How SaaS Models Reduce Risk and Improve Cash Flow

How SaaS Models Reduce Risk and Improve Cash Flow

In traditional software sales, companies take on massive risk with each release. Before seeing a dime in revenue, they must pay for all development and marketing costs and then hope customers will buy. By switching to a software-as-a-service model, you can smooth out your risk and cash flows to increase your chances of long-term success.

Surviving Development Stages

Software developers face two key problems with any new software or major release -- will customers buy and will the developer have enough funding to complete the project? SaaS models solve both of these problems.

In terms of whether customers will buy, releasing an early beta version, even with limited features, will help gauge interest and determine if the project is worth pursuing to completion. Additionally, getting early customer feedback can help the developer adapt the software to actual consumer demand rather than what the developer thinks consumers are looking for.

If a developer has funding concerns, the SaaS model provides two advantages. First, the developer can charge a reduced rate for the early version or for special features rather than waiting for the completed product to start bringing in revenue. Second, even if the beta version is free, having a solid user base will make it easier to raise money from investors.

Overcoming Barriers to Entry

The two biggest friction points in getting customers to adopt new software are the hassle of switching and the upfront costs. SaaS developers have the benefit of allowing extended trials without incurring the cost of shipping physical software. This allows customers to explore the benefits of the software at their own pace rather than relying on a hard sell to get them to switch immediately.

Once the customer has decided the software is useful, it's much easier to get them to agree to a small monthly charge rather than a lump sum in the thousands or tens of thousands of dollars.

Selling Updates

Traditional software developers can become victims of their own success when customers like their software so much that they see no reason to upgrade to a new version. This creates a situation where the developer's revenue declines over time and makes new releases almost equivalent to launching a new piece of software to a new customer pool.

With SaaS models, updates become priced in as an added benefit rather than as a separate purchase. By keeping their users happy and adapting to their needs, developers can rely on a steadily increasing revenue stream instead of watching revenues rise and fall based on new sales volume.

Reducing Decision Points

Another sales tactic embedded in SaaS models is reducing the number of times a customer will have to make a decision. When software is only supported for a fixed period of time or has to be updated when an operating system is updated, the customer may choose to switch to a competitor. Similarly, if a customer has increased or reduced needs that require a different software version, the customer could again decide to switch to a competitor's software.

SaaS models are based on recurring service that just keeps working. With automatic updates and billing, the user never needs to think about if they're going to buy the software again. And with multiple-tier subscriptions, the user can add features with the push of a button rather than taking the time to explore competing software. In short, as long as you keep your users satisfied, the easiest and most likely thing for them to do will be to stick with you.

If you're ready to lock your users in, improve your cash flows and reduce your risks, contact us today to learn more about how you can switch to a SaaS model.