A SaaS company is a company that hosts an application and makes it available to customers over the internet.
What is SaaS?
SaaS stands for Software as a Service. This infers that the software sits on a SaaS company’s server while the user accesses it remotely. This definition can apply to a lot of software companies in this day and age, obviously.
The SaaS Business Model: How a SaaS Company Works
A SaaS company maintains servers, databases, and software that allow the application to be accessed over the internet — most likely by web browsers. Users can access the software from almost any device.
SaaS customers usually pay a subscription fee— often monthly — to access the application. Some subscriptions are based upon how much data needs to be stored, the number of users who will access the application, or the level of technical support desired.
Examples of SaaS Companies
SaaS companies can handle just about every business function. Some of the more popular types of SaaS applications available include:
- Customer resource management or Customer Relationship Management (CRM) — These applications allow SaaS customers to manage customer information and track sales through their pipeline.
- Enterprise resource planning (ERP) — This is a system of many SaaS applications most suited for big organizations.
- Accounting and invoicing — Some SaaS companies focus on billing and invoicing services. Others offer a full range of financial tracking and reporting services.
- Project management — Software can help collaborators communicate and stay on track.
- Web hosting and ecommerce — Remote servers can handle everything a business needs in its online presence.
- Human resources — SaaS companies can offer tools to track employee hours, manage payroll, schedule and manage the hiring process.
- Data management — SaaS products can help analyze and secure a company’s data.
Many B2B companies offering software applications like marketing automation, Email marketing, social media marketing, sales automation, and more. These companies can also be divided into different categories of SaaS, such as multi-tenancy vs single-tenancy.
While many large technology companies are not "SaaS companies" they often offer SaaS products, such as Google Workspace, Google Cloud, and Adobe's creative cloud.
Benefits of SaaS Companies
A SaaS company’s major selling point is how much more efficient it is to use their centrally managed applications rather than installing software onsite. This means SaaS customers can realize the following benefits:
- Cost savings — Most SaaS companies charge a subscription fee that helps spread out the cost of the application over time. SaaS customers have lower initial costs because they don’t need to invest in expensive hardware to host the applications as they offer cloud services.
- Low-effort updates — SaaS companies maintain the software and update it when needed. SaaS customers do not need to install any software or install patches and updates.
- Mobility — In theory, SaaS customers can access to their systems from any device or location. This is very useful for workforces that are not confined to a central location or office.
- IT expertise — SaaS companies invest in the IT needed to troubleshoot and maintain applications so their customers don’t have to. Also, SaaS companies have the resources to maintain system reliability and data security better than customers with limited IT budgets.
- Scalability — If a SaaS customer needs to expand capacity or add users, it doesn’t need to purchase new hardware or install new software. A SaaS company can increase capacity quickly with cloud technology and cloud storage, but it most likely will come at an increased subscription fee.
Risks of SaaS Companies
A great promise of SaaS companies is that they can handle infrastructure and maintenance so their customers don’t have to. That means a third party will be responsible for basic business functions. That entails some risk.
- Pricing — While system flexibility is a key feature of SaaS companies, their contracts may not be so flexible. Having SaaS services on demand can be costly. Scaling back to less expensive options or cancelling the contract may not be allowed. And upgrading capacity or access could come at a steep price increase.
- Downtime — Being able to use a SaaS application and accessing the data depends on the reliability of a third party. The SaaS company's downtime could be your downtime.
- Security — Data security is in the hands of a third party. There are SaaS companies that don’t comply with security standards and aren’t transparent about security. Also consider that allowing users remote access with any device can increase convenience and vulnerability to unauthorized use.
- Solvency — A crucial aspect of the SaaS customer’s business depends on the SaaS company staying in business. If the vendor goes out of business, access to the SaaS service and data could be cut off. In the best-case scenario, the SaaS customer needs to find a new SaaS company and migrate the data.
- Aggressive Sales Team / Marketing Team - Depending on the company some SaaS software companies will have aggressive sales teams trying to upsell users.
- Customer Services - Again depending on the company some SaaS software providers will have limited customer service offerings.
Best Practices for Choosing a SaaS Company
SaaS companies work very hard at making their applications easy to use for users. And they try to make it just as easy to purchase their SaaS products. Perhaps too easy. Slow the process down and consider some best practices for choosing a SaaS company:
- Find out what happens when you are no longer a customer. Can you get your user data back in a standardized format easily?
- Test customer support. Just how good is it when you’re a paying customer? How focused is the company on customer relationships and customer experience (you can even ask about customer retention rates).
- Get as much training and migration help as possible. Or use it as leverage in negotiations.
- Find out what is the backup plan. Nothing is bulletproof. There will be downtime. Have a plan for when the system is unavailable.
- Look for data vulnerabilities. Speaking of vulnerability, does the SaaS company offer strong defense against hackers and data breaches?
- Understand the prices. Look for hidden fees and what kind of usage will trigger a higher subscription tier.
- Make sure your systems are compatible. The promise of SaaS is functionality on any device used anywhere. But does the application really work with all browsers or phones?
SaaS companies can provide needed business services at a low cost. Due diligence will help ensure the user experience matches expectations and promises.
Once You Find a SaaS Company
Even if you find the perfect solution, there is a chance you won’t use it to its full potential. For complicated software, there is often a learning curve. There are a number of steps to take for each new tool your company uses.
- Utilize educational materials — Most SaaS products have tutorials, knowledge bases and other material to help users get the most out of the product.
- Speak with the onboarding team — The next level is to get on a call or video conference with a rep(s). Make sure key members of your team are there, too.
- Consider third-party setup — Some SaaS tools are so complicated, having an outside contractor set everything up is ideal. The company may also offer this service.
- Get the team onboard — The right tool paired with education and ample communication will make adoption easier, but all change takes effort to make it successful.
- Re-evaluate use at regular intervals — After a few months, it’s a good idea to see if the software is doing what you hoped it would. This is a good, regular practice for every tool your company uses.
SaaS companies can provide needed business services at a low cost. Due diligence will help ensure the user experience matches expectations and promises.
