The technology evolution gave rise to a bunch of exciting startup models people couldn’t imagine even ten years ago, and one of the most innovative and interesting is the Software as a Service (SaaS) model. It generated a lot of buzzes recently, especially as businessmen want to automate and delegate their minor tasks and processes that would have formerly taken up in-house resources and staff. At the core of the SaaS model is software which is owned, developed, and hosted by people who developed it. The owners then provide access to the apps to the users over the Internet. Let’s talk about how to start up or purchase a SaaS, what aspects to take into account, and how to generate simple SaaS startup ideas effectively.
Reasons to Purchase or Start a SaaS
The SaaS industry is so young that to succeed in such a vibrant marketplace, it is required to build a high-quality product targeted to a certain audience as well as to have a deep understanding of metrics. If you wish your Software as a Service business ideas to come true, you will need to consider churn rate, monthly recurring revenue, customer retention, and CAC vs LTV.
Starting a SaaS business is appealing to owners who are looking for a growing business model supported by increased consumer interest in subscription-based software. Below are some of the benefits of SaaS products:
- Greater lifetime values of clients compared to traditional software models, with longer relationships;
- Quickly-increasing profits bounded to business growth;
- Lower overhead – virtual product, with no need for a traditional brick-and-mortar facility for inventory and staff;
- Established customer base, with built-in monthly recurring revenue via subscription fees;
- Flexibility and scalability to grow.
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A Few Notable Ideas for Your Own SaaS Startup
Here are some awesome steps to find SaaS business ideas for your next venture app or a technology solution. The very first thing you should do is to find the industry that you may have an affinity with, skills and experience with, or context and you simply can identify some of the biggest players in that industry you can find using google, your network, your facebook. Ideally, you can find companies that are successful, paying for advertising, and they have got higher than average customer value. Learn about some of the challenges that are currently faced by businesses and offer them the best solutions. Set a schedule with such companies and ask them about the biggest challenges they face right now:
- What are the most tiresome tasks?
- Do you have low-level employees that you feel can be outsourced?
- Which apps to assess the employees are you using now?
- What are you paying for right now?
You can research what companies are using and what you can improve. Ask people on the market and analyze their answers. Such things generate ideas effectively.
The second way is to go to Twitter and do a search. Type in quotes “Is there an app for”. You are looking for people in the Twitter universe who are trying to find the app they failed to find in Google.
If you need precise examples, check out four directions suitable for simple SaaS product ideas.
1. CRM Platform
A convenient industry to start for a lot of business owners. Customer management is highly required for all companies in the era of perfect personalization. CEOs and managers want to use efficient software tools to optimize their interactions with clients. There are dozens of CRMs, including the market leader SalesForce, but you still can outpace them with proper development.
2. SMM Planner
Following the same trend of customer-centric products and services, businesses may require profitable and easy-to-use SMM platforms. They help to streamline interactions with users in various social media, e.g. Facebook, Instagram, Twitter, YouTube, etc. Successful products include famous titles like Zoho and HootSuite. But new startups emerge in this field, too.
3. Remote Support Portal
Additionally, customers always need the best possible onboarding and support. When they can find the required answers quickly, they tend to feel more satisfied. Surely, each company can create a custom support portal but SaaS business ideas can help here, too. For inspiration, look at ZenDesk. Remember that you will have to be familiar with the businesses to help them in the support aspect.
4. Project Management System
Among other SaaS ideas to find, there’s an interesting sphere focused on internal management. While CRM platforms boost external links with clients, project management tools help to enhance in-house processes. These solutions can include notifications, reports, task flow, and so on. The most famous tools are Trello and Jira. Still, you may be interested in creating own startups.
Parameters to Consider When Generating New Software Business Ideas
We will take a closer look at how you may identify the best software application ideas aligned with your goals and achieve a smooth and successful transition of ownership.
We’ll start by identifying the factors you should be on the lookout for when considering a SaaS. We’ll share with you some wisdom and insight from business buyers and review some tips they wish they’d known when they were starting the process.
Properly executed, the SaaS venture has a lot of appeal for buyers who are looking for a solid investment with a strong return on investment (ROI). Like most online software business ideas, it provides a perfect opportunity to generate revenue without investing heavily in physical inventory, staff, or an office. Picking a strong performer that’s aligned with your business goals can be extremely rewarding.
When you’re shopping around for a b2b or b2c company, one of the first things you’re likely to examine is the overall health of the venture. It means using the metrics that measure the performance, current approaches to maintaining ROI by acquiring and retaining customers, and its potential for growth now and into the future.
As with all investments, ROI is king when evaluating SaaS business ideas. Most business owners are all too happy to provide a deluge of data when demonstrating the return their business will generate, but when you’re shopping for SaaS b2b or b2c firm, five metrics matter more than the rest.
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We’re not talking about butter, but this metric is “dairy” important. It is the number of clients who leave the business in a particular time period (usually monthly).
Customer Acquisition Cost (CAC)
SaaS is a “front-loaded” business model and requires folks to buy/subscribe to a solution the owner has already invested in building and advertising at their expense. The CAC is the price of convincing a client to purchase your app or service. The lower the CAC, the happier you’ll be as a buyer and owner.
Monthly Recurring Revenue (MRR)
The metric is essential in establishing overall profitability and health. For buyers (and owners), record-setting months aren’t nearly as important as knowing a regular, predictable revenue stream will be available each and every month.
Average Revenue per Customer (ARC)
Also known as Average Revenue per User (ARPU). Identifying how much you’re making from each client, as well as how this profit is boosted by upsells and cross-selling, is critical to effective long-term planning and marketing.
Customer Lifetime Revenue (LTV)
This metric is important because it helps you understand how much value a particular client gives over the entire relationship with your product. It also provides insight into other metrics by:
- Helping to identify the maximum CAC. This parameter shows the level required to stay profitable, with positive cash flow;
- Giving you a big-picture look at retention rates. LTV is monetary shorthand for how long your clients stay, and how quickly they leave;
- Identifying potential customer experience problems. If your LTV is low or on the decline, it’s time to look at potentially frustrating roadblocks your clients are encountering on your site.
How to Use Metrics Values?
Now that we’ve identified the key metrics in evaluating SaaS ideas, it’s time to find out how we may calculate these values.
This might seem like a fairly straightforward metric, and it is. You can find the churn rate for a given period simply by comparing the number of purchases made during a given month (or year, depending on the product and customer behavior) to those made by the same customers in the following month (or year). Since many SaaS businesses are subscription-based, you can view each month of membership as a “purchase” by a given customer. Imagine, if a business has 100 subscribers at the beginning of a month, and during the month seven of those subscribers cancel, the business has a churn rate of 7%. Remember, a single-digit churn rate is ideal. If a business has a churn rate in the double digits, either its product or its customer service needs serious work.
Customer Acquisition Cost
Keeping a client is far less expensive than acquiring a new one. But to keep clients, you first have to leverage strong marketing and sales efforts to land them. During the same period, the company acquires 150,000 customers. The simple CAC would be $2 per customer ($300,000/150,000). As with the churn rate, you want your CAC to be quite low. A good rule of thumb for viability (and an indicator of potential growth) is that you should be able to recover your CAC in less than 12 months, and your LTV should amount to at least three times your CAC.
CAC of a Business
Here is a formula: the total cost of marketing for a certain period divided by total customers acquired in that period equals CAC. So, let’s say a business has the following marketing costs for a given year:
This metric is tied directly to the ROI of a b2b or b2c, as the ARC provides the per-user revenue value from which per-user cost is deducted to establish profitability.
Average Revenue per Client
ARC is a critical metric for simple SaaS product ideas since profitability hinges on maximizing revenue from each user over the short and long term. This metric is tied directly to the ROI of a business, as the ARC provides the per-user revenue value from which per-user cost is deducted to establish profitability. Depending on the service and structure of the SaaS business, you can define ARC by dividing your total revenue by the number of active clients in a certain period. total revenue divided by a number of subscribers equals ARC.
Customer Lifetime Value
A profitable SaaS business is built around establishing long-term, high-profitability relationships with customers. Ideally, you don’t just want a lot of customers; you want a lot of customers who are with you for a long time. Low CAC and churn, combined with the high ARC, make for an optimal LTV. The LTV is used in almost every aspect of evaluating Software as a Service ideas, as well as providing the basis for everything from marketing strategy to sales forecasts to total business value. In its most basic form, LTV is similar to ARC: you simply deduct the total cost of acquiring a customer from the revenue they generate for your business over the course of your relationship with them.
Naturally, LTV is a little more nuanced than that in practice, involving variables such as product/service updates, intermittent vs. regularly recurring purchasers/subscribers, and modifications to customer experience and accounts through upselling and cross-promotion. The current glut of advice and marketing blogs on the Internet means it’s not hard to find tips and tools for calculating LTV. Finding one that’s easy to use and understand, however, is another matter. One of our favorites is the LTV calculation method outlined in this infographic from KissMetrics. For an optimal and consistent ROI, you want to build ongoing relationships with customers, rather than settling for brief surges and corresponding lulls. The MRR of a business is a component of calculating LTV, and also provides an opportunity to identify potential areas of improvement or expansion, both in acquiring new customers and retaining existing ones through improved service/upgrades/etc.
3 Ways to Validate Your SaaS Ideas in 2019
How do you ensure that you don’t go and build and spend a ton of money and a lot of time building a product that nobody wants?
The number one belief is that you are able to assume that you are wrong about some part of the business. It sounds crazy. When you start up you say ok, there is a problem, there is a solution that exists but you assume that you are wrong about the solution. Try to get your idea validated. You should start with the assumption that you are wrong. So you’ve got one part that you are absolutely certain about the idea and on the same side, you are told that you are wrong. Then you’ll ask what are the ways to test and validate each step of the product.
1. Clickable Prototype
The first prototype is to look from the strategic design thinking – the whole framework of building a product. You can use Keynote or PowerPoint – just create a clickable prototype that simulates the product. Get feedback from people. Most people will validate your idea through a structural conversation. The biggest thing most people want to avoid is spending six months of your life going down a path because your friends are saying this is a good idea. That’s just the fastest way to fail and not build something awesome. By building a clickable prototype you will be able to see all that clickable links, flows. You will see how your product is going to solve the problem of the users.
2. Early Adopters’ Program
The second – a pre-selling to the customers using the early adopters’ program. A lot of people talking about pre-selling product but how do you do that? This strategy is a really simple way as you go to a potential market (hundreds of consumers). You are working on a new idea at an early stage. Here is how it works. Because your early adoptive program offers a discount you still need to get money from them, go through that learning experience, purchase orders, receivables, legal experience. By doing that you experience co-creating the product with your clients.
The third way is an economically viable offer. Create a valuable offer in the minimum amount of features and get people signed through the landing page containing a valuable offer.
A 360-Degree Approach to Generating SaaS Business Ideas
Understanding the metrics used to measure the health of SaaS ideas is the best way to decide whether or not the business is worth investing in. But beyond the metrics, you’ll also need to consider other factors. Are you familiar with the tech involved? Are you looking for something hands-on, or handsfree? Are you ready to buy today, or will you need to secure financing? And you’ll also need to consider the human factor. Depending on the nature of any b2b/b2c, your own skillset (both as a buyer and a future owner), and the desires and goals of the seller, you may be in for a rough go without adequate planning and plenty of crystal-clear communication.
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