving issues promptly.

Increase Conversion Rates

The percentage of trials that convert to paid plans is your conversion rate. Optimize onboarding and the upgrade process to boost this.

Expand Marketing Channels

Diversify lead sources for more growth. Tap into new marketing tactics with higher ROI potential.

Streamline Support

Use chatbots, help centers, and automation to offload common support tasks so your team can handle more high-value activities.

Invest in Product R&D

Keep improving your product with new features and UX enhancements tailored to user feedback and data insights.

Automate Tasks

Leverage automation tools like Zapier to save time on repetitive processes. Let your team focus on high-level strategy.

Build Partnerships

Partner with other companies to expand reach. Offer affiliate programs to incentivize referrals.

Raise Prices

As you deliver more value, gradually raise prices for new customers. Offer discounts to retain existing users.

Pursue optimization and innovation across all areas of your business. Compound small gains to take your SaaS to the next level.

SaaS Business Models: Whataâ€TMs the Difference?

Not all SaaS businesses are the same. Several SaaS models provide unique opportunities and tradeoffs.

Direct SaaS

With direct SaaS, you build and own the software. You handle sales, support, operations, etc in-house. This gives maximum control but also the most work.

Whitelabel SaaS

Whitelabel SaaS involves reselling a generic platform that you can customize with your own branding. This speeds time-to-market but limits branding.

Affiliate SaaS

Become an affiliate reseller of a SaaS product. Earn commissions for each referral you convert to a paying customer for that vendor.

Franchise SaaS

A SaaS franchise provides everything you need to launch a turnkey SaaS business. You leverage the franchisor’s systems and brand to hit the ground running.

B2B SaaS

With B2B SaaS, you sell to other businesses rather than consumers. This typically involves a longer, more complex sales cycle but higher contract values.

Evaluate the pros and cons of each approach. Choose the one that aligns best to your goals, skills, and resources.

Top SaaS Business Ideas

Nearly any software application can work on a SaaS model. However, some types of SaaS businesses are especially promising right now:

Business Intelligence

Tools that help companies analyze data and extract insights to improve decision making.

Customer Service Software

Apps that help support teams communicate with customers and manage interactions.

HR Software

Solutions to streamline HR processes like recruiting, onboarding, training, compliance, etc.

Marketing Automation

Platforms that help marketers craft campaigns, manage leads, email marketing, and more.

Online Course Creation

Create and sell access to online courses and instructional video content.

Password Management

Tools to securely generate, organize, and store passwords.

Remote Work Software

Apps that enable team collaboration, video calls, project management, and remote work.

Sales Software

Platforms to manage pipelines, workflows, document signing, etc. to help sales teams close more deals.

SEO Software

Tools to research keywords, track rank, optimize pages, manage links, and more.

Subscription Billing Software

Solutions to handle recurring billing, payments, and subscription management.

Video Hosting

A platform where users can upload, share, and monetize video content.

These are just a few ideas to spark your thinking. Conduct thorough market research to find promising SaaS niches.

Top SaaS Monetization Strategies

A key benefit of SaaS is recurring, predictable revenue. But subscriptions aren’t the only way to monetize. Consider blending multiple revenue streams:

Paid Plans

Charge monthly or yearly subscription fees for access to your software. Offer tiered plans.

Usage Fees

Charge for API calls, storage used, emails sent, video minutes streamed, etc. beyond plan limits.

Add-Ons and Upsells

Offer premium features, support, customizations, integrations, etc. as paid upgrades.

Affiliate Marketing

Let others promote your SaaS and earn commissions on referrals that convert to customers.

Advertising and Sponsorships

Sell ad space or sponsorships packages on your platform to advertisers.

Partnership Programs

Get paid to promote other companies’ products to your customer base.

Branded Merchandise

Sell t-shirts, hats, mugs, and other branded swag to build brand awareness.

