So you have a killer idea for a software-as-a-service (SaaS) business but don’t know where to start? You’re not alone. Developing and launching a successful SaaS business is no easy task, even for experienced tech entrepreneurs. But with the proper planning and execution, it’s doable.
I have experience in launching and managing six profitable SaaS businesses. In this guide, I will walk you through everything you need to know to get your SaaS business off the ground, from coming up with an idea to hiring your first employees. Let’s get started!
SaaS Business
SaaS stands for Software as a Service. The software business is not only for software engineers. We have tried to make it easy and actionable for non-tech beginners.
Do you know that hundreds of millions of entrepreneurs worldwide start their businesses every year? So the total number of startups that spring up annually is more than 300 million.
However, these vast figures do not mean that growing a business is easy. Still, you can avoid being among the 90% of startups that fail if you engage in the best practices for planning how to open a business in your chosen industry.
Based on the above statistics, one can wonder about the significant number of SaaS ideas being pushed into the industry to become startups. However, according to another study, there were over 15,500 companies in the industry by June 2020.
You can be among the many entrepreneurs that have decided to focus on this lucrative industry. Then, we will discuss how to make a plan to realize your SaaS ideas. Check the summary of the plan below.
About This Plan
This business plan is entirely focused on SaaS. We have covered the 5P of business: Product, Price, Place, Promotion, and People.
To give you a hunch on this plan, you can push specific SaaS business ideas into reality with as low as $1,000 as starting capital if you have access to the correct information.
Here, you will also know the answers to frequently asked questions (FAQs).
Planning is a critical stage of starting a business. It is 50% of your way to success. So, read the complete guide before drafting your business plan. If you are a non-tech entrepreneur seeking to start a software company (SaaS), you are in the right place.
SaaS Business Ideas
What is a SaaS product? As mentioned earlier, SaaS means software that is sold as a service. So you will not sell the codes but rather sell or rent the software as a service to the users.
Some examples of SaaS business ideas are listed on our resources page. For example, let’s consider an email marketing provider like GetResponse or social media tool like TailWind. Both of the software are distributed as SaaS. You pay a certain amount of money per month to get the service.
So, do you have any SaaS business ideas? If you haven’t landed on any specific idea, explore this article for top SaaS Companies. You see lots of known names, right? Your business can be cited as a successful SaaS company if you plan and execute properly.
SaaS Product Development
Now, how to make the SaaS product. As a non-tech entrepreneur, you should start with a product that doesn’t break the bank. You need to hire software engineers to start and run a SaaS business. But for the initial stage, take your product from Code Canyon.
Code Canyon is a marketplace for excellent quality software. You can get many SaaS products from that marketplace.
You have to be passionate about the idea to be willing to invest your time, energy, and money into it without feeling like it is all a great bother. This passion should be extended to your product search. What you are looking for should match your interest.
You can buy scripts and components for various languages and frameworks on CodeCanyon. Examples are ASP.NET, Java, JavaScript, PHP, and so on. Their prices vary based on factors such as usage and complexity.
Select the best suitable product for your SaaS business ideas using the following ways:
- Use keywords to search for a product you have in mind.
- Check the “Browse Categories” section to find a suitable product that matches your interest.
- Check the “Top Authors” section to see lists of products each software maker has created.
- Browse “Public Collections” to see lists of products that have been compiled based on specific interests.
- Check the “Best Sellers” section for the most popular weekly and monthly products.
- Finally, look at the site editors’ curated lists in the “Featured” section.
At Code Canyon, you will get the SaaS software with all the functionalities needed to make it your product.
How to Install Code Canyon Script?
What happens after you make a purchase on CodeCanyon? First, you need to install the software. You must have a VPS (virtual private server) and domain name to use with the site’s setup.
Digital Ocean is the best Cloud VPS provider if you are comfortable following code-based instructions on how to use their services. But as a non-tech entrepreneur, I guess you will find Digital Ocean with CloudWays as better and more user-friendly.
When you open the hosting service, set the VPS, and link your domain name. The next thing will be to create a MySQL (relational database management system) database for the application, followed by uploading script files to the server.
You will be required to install the modules to publish the website. This may, however, be optional, depending on the product.
Apache configuration is needed to publish the website. You can link to the MySQL database after that. Your next step will be to install cron jobs. Cron jobs are scheduled tasks involving a script or command running automatically at a set date and time.
Pricing Your SaaS Product
You have a product ready and running on your Managed Digital Ocean VPS with Cloudways. So what’s next on the journey of starting a software company?
You need to sell the software service. Pricing is a critical factor to consider for the sake of profitability. You need to get this variable right.
You can set your pricing when starting a SaaS business in any of the following ways:
- Freemium
- By features
- By features and users
- Freemium
This is the most popular type of plan—obviously, since it is free. Primary functionalities that the software should have been offered at no cost. This can be used as a marketing strategy to attract customers to your platform. Customers will be willing to test the software and then choose to upgrade the subscription to access more functionalities (advanced features).
