The SaaS Business Model
The SaaS Business Model Canvas Overview
- - Value Propositions
- - Customer Segments
- - Revenue Streams
- - Customer Relationships
- - Channels
- - Key Partnerships
- - Cost Structure
- - Key Activities
- - Key Resources
|The Business Model Canvas Prioritized for SaaS Businesses|
1. Value Propositions
- - Revenue
- - Industry
- - Number of employees
- - A product or technology they rely on
- - The process or techniques they use
- - The markets they target for their own sales
- - The job title or role
- - The behavior they exhibit
3. Revenue Streams
- Advertising. While it's relatively easy to plug in an advertising system to generate some revenue, this model requires that ads displayed from your products convert well for the advertiser, and that you can serve a lot of ads to a lot of users. Platforms as YouTube, Twitter, Google, and Facebook, along with many other free-to-download apps and services have grown mostly by advertising. You need a large user base with significant time engagement on your offering to generate significant revenue.
- Subscriptions. This model would be the best match for your SaaS, PaaS, or IaaS business. It also applies to on-demand streaming services, such as Netflix, Spotify, or any online publishers, such as the Wall Street Journal. The monthly cost, when it's paid, and the length of the contract can vary substantially among businesses and deserves continuous testing.
- Sponsorship. If you’re a small team of developers providing a useful, engaging, and preferably unique service, donations may be a way to go. A PayPal donate button can help pay the bills.
- Freemium. It’s a no-brainer why this model is so extensively used by a number of web services. By attracting an audience to the basic set of features, you provide the paying customers (another Customer Segment) premium features. Freemium is great for getting customers to try your product and decide if they like it. You must have a solid strategy and testing to discover how to convert these users to paying customers. Because of the free entry price, this revenue model can result in a lot of churn from non-ideal customers.
- Fee-based. This model requires a large pool of users who find the service valuable enough to pay a small fee. These fees can be either percent-based or flat and allow for easy income calculation. Venmo, Lyft, Stripe, and online marketplaces use this model.
4. Customer Relationships
- Personal assistance. This category includes face-to-face contact, live support and concierge onboarding. Make sure your customers can contact you at any time prior to or after the purchase, and make sure the contact channels are appropriate to the customer segment.
- Self-service. This type of relationship is often used for B2C models and has also been leveraged in B2B successfully by companies like Slack and Atlassian. Except for automated updates and onboarding guidance, you don’t usually communicate with your users in this case.
- Automated service. This is how Netflix and Spotify maintain relationships with their customers. By providing AI-powered recommendations of movies and playlists, the services imitate human interaction and keep customers engaged.
- Communities. When customers leverage information from other customers then your model may be community. LinkedIn and Twitch.tv are examples.
- Co-creation. User-generated content is big factor in the growth of the Internet. Anyone who’s uploaded a video to YouTube or a story on Medium has contributed a service. The role of the company, in this case, is to precisely match content creators and content consumers.
- App Store / Marketplace. The advantage to this channel is that you are riding on the marketing investments of another company. The Apple App Store or SalesForce AppExchange are leading examples. These stores give you visibility without a lot of work, but they can also be difficult to stand out and can take a significant percentage of your sales. Posting in a marketplace is just the beginning, be prepared to invest in it to stand out and make it successful.
- Direct Sales. Having your own sales team to call on customers face-to-face will have a high CAC, but is powerful. You control exactly what is happening, retain 100% of your revenue, and build deep relationships with the customer. In B2B SaaS Business Models, this is often used. In Enterprise SaaS it's very common because the customer expectations for custom integrations, data sharing and support require close relationships and trust. If you have a high Life Time Value (LTV) and low churn, then this model may be appropriate.
- Indirect Sales. When you don't require face to face relationships to close deals and deliver customer satisfaction, an inside sales team can be your answer. Indirect teams pursue inbound leads and outreach through email, voice and other means. An indirect sales team can be the right solution with a lower CAC for customers with lower LTV than Direct Sales. There is a growing set of acronyms being used to describe these teams including Sales Development Representatives (SDR), Business Development Representatives (BDR) and Inside sales.
- Product Led Growth. This technique requires close coordination with your products and engineering teams. PLG means making your product sell itself. Building in upgrade paths or features that virally spread of the use of the product is the sales function. Products like Atlassian, Slack and other collaborative systems are natural examples. Inviting people to join a conversation is the virality that exposes more people to Slack. Every Zoom customer introduces Zoom to everyone they bring into a conference call. Designing virality into your product can be very effective for a low CAC expansion.
- Resellers. There are many organization that will resell your product using their own sales teams. They may ask anywhere from 30% to 60% of your revenue for deals they sell. In some cases, this can be a strong channel. It works best when the reseller is wrapping professional service around your product installation, or is a specialist in a market where you have little access. As your primary channel, Resellers require a great deal of care and feeding. It's notoriously hard to motivate someone else's sales team to sell your products especially if they have their own products to sell. It's also a challenge to forecast sales because a reseller will often resist committing to your sales goal.
6. Key Partnerships
- Supplier: A 3rd party that you rely on for an API, component, or technology to deliver and support your own product. Especially if the 3rd party has a unique offering or you have integrated with it in ways that are expensive to change.
- Resellers and distributors: A 3rd party that is a core part of your sales engine and takes a commission on the sale. Sometimes they may offer additional products, professional services and tier 1 support.
- Strategic Partners: Often your customers expect an entire experience to solve their problems and you only deliver one part. For enterprise SaaS, the integration and support teams to hold the customers hands and deliver a customized production solution are part of the customer experience needed to close a sale. Without other components, your product may not deliver the complete solution your target market expects.