Paid Usage Tiers

For marketplaces and platforms, charge for different tiers of access. Ex: job posting packages

White Label Licensing

License your platform for others to rebrand and resell under their own label.

Enterprise Plans

Offer custom, high-end plans with premium support and additional features for large customers.

Mix and match strategies to diversify revenue. Offer customers multiple ways to pay for added value.

Pros and Cons of a SaaS Business Model

A SaaS business provides many advantages but also some downsides to consider:

Pros

• Recurring revenue – Reliable income from ongoing subscriptions
• Scalability – Grow without proportional cost increases
• Cash flow – Revenue up front compared to one-time licenses
• Lower entry barriers – Affordable to start compared to enterprise software
• Accessibility – Customers can use anytime, anywhere with an internet connection
• Fast iteration – Easier to rapidly release improvements and new features
• Metrics-driven – Data insights on customer usage and behavior

Cons

• Ongoing costs – Must cover hosting, bandwidth, and support expenses
• Retention – Churn can quickly erode revenue if customers cancel
• Commoditization – Competitors replicating successful SaaS ideas
• Security risks –

Pros

• Lower friction sales – Easier to get customers to try the product with free trials and freemium tiers.
• Upsell opportunities – Can provide premium features, support, customizations, etc. to generate more revenue per customer.
• Targeted marketing – Usage data provides insights to better target sales and marketing efforts.
• Automation – Many processes like onboarding and customer communication can be automated to reduce workload.

Cons

• Online dependency – Software being unavailable due to downtime or internet outages causes headaches.
• Technical complexity – Developing and maintaining a robust, secure, and scalable SaaS platform requires significant technical expertise.
• Customer support costs – Providing quality ongoing support can get expensive at scale.
• Platform lock-in – Some customers hesitate relying heavily on another company’s platform, fearing lack of control.
• Competitive pressure – Significant ongoing innovation required to keep pace as new competing solutions emerge.

Overall, the SaaS model offers significant advantages and opportunities compared to traditional software. But building a profitable, sustainable SaaS involves overcoming some meaningful challenges. Do thorough planning and analysis to set your SaaS business up for long-term success.

Key SaaS Metrics and KPIs to Track

To gain visibility into the health of your SaaS business, carefully monitor these key metrics:

• MRR – Monthly recurring revenue
• ARR – Annual recurring revenue
• Churn rate – Percentage of customers that cancel per period
• CAC – Customer acquisition cost
• LTV – Customer lifetime value
• Burn rate – Rate at which a company spends capital to grow
• Conversion rates – Percentage of trials that convert to paid plans
• Subscriber cohorts – Customer segments based on signup date
• Engagement by feature – Which features customers use most/least
• Support ticket volume – Frequency of support requests

Track metrics over time, segment them, and look for trends. Compare cohorts to identify issues. Set goals for revenue growth, churn rate, and target CAC. Use data to inform priorities and strategy.

Top SaaS Tools and Software

Utilize these essential SaaS tools to streamline operations and management:

• Billing and payments – Stripe, Chargebee, Recurly
• Email marketing – Mailchimp, ConvertKit, ActiveCampaign
• CRM and sales – HubSpot, Salesforce, Pipedrive
• Support and ticketing – Zendesk, Freshdesk, HelpScout
• Project management – Asana, Trello, Basecamp
• Accounting and expenses – QuickBooks Online, Xero
• Password management – LastPass, 1Password
• Scheduling and bookings – Calendly, Acuity Scheduling
• Marketing automation – Marketo, HubSpot Marketing Hub, Ontraport
• SEO and analytics – SEMRush, Ahrefs, Google Analytics
• Website analytics – Hotjar, Lucky Orange, FullStory

Choose tools that integrate smoothly. Automate interactions between systems to maximize efficiency.