- By Features
You can utilize a pricing structure that consists of a range of paid subscription plans. The pricing will be higher as more features are requested. For example, the pricing may start from a primary plan; followed by a plus plan; and stop at a premium, professional, or max plan. The names may vary depending on the service provider.
- By Features and Users
This means that the bigger the plan in terms of functionalities and the number of users, the higher the amount that will be paid. So, for example, a company with just 50 employees will go for a smaller plan than a company with 200 employees would use.
Pricing Strategy for SaaS
Starting a SaaS business means that you have to get ready for bigger expenses for sales. Though you can minimize the SaaS product development cost, you cannot ignore the possibility of other Operating Expenses (OpEx) and fixed expenses.
So, you need a proper pricing strategy. Follow these guidelines:
- Find out your variable expenses:
The variable expense depends on each unit of service delivery. For example, your cloud hosting is a variable expense. As the number of users increases, the cloud server will be used more. So, you need to pay more to the hosting provider. - List your fixed expenses:
The script that you have purchased from Code Canyon is your fixed expense. Therefore, you don’t need to pay for each service delivery. - Check Competitors’ pricing:
You are new in the market. So, you cannot ask for more than the prominent market players. So, check your competitor’s pricing and calculate the average price for each package. - Pricing Formula:
Now, you need to set your product’s price at around the market’s average price only if it covers your total variable expenses for that unit of product and covers part of your fixed expenses.
As the price is more than your variable expenses, you will be making money on every sale. That operating profit will be able to cover your fixed expenses within a few years.
Monthly recurring revenue (MRR) is vital to a SaaS company because survival and success are dependent on how much you bring in every month. Therefore, even if you are not expecting to make any real profit in 2 to 3 years (according to the financial projections in your business plan), you should always strive to break even.
The Place for Your SaaS Product
Place means the physical or virtual shop from where you will sell your product. It can be your website or social media platforms. There are many channels for sales. Read our article on lead generation strategies to know all the channels.
Entrepreneurs need to promote their products through the best possible channels. You can utilize some of the following:
- Website
- Social media
- Coupon sites
- Review sites
- E-commerce stores
- Emails
- Ebooks etc.
Promotion for SaaS Business
At this point, you have a SaaS product ready with competitive pricing and presence in several channels. You have planned on 3 of the 5P: Product, Price, and Place.
Now, it’s to promote your business. This is the critical phase, which is generating sales. Unfortunately, most start-up fails in this phase. In many cases, innovative ideas could not get acceptance in the market. So, you need to be more detail-oriented in promotional plans.
Based on the channels listed earlier, you can get to your potential customers through the following types of promotions:
- Paid advertising on e-commerce stores
- Website landing pages
- Target email marketing
- Social media marketing (Facebook, Pinterest, Twitter, Instagram, Quora, etc.)
- Search engine optimization (SEO) for platforms like Google
- Google ads
- Search engine marketing (SEM)
- Sales promo codes
- Expert views on Review sites
- Links in ebooks etc.
People to Execute Your SaaS Business Plan
Your SaaS business plan is almost ready. But will it work without people? No, you need people to execute your plan.
You need to hire people to work for you or handle specific tasks. Unfortunately, many new entrepreneurs think that he or they can do all the tasks. Just think of it, “If making a successful business were such an easy task, would it be a matter of the billions of people around the World?”.
Only the right people can make a business successful. But don’t focus only on hiring the right talent and invest in building a solid team to achieve set goals.
Start with a freelance team and at least one dedicated full-time team member as you are just rolling in the market. If you invest your whole time in this business, then hire people in all the business areas on a pay per activities basis.
You can find some of the best talents to handle tasks on freelancing sites such as Up Work. Ensure that you put an explicit clause about intellectual property ownership on each contract you offer.
Hiring freelancers is a good idea because of the advantages of a remote team, pay-per-activity, etc. In addition, there would be no need to worry about expenses needed for a physical office until you get traction in the market and earn good money.
You can learn how to hire on Upwork by watching this YouTube tutorial:
Finance Your SaaS Business Idea
You must learn how to start a SaaS business with an adequate budget. Knowing what expenses you may have to handle is the best way to be on the right track regarding your financial plan. Below are examples of summary tables for possible expenses in two phases of the business:
Summary Table for Initial Expenses
| Expense Types |
|---|
| Product Development |
| Legal |
| Insurance |
| Human Resources |
| Domain, Hosting, Security |
| Marketing |
| Equipment, Computers, Utilities |
| Rent, Lease |
| Taxes |
Summary Table for Monthly Recurring Expenses
| Expenses | Description |
|---|---|
| Overhead | This is also known as “general and admin.” It consists of the costs of daily business activities, e.g., utilities, rent, telecoms, wages, taxes, benefits, etc. |
| Cost of revenue | This is also known as the cost of goods sold (cost of providing your services), e.g., hosting, customer support, the software utilized, etc. |
| Sales and marketing | This is for the cost of marketing campaigns and activities to make sales. For example, sales payroll, marketing (advertising/promotions), software and tools, subcontractors, etc. |
| Engineering | This is for product development costs, e.g., research, development, engineering payroll, software, tools, etc. |
How to Start A SaaS Business
Before you learn how to start a software company, it is wise to decide on the type of product you want to offer.
