Before we do that though, it is important to make a note that valuing a Saa S business can be a little different than other business models that we’ve covered.
This is because the huge reinvestment often needed to grow a Saