Selling Software: 6 Quick Tips for Starting a Software as a Service Business
Hats off to you for developing a software to solve a problem that I’m sure many people need help with.
But your job doesn’t stop here – now it’s time to get the software out into the world.
One of the best ways to do this is to host your software on a cloud infrastructure and charge businesses a monthly fee to access it. This is how a software as a service (SaaS) business model works.
As you can imagine, this service is incredibly attractive to business owners who do not want to invest huge sums of capital to create an IT infrastructure. Such businesses often use a SaaS solution, and that solution often becomes integral to their businesses – for example, some sales teams use SalesForce customer relationships management (CRM), where some customer service departments use Zendesk. Using a SaaS business eliminates the risk of investing capital for the client, who usually pays only a small monthly membership fee.
Though a SaaS business can earn money in many ways, their bread and butter is typically the recurring fee they charge each customer for access to the products and the features of the software.
So how do we set up a SaaS and get it open for business?
Setting Up Shop
First and foremost, you need to get your software hosted on the cloud.
Tip 1: Finding the Right Cloud Host
The beauty of hosting on the cloud rather than on a single server is that your software does not rely on only one machine – if that machine went offline, then your software would go down and you would lose sales. However, when your software is shared between an array of interconnected machines all storing the same information, if one of them goes offline, the others pick up the slack and your software remains online.
You should look for a cloud hosting service through which it will be easy to grow your service. Some cloud hosts, such as SiteGround, allow for auto-scaling, whereby your cloud’s RAM and CPU are scaled automatically based on the usage of your software, preventing slowness and downtime when you hit traffic spikes.
You also want your cloud hosting service to have good customer support, preferably 24/7 phone support, so you can get problems fixed quickly. You also want to check that the cloud host allows you to perform regular backups and ensure that you can recover from the temporary downtime occurring from these backups as quickly as possible.
Tip 2: Beta Test Your Software
When your software is ready for use, release it at a reduced price to let people test it and break it, so you can iterate and improve it until you have a finished product.
It’s important to get a minimal viable product (MVP) out early and continue to work on it after its release, because this is the best and quickest way to get your software to a point at which it gives users more value than they are paying to use it.
Beta testing will save you thousands of dollars down the line. The alternative is to try to perfect the software and charge full price from the start, but when customers have issues and want refunds, you’ll lose out.
Tip 3: Teach Your Customers How to Use Your Software
Since you know your software inside-out, it might be difficult to grasp how much your customers don’t know.
Even if your software has simple navigation and intuitive functionality, you will need to educate your customers on how to use its features. This can be achieved by sharing helpful articles and providing GIF and video walkthroughs on your website. SaaS giant Hubspot has a whole training academy dedicated to teaching their customers how to use their software.
Tip 4: Price Your Software
Your software solves a problem for businesses, but how much is solving that problem worth?
You can compare your SaaS to other SaaS businesses that offer a similar service, but remember that your SaaS is unique, and so should be its pricing.
There are many possible pricing models for SaaS businesses. You need a model that grows as the customer’s business grows, so you can charge more when a larger client starts to use more of your service.
This is where a free trial or freemium service may come into play. You almost always have to offer customers a taste of your service before charging them. Offering a freemium service makes it easier to upsell customers to the more advanced functionalities of your software.
Here are some possible pricing models:
- Flat rate pricing
- Tiered pricing
- Per-user pricing
- Usage-based pricing
- Per-storage pricing
The model you choose will be based on the type of software you sell. Look into these pricing models in greater depth to decide which one is best for your SaaS.
Tip 5: Market Your SaaS to the World
As we talked about in our article on SaaS valuations, it’s important as a SaaS owner to consider your acquisition channels, which are marketing mediums through which you acquire customers. These channels drive your business forward, and without them, your business will slowly fail.
Some examples of acquisition channels for SaaS businesses are:
- Search engine optimization (SEO)
- Facebook ads
- LinkedIn ads
- Content marketing strategies beyond SEO (i.e. collaborations with other brands)
- Affiliate programs
- Outbound sales (recommend only for high-ticket, enterprise-style SaaS)
The best acquisition channels for SaaS businesses are those used predominantly for business-to-business (B2B) outreach. Finding these channels isn’t hard, as there are plenty of them – but using them to market your business can be difficult.
If you’re not skilled in marketing, we recommend focusing on just one acquisition channel initially. Sticking to one channel may cause you to lose money at first, possibly even for a couple months, while you learn how to use it to its fullest potential, but testing out campaigns is necessary to establish the longevity of your business. When you get that marketing channel working, you can consider extending your outreach to other channels.
Tip 6: Maintain Your SaaS
Once clients start using your SaaS, bugs and glitches will start to occur, so you need to keep tabs on your software’s functionality. In addition to monitoring support requests and customer feedback, you should test out the software yourself to make sure it’s working properly or hire VAs to test it. If you can’t afford VAs, test through a user testing service like UserTesting.com.
On top of tracking the functionality of your software, you should also track your SaaS business’ performance.
You can track a number of metrics, including your customer churn rate, the usage of your software features, and customer engagement. You can find out more about what metrics to track to build a powerhouse SaaS business in our article on the top 10 SaaS metrics.
Once your business is firing on all cylinders, you can sell it for a huge payday if you’d like to move onto another project or stage of your life.
Build to Sell
If you build your SaaS business with the aim of selling it one day, you’ll receive a bigger payout when you exit.
Building your business to sell will actually help you create a more solid and reliable business.
You can start by tracking your traffic levels, which will tell you how well your site converts visitors into customers. If you have low conversion rates, you should consider redesigning your website, or you’ll continue to leave money on the table.
You should also create standard operating procedures (SOPs) for all operations required to maintain your business. Not only will this make it easier to train VAs and other staff, it will make it easier for a buyer to take over your business’ operation, therefore making your business more desirable.
Your profits and losses (P&Ls) should also be tracked to make sure your business is actually profitable: the number one rule of a business is that it must make more money than it spends. Creating P&L records helps you prove that your business performs as well as you claim.
Finally, when migrating your business to a buyer, you must have the rights to the software, as you’ll have to hand ownership of the source code over to the buyer.
You can find out more about building a business to sell in our article on preparing your business for sale.
If you do everything right from the beginning, you’ll save yourself a lot of heartache and a lot of money, and you’ll make more money when you decide to sell your business – money you can invest into a new business or personal project.
If you want to see what price SaaS businesses are currently selling for, head over to our marketplace.
Your own business could be up there one day.