There are so many SaaS business ideas to choose from—not forgetting that you can come up with a unique concept that nobody else has worked on. If you have a unique idea in mind, you should do everything possible to build on it as soon as possible before someone else beats you to it.
In starting a SaaS business, there are certain things that the entrepreneur should not take for granted. Therefore, it is advisable to get a good lawyer at the initial stage. For example, if you are based in the United States, endeavor to hire a law firm to register your business as a limited liability company (LLC).
Take note of the following ten tips on how to start the SaaS business plan in reality:
- Think of an effective solution for a problem that many people want to be solved
- Write a one-page pitch before drafting the leading business plan
- Ensure that your idea is feasible by conducting extensive research
- Look at how you can acquire customers with the suitable pricing model
- Establish brand uniqueness with a good (catchy) business name and suitable domain name
- Handle all legalities: For example, you can register as a C-corporation to be able to incorporate your business into the US without needing to reside there.
- Think about financing and all the funding sources you should try
- Begin with product development
- Once you have a finished product, you can move on to formulating a marketing strategy.
- Set your success metrics for a time frame: You must track them regularly.
FAQ
For better understanding, a few questions have been answered here. They pretty much cover important FAQs related to starting a SaaS business.
Software as a service company cannot be defined fully without knowing the acronym “SaaS”. Of course, you already know that by now. However, the meaning of “software as a service” is what needs to be figured out.
SaaS means that the software is available to the users via internet connectivity—accessed through a mobile app or browser. The software is hosted on the developer’s servers.
This is in contrast to what a desktop-based model comprises. The use of a desktop-based model entails the installation of software on computers by the individual or company while hosting on their servers.
In starting a SaaS business, you need to ensure that you have all the resources available, including technical expertise. You can hire people with the necessary qualifications if you do not have the skills.
Your business can be run successfully without you having the technical expertise. However, as a business owner, you should be interested in gaining more and more specialized knowledge as time passes.
For example, there are non-technical SaaS company founders like Lindy Ledohowski (Essay Jack) who had no technical knowledge about software or even about starting a website when they began their entrepreneurial journeys. You can also be as successful as them with the right team under your leadership.
Realizing the vision of your SaaS ideas can take a long time, depending on what your target is. It may take any time frame, from a few weeks to 10 months or longer, depending on what you are working on.
There are a variety of reasons a SaaS business would fail. One of the significant factors is the lack of a market. Your software needs to be able to solve an existing problem, or else it will be ignored. Also, you may be offering a solution to a problem that people do not count as necessary.
Another reason is the situation where there is higher churn than growth. Churning in the business world simply means the loss of customers or subscribers. So the company has to break even in the sense that the customer acquisition rate should be higher than that of the customer turnover (churn).
A third reason that also involves balance is the weakness of the business model. The lifetime value (LTV) should be higher than the customer acquisition costs—also known as the cost of acquiring customers (CAC). The opposite of this situation means that the organization is spending more than it is earning—meaning that you are running at a loss. Find a way to keep the CAC low while raising the LTV.
It is to your advantage if you are the first mover of a product. However, do you know that it has a disadvantage? Competitors can spring up after and then study your mistakes to achieve better results. Therefore, if you are a first-mover, you have to be very careful in avoiding mistakes by continually making advancements in your product offerings and providing top-notch customer service.
The best way to avoid the aforementioned factors is to implement robust management strategies with an efficient team. Product development should be supervised with expert eyes, and the best marketing practices should be embarked on. Lastly, having a solid management team means that you will be able to hire the best talent for your establishment.
SaaS products can simply be referred to as web-based solutions, hosted solutions, or cloud-based solutions because they are hosted on the developer’s servers.
Examples of SaaS include GetResponse, TailWind, SEM Rush, ShareASale, etc. Categorically, SaaS can be grouped into task-based apps, social apps, etc.
Since it is a highly competitive industry, you need adequate capital before starting your company. As stated earlier, initial costs can range from less than $1,000 to very high amounts depending on your product type. Funding sources such as venture capitalists can get you those large sums.
The industry is very profitable, provided you have what it takes to beat the competition and thrive. Apart from that, you need to push a product that has a sizable market. Take a look at the stats here as proof that the future is bright for SaaS ventures.
Related Articles:
Conclusion
Now you have 5P with Finance on how to start a SaaS business. From how you can begin developing your SaaS business ideas to the initial execution of a plan. However, you will need to learn more before moving to the market. The most crucial learning would be consumer behavior. Drop a comment if you have more questions in mind.
There you have it! Our guide on how to start a SaaS business from scratch. We hope this has been helpful and gives you the confidence to get started on your own SaaS journey. Remember, there’s no one-size-fits-all formula for success in SaaS, so don’t be afraid to experiment and find what works best for you and your business. Good luck!
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