One of the major concerns for most SaaS development services is the term of ‘profitability’. There are myriads of myths related to profitability in SaaS, especially presumed by ISVs (Independent Software Vendors).
Many SaaS services provide at least one subscription-based SaaS version of their software. In this blog, we are going to look at some of the most common myths that are assumed to contribute towards profitability. But truth begs to differ.
Let’s begin:
- Huge Volume of Customers
It is good if your SaaS development company has high volume of customers. You need to have more customers in order to reach a threshold value needed to maintain running costs. But that does not necessarily relate to profitability.
There are many examples of companies who have loads of customers, yet reported major losses. Salesforce had large of customers, but witnessed nearly $232 million loss back in 2014, along with $2.5 billion debt reported in their balance sheet.
- Copying Pricing Models
Many SaaS vendors think that copying pricing models of competitors will derive profits, even if they quote low subscription fee. But the reality is, SaaS companies need to set up right cost for their SaaS model that will attract relevant, target customer base- even if it’s higher than competitors.
How are you going to know whether low subscription fee will reap maximum profits for your SaaS model? Ever thought why are your competitors providing such low subscription fee? How do they endure it?
SaaS providers need to ponder upon these questions and find a solution, rather than just copying the pricing.
- SaaS profitability is impossible without investment
Most popular myth about SaaS profitability is- ‘Scaling in SaaS is difficult and slow.’ Many tech experts believe that it’s nearly impossible to scale a SaaS business to $1 million and even harder to $10 million. By the same token, one might think that bootstrapping a SaaS business is bizarre. But the truth is, it’s not!
There are many SaaS companies out there that are bootstrapped and profitable.
Certainly, scaling SaaS companies is challenging, but there are many examples of bootstrapped companies that have succeeded. So the myth is false.
- Product has to be 100% technically-sound
Indeed, your SaaS product needs to be solid and stable- but it also has to be a scalable solution from deployment viewpoint. For precise execution of your SaaS model, it is necessary to have a product that is scalable and economical, rather than just being technically-sound.
- Reducing burn will automatically derive success
Another common myth: Startup SaaS Company must keep their burn down to survive and be successful. But will reduced burn automatically result in success? Startups need to embrace a balanced middle way when it comes to initial capital. Don’t underspend and don’t overspend as well! Reducing burn is not an ideal way to success.
Takeaway
SaaS companies consistently need to optimize operational aspects of their SaaS model in order to keep it economical. Fine tune your operation models for better profitability, even if it’s a small change. Because, even minute transformation in your operating can bring about great savings. Make sure you work on business aspect as well as technical & functional aspect of your SaaS product to eradicate profitability myths in SaaS.