As new technologies emerge and customer needs rise, the Software-as-a-Service industry changes to meet the market’s needs. This means that SaaS businesses also have to deal with a new set of challenges. They must establish loyal customers and keep a steady flow of customers coming in.
A new study has found that about 90% of SaaS startups fail by the end of their third year. The part that makes you cringe is where it says that only 2% of the businesses that have survived are actually making money.
To thread safely and avoid being part of a bad statistic, enterprise SaaS startup owners need to know the most common challenges they face and the best practices for SaaS security when starting their business. Then, if you can commit to the necessary planning and growth strategies, you should be able to overcome most of these challenges. But before we dive deep, let’s take a brief look at what SaaS means.
What is Software as a Service (SaaS)?
SaaS stands for “Software as a Service.” It is a model for distributing software that calls for cloud providers to host applications that end users can access over the internet. In short, the user can get the resources they need through the web or a web browser while the provider handles security and the infrastructure. There are many good things about the SaaS model. It costs less than traditional software models, especially since it doesn’t need software and hardware infrastructure maintenance. It can also be done in a timely manner, and its users don’t need to be skilled in IT.
SaaS is one of the main types of cloud computing, along with Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) (IaaS). SaaS products range from IT tools to personal entertainment services and are used by business owners, IT professionals, and private users.
A report from McKinsey & Company showed that analysts in the technology industry expect the SaaS market to grow to about $200 billion by 2024.
What is Software as a Service?
SaaS works with the cloud delivery model. A software provider can either host the application and related data using its servers, databases, networks, and computers. An ISV could also hire a cloud provider to host the application in the provider’s data centre. Any device that can connect to a network will be able to use the application. Most SaaS apps are accessed through web browsers.
How Does SaaS work?
SaaS is delivered via a hosted platform. In the past, software was installed by loading files onto the hardware of the user or the administrator. But most organizations no longer deal with owning virtual hardware tools. Instead, they use virtual machines in some data centers. This makes it easier for them to do some of their jobs and still implement and maintain software.
The main goal of SaaS is to reduce it cheaper and faster to set up. You don’t need to install the software on the computer you’ll be using it on. It lowers operational costs, lowers operational risks, and gives known operational costs for the whole length of the contract.
Common Business Challenges for SaaS Companies
1. Bad at bringing in money
Because of the high costs of running a SaaS business, it needs to make enough money to cover basic costs and make money. This can be done by pricing products correctly, coming up with targeted marketing campaigns, and finding the right mix of inbound and advertising marketing. You can price your product using a subscription model or offer a free trial with a monthly or annual subscription. You could also add options for discounts when people buy in bulk.
And most importantly, it’s more profitable to focus on keeping your customers than on focusing on new ones. Some strategies are giving great customer service, making a loyalty program, building a strong brand, and staying in close touch with your customers.
2. High costs of management
SaaS business owners must manage their costs well to keep costs down, outsource jobs that aren’t essential, and automate tasks to make more money. Costs can be cut by renegotiating contracts and removing fees and costs that aren’t needed.
You can save money on office space by moving to a cheaper location, renegotiating contracts with vendors, or finding ways to reduce marketing costs. You can also cut costs by automating billing and invoicing.
3. Insufficient Capital
SaaS business owners need to make aside enough money to cover the business’s recurring costs. You can do this by taking investors or by selling debt or stock. Through equity crowdfunding, a company can sell shares to investors.
Suppose you are thinking about taking investors, issuing equity or debt, or selling a part of your business to investors. And you can talk to banks and other financial institutions if you want to borrow debt. Before taking a loan, look into low-interest options and try to get money in other ways.
4. Not growing quickly
Many SaaS businesses need help to grow fast enough to meet customer needs. You can automate tasks, use the right tools, and find the right people to hire. You can also save money by automating how you sign up customers, find leads, and bill them.
Your business needs to have the right people on business, as they will help it grow. Using the right SaaS business tools, such as marketing automation software, customer relationship management (CRM) software, and project management tools.
5. Bad model to set prices
Creating the right pricing model for a SaaS business is one of the hardest things to do. You’ll need to look at the products of your competitors’ products, the value of your products, and how willing customers are to make the required price.
Try using a different pricing model to see what works best for your business. Some common pricing models for SaaS businesses are based on features, subscriptions, and how often customers use the service.