SaaS Development Costs

So how much does it cost to create a SaaS application? Expenses include:

• Initial platform and product development
• Ongoing engineering and maintenance
• Hosting, bandwidth, and infrastructure
• Marketing, advertising, and sales
• Staffing and contractors
• Legal, accounting, compliance
• Software, tools, services

Total costs vary greatly based on the complexity of your SaaS, whether you outsource development, marketing spend, and more.

Budget at least $10,000-$30,000+ to build an MVP. Expect to spend $50,000-$250,000 for a production-ready application. Plan on significant ongoing costs for marketing, support, and engineering.

Minimize upfront costs by leveraging no-code tools and reusable frameworks. Focus spending on the critical 20% of features that deliver 80% of the value early on.

Choosing a SaaS Pricing Model

How you package and price your SaaS offerings has significant business implications. Consider factors like:

Per user vs per account

Per user pricing bases costs on the number of user seats. Per account charges one flat rate per customer account.

Per user maximizes revenue potential but is harder for customers to estimate costs as they scale. Per account is simpler but you make less on large accounts.

Tiered plans

Offering Good, Better, Best packages caters to diverse needs. But too many tiers adds complexity. Balance flexibility with simplicity.

Pay-as-you-go pricing

Usage-based pricing charges for API calls, storage used, compute time, etc. This optimizes costs for light users but unpredictability makes budgeting difficult.

Freemium

Offering a free tier expands reach but most users wonâ€TMt convert to paid. Limit capabilities to entice upgrades.

Flat rate vs sliding scale

A flat monthly or annual rate is easier to understand while volume discounts satisfy high-usage customers.

Consider your customers’ needs, industry benchmarks, and sales experience when devising pricing packages. Test and refine to maximize profitable conversions.

SaaS Customer Success Best Practices

Customer success is crucial for retention, upsells, referrals, and positive word of mouth. Tactics include:

Onboarding education

Guide new users through getting set up and fully leveraging key features. Make adoption frictionless.

Proactive account management

Check in periodically to assess satisfaction. Be a trusted advisor.

Feedback surveys

Solicit customer input through NPS or CSAT surveys. Identify pain points.

Customer advisory board

Gather a group of engaged customers to provide input on the product roadmap and company strategy.

Loyalty programs

Reward long-time customers with special perks and early access to new features.

User conferences

Host an annual user conference for training, networking, recognition, and excitement.

Public recognition

Feature successful customers on your website, blog, and social media. Tag them to show appreciation.

Renewal nudges

Notify customers as renewals approach and highlight the ongoing value provided. Make it easy to re-up.

Deliver an exceptional customer experience. Turn happy users into evangelists.

Scaling a SaaS Startup

Once product-market fit is established, focus on scaling through these strategies:

Optimizing conversion funnels

Identify and eliminate friction in the signup, free trial, and sales processes to convert more prospects.

Automating customer onboarding

Use in-app messaging and emails to onboard new users without manual effort.

Developing add-on products

Additional proprietary services, tools, and features customers will pay for on top of the core SaaS.

Expanding target markets

Move into new customer segments, geographical regions, and use cases.

Offering enterprise pricing

Provide custom quotes, additional support, and premium capabilities for large accounts.

Building a marketplace

Let third-parties augment your platform via add-ons, services, technology integrations, etc.

Strategic partnerships

Team up with other companies to expand distribution channels and joint offerings.

Opening an API

Allow developers to build on your platform and create additional revenue streams.

Continuously level up marketing, operations, product development, and customer success capabilities to support rapid sustainable growth.

Evaluating SaaS Profitability

Measuring profitability helps optimize finances as you scale. Metrics to analyze:

Gross Margin

Total revenue minus COGS. Target 40-80%.

Net Margin

Profit after expenses as a % of revenue. Goal of 10-20%+ indicates health.

Operating Leverage

The rate at which margins expand as revenue grows faster than expenses.

Customer Acquisition Cost (CAC)

Total sales and marketing costs divided by new customers won. Drive down over time.

Customer Lifetime Value (CLTV)

Revenue a customer generates over their lifecycle with you. Maximize this through upsells and retention.