6. A bad way to handle churn
Customers leaving SaaS businesses is a big problem. It’s the number of customers who cancel or don’t renew their subscription. Cobloom says the average SaaS churn rate is between 5 and 10%. This means that 5–10 of every 100 customers will cancel their subscription every month.
You can do several things to keep your customers happy and keep your churn rate low. For example, you can provide great customer service, offer discounts and loyalty programs, and regularly reduce new features and updates.
You can also reduce churn by dividing your customers into groups and focusing on the ones who are most likely to leave. For example, you could offer a discount to customers about to cancel their subscription.
7. Hard to build up a customer base
SaaS businesses need to focus on building a solid customer base. To get customers, they need to offer a good product or service that solves a real problem for their target market.
Also, SaaS businesses need to have a well-thought-out plan for marketing and sales that will get people interested in their product or service. This can be done by giving free trials, creating sure the content is useful and making the brand interesting.
Free trials give customers a chance to try your product and see if it meets their needs. Providing useful content helps to build trust and shows that you are an expert in your field. And finally, if you make your brand interesting, potential customers will want to join your community. You can establish a strong customer base that will help your SaaS business grow by focusing on these three things.
8. Hiring the wrong people
As your SaaS business grows, you’ll need to hire more people to help with the extra work. Finding people with the right skills and experience can take time and effort. Posting your job openings on job boards and other online resources is the best way to find good candidates.
You can also find candidates through social media. For example, post job openings on LinkedIn or Twitter. You can also use Google to look for possible candidates.
When you find a few good candidates, it’s important to talk to them in person. This is because there are many different types of personalities and work styles.
You’ll want to ask the candidate questions like:
- What are your strengths?
- What are your weaknesses?
- What do you think is the most important thing for this job?
- How would you describe yourself as an individual?
9. Not having enough money in the bank
As your SaaS business grows, you might need to raise money to help pay for it. This can be done by selling shares or debt or taking on investors.
If you want to issue equity, you can sell your company’s shares to investors. Usually, this is done by a method called “equity crowdfunding.”
You can get into debt by taking money from banks or other financial institutions. You can also get money by taking investors. This can be done by giving investors stock or debt or by selling them a piece of your company.
10. How hard it is to keep customers coming back
SaaS businesses need to keep their customers happy and coming back for more. This can be done by offering great customer service, discounts, and loyalty programs and by putting out regular updates and new features.
To keep customers happy, you must provide great customer service. You can quickly answer customer questions, offer live chat support, and fix customer problems.
You can also keep customers coming back by offering discounts and loyalty programs. For example, you could offer a discount to customers who refer a friend or make a loyalty program where customers can earn points for every purchase they make.
And finally, adding new features and updates to your product on a regular basis will help keep your customers interested in it. This can be done by setting up a beta testing program, regularly launching new features, and sending your customers email updates.
How to judge success
So there it is! These are the 10 most common problems that SaaS businesses face. But SaaS businesses need to keep track of their progress and measure their success to ensure they are on the right track while working hard to overcome these problems. Here are some important metrics for SaaS businesses to keep track of:
- Money that comes in every month (MRR)
- Rate of customers leaving
- Customer lifetime value (LTV)
- Average revenue per user (ARPU)
- Net Promoter Score (NPS) (NPS)
Don’t worry if you need to learn how to track these metrics. There is a lot of software and tools that can help you. Just do a quick search online, and you’ll find a lot of choices.
Check out our guide on the 7 most important SaaS marketing KPIs you need to track.
Lastly, by understanding your finances, you can determine where your money is coming from and going. This is important because it can help you better spend your money.
You can keep track of your finances using software like QuickBooks or FreshBooks. Using their services, you can easily manage your income and expenses and offer different reports that can help you understand your financial situation.
One Last Thought
SaaS is a great way to start a business and grow it. It has many benefits, such as recurring income, lower costs, and a business model that is easier to predict. SaaS applications are now used by about 85% of businesses.
As with any business, there will be problems that need to be dealt with. The 10 challenges we’ve faced in this article are some of the most common ones that SaaS businesses face. But there are some challenges you need to be aware of, like customers leaving and the need to raise customer.
Even though there are challenges, SaaS businesses can be very successful if they are well-run and have a good business model. If you want to start a SaaS business, research and develop a good plan.
Check out our blog for more advice on how to grow your SaaS business. We have a lot of articles on topics like marketing, sales, and making new products.