Capital Efficiency

How much equity and debt funding was required to achieve your revenue. Minimize outside capital needs.

Burn Rate

Monthly spend increase. Keep below revenue growth rate.

Continuously track expense drivers and major costs like hosting, payroll, acquisition channels, etc. Optimize spending and margins over time.

SaaS Financial Model Excel Template

A financial model forecasts costs, revenue, cash flow, and other key financials. Download this SaaS financial model template to plan and analyze your business case:

Key elements include:

• Assumptions – Macro revenue and cost drivers
• P&L statements – Revenue, expenses, profitability
• Balance sheet – Assets, liabilities, equity
• Cash flow – Cash inflows/outflows
• KPI dashboard – Visual tracking
• Valuation analysis – Company value projections
• Modeling scenarios – Optimistic, pessimistic, expected
• Graphical charts – Charts and graphs for visual analysis

Input your specifics to create three- to five-year projections. Adjust assumptions to modeled different scenarios. Use the financial model to make data-driven SaaS business decisions.

Top SaaS Investors

When looking to raise funding from investors, consider these notable SaaS venture capital firms:

• Accel
• Andreessen Horowitz
• Bessemer Venture Partners
• Lightspeed Venture Partners
• Madrona Venture Group
• NEA
• Norwest Venture Partners
• SaaStr Fund
• Sequoia Capital
• Shasta Ventures
• Threshold Ventures
• Trinity Ventures
• Wing Venture Capital

Having the right investors can provide capital as well as strategic guidance and connections. Seek investors with a track record funding successful SaaS companies in your space.

Steps for Acquiring a SaaS Company

Buying an existing SaaS business can be quicker than building one. Follow these steps:

1. Search acquisition target listings

Browse online marketplaces like MicroAcquire and SaaS Capital. Engage brokers to uncover off-market opportunities.

2. Vet and value potential companies

Conduct due diligence on financials, product, customers, tech stack, etc. Estimate valuation based on metrics like ARR, revenue multiple, growth rate.

3. Make initial offers

Submit non-binding offers to companies that align with your criteria and price range. Sign NDAs.

4. Negotiate deal terms

Discuss details like upfront payment, earn outs, equity rollover, employee packages, timing, etc.

5. Perform final due diligence

Do an in-depth review of the codebase, customer contracts, expenses, liabilities, etc.

6. Sign purchase agreement

Engage a lawyer to finalize the acquisition agreement and transfer of assets, IP, etc.

7. Onboard the SaaS

Integrate the company, align processes, migrate to your tech stack. Retain key talent. Make critical improvements.

Buying an existing business can fast-track SaaS ownership. But be selective and ensure thorough diligence to avoid major issues down the road.

SaaS Business For Sale Listings

To buy an existing SaaS business, browse these marketplaces featuring vetted companies for sale:

• MicroAcquire – Curated SaaS acquisitions
• FE International – M&A advisors
• SaaS Capital – Pre-vetted SaaS opportunities
• Flippa – Website and online business marketplace
• Empire Flippers – Established online business broker
• Businesses For Sale – Global business for sale listings
• BizBuySell – Online marketplace for buying and selling companies

Search for SaaS companies aligned to your goals and budget. Leverage trusted brokers to access exclusive off-market listings and maximize your deal flow.

SaaS Business Valuation Multiples

SaaS businesses are often valued based on a multiple of key metrics:

• ARR Multiple – Annual recurring revenue
• Revenue Multiple – Typically 1x – 10x annual revenue
• EBITDA Multiple – Multiple of earnings before interest, taxes, depreciation and amortization
• Gross Margin Multiple – % of revenue remaining after COGS

Other factors impacting valuation:

• Growth rate
• Customer retention
• Market size and potential
• Competitive advantages
• Strength of team and tech

For profitable SaaS companies with strong fundamentals, 5-10x ARR and 5-8x gross margin multiples are common starting points.

Higher multiples go to hyper-growth companies in hot sectors with strong traction. But excessive valuations can be risky.

Steps to Sell Your SaaS Company

When looking to sell your SaaS business, optimize your preparation:

1. Get financials in order

Compile historical financial statements, tax returns, ARR, revenue growth, projections, etc. Demonstrate a solid business.

2. Document key details

Create overview presentations detailing customers, products, tech stack, processes, team, IP, etc. Prepare due diligence materials.

3. Boost performance

Focus on hitting business metrics like ARR, churn rate, burn rate, margins, etc. Consider an audit. Improve weak spots.

4. Hire an M&A advisor

Work with an advisor experienced in SaaS deals. They’ll prepare materials, contact buyers, manage negotiations, etc. Well worth the investment.

5. Evaluate deal structures

Decide if you want an outright purchase, equity rollover, seller financing, earn outs, etc.

6. Model company value

Work with your advisor to determine fair valuation multiples for your metrics and growth. Provide projections showing future potential.

Position yourself for maximum value. But also be realistic about valuation for a successful exit.

SaaS Exit Strategy Examples

There are several potential exit strategies for SaaS founders besides selling the entire business:

Acquisition by a strategic buyer – Sale to another company in your industry. They gain your technology, customers, and capabilities while providing liquidity.

Private equity buyout – PE firms often acquire mature SaaS companies to optimize operations then sell at a profit.

IPO – Taking your company public via an initial public offering. Difficult path but offers a major liquidity event.

Secondary sales – Allowing founders, employees and investors to sell some equity while company remains private. Provides partial liquidity.

Recapitalization – Existing investors sell stakes to new investors via secondary sales. Lets founders cash out a portion.

M&A rollup – being acquired by a company aggregating niche SaaS apps within a category.

Evaluate options well in advance of needing liquidity. Balance founder and investor interests for the optimal exit.

SaaS Business Challenges to Overcome

Like any business, SaaS companies face common pitfalls. Be ready to tackle challenges like:

Slow user adoption – Failures converting signups to active users and expansion revenue.

High churn – Difficulty retaining customers month to month leading to revenue declines.

Low conversion rates – Inability to turn trials into paying customers.

Overbuilt product – Trying to satisfy every possible user vs. focusing on your core target customer. Leads to bloat.

Scaling too fast – Outpacing capabilities in sales, support, or operations leads to poor customer experience and word of mouth.

Poor marketing ROI – Ineffective marketing and sales process wastes budget.

Technical debt – Cutting corners on architecture leads to accumulating problems.

Founder conflict – Founder disagreements on vision and direction divide the team.

Running out of cash – Insufficient runway to achieve profitability due to poor financial planning and money management.

Maintainfocus on delivering value to a well-defined target customer. Collect feedback and data to quickly adapt. Retain flexibility to change course.

SaaS Industry Trends and Future Growth

SaaS still has massive headroom for expansion in nearly every industry. Trends fueling future growth include:

• Mainstream cloud acceptance
• Mobile workforce adoption
• Increased B2B software budgets
• Demand for subscription pricing
• API integrations and embeddable apps
• Vertical SaaS solutions
• International market expansion
• AI and ML enhancements
• Internet of Things driving smart device platforms

SaaS is expected to grow over 15% per year through 2025+.

Recent technical developments like blockchain, augmented reality, quantum computing and 5G networks will enable new categories of SaaS in coming years. Still a very early stage industry with many opportunities.

How to Start a SaaS Company: Step by Step

Follow these steps as a framework for launching your own SaaS business:

1. Identify market needs

Research potential SaaS ideas. Assess demand and competition. Define your target customer.

2. Validate concepts

Create landing pages and surveys to gauge interest. Talk to potential customers.

3. Design an MVP

Outline the core functionality needed to deliver value. Keep it simple.

4. Develop a prototype

Build an initial lightweight version for testing with a small pilot group.

5. Define metrics and KPIs

Determine the key data points to measure during testing and post-launch.

6. Implement analytics

7. Build your MVP

Develop the minimum viable product with just core features using agile methodology.

8. Onboard pilot users

Get your MVP into the hands of a small set of target customers. Offer it free in exchange for feedback.

9. Iterate based on feedback

Use input from early users to fix issues and refine the product experience.

10. Formalize monetization

Devise pricing plans and your go-to-market strategy. Set up payments, billing, etc.

11. Develop sales & marketing plan

Create plans for getting the word out, generating leads, converting trials to customers, etc.

12. Complete security audit

Hire experts to audit your software, infrastructure, processes, etc. and certify security.

13. Launch publicly

Move out of pilot mode into full launch. Market to your target customers.

14. Support & refine

Provide stellar customer service. Monitor issues. Release frequent upgrades.

15. Scale your SaaS

Keep expanding your platform, user base, team and capabilities.

Follow lean startup principles: release an MVP fast, get user input, iterate rapidly. Stay nimble and build momentum.

Frequently Asked Questions

How much does it cost to build a SaaS application?

Costs range from around $15,000 for a simple MVP up to over $500,000 for a complex enterprise SaaS platform. Much depends on whether you outsource development and your technical requirements.

What is the best platform to build a SaaS?

Popular options include AppMaster, OutSystems, Salesforce Lightning, Zoho Creator, Accessify, Oracle Apex, and Mendix. Choose one that aligns to your tech stack.

How long does it take to develop a SaaS?

An MVP can be built in 1-3 months. A production-ready SaaS platform typically takes 6-12 months for development and testing. Timelines vary based on scope, team size, and complexity.

How do I choose a SaaS pricing model?

Consider factors like customer demand, industry norms, production costs, desired profit margins, and competitive landscape. Test different models with usage-based pricing, freemium tiers, per user pricing, etc.

What metrics are most important for a SaaS?

Track MRR, ARR, churn rate, CAC, LTV, conversion rates, burn rate, revenue growth, retention, customer satisfaction, and other KPIs. Monitor trends to optimize.

How do you market and sell a SaaS?

Content marketing, SEO, email nurturing, social media, PPC, free trials, product demos, direct sales outreach, referrals, tradeshows, and partnerships are effective SaaS marketing tactics.

What is a good profit margin for SaaS companies?

The SaaS industry average is around 10-20% profit margin. But top performers achieve 25-40%+ through recurring revenue, upsells, cost optimization, scalable infrastructure, and operational efficiency.

What should I charge for my SaaS?

Take into account your costs, comparable products, customer budgets, value delivered, market dynamics, etc. when pricing. Often room to increase pricing over time as you refine positioning and capabilities.

How do you fund a SaaS startup?

Bootstrapping, crowdfunding, incubators, accelerators, Small Business Loans, SBA funding, angel investors, venture capital, and debt financing are common sources of capital for SaaS startups.

Conclusion

The SaaS model provides a tremendous opportunity to build a scalable, recurring revenue business. With careful planning and execution, nearly anyone can now start a successful software company serving customers online.

Validate your SaaS idea by talking to customers and gauging interest before diving into product development. Keep your MVP simple and get it into users hands quickly to gain feedback. Leverage modern tools and frameworks to streamline creation of your platform.

Be relentless about optimizing your conversion funnels, cost of customer acquisition, lifetime value, and churn rate. Use data to make smart product and marketing decisions.

Deliver value to customers and they will reward you with their business and loyalty.

We covered a lot of ground here. For even more detail on how to start, grow and run a profitable SaaS get our comprehensive [SaaS startup guide ebook].

Now it’s your turn. We hope this article provided a solid foundation for executing your own SaaS business. The opportunities are massive for those who bring the right product to market.

What questions do you still have about starting a SaaS company? Let us know in the comments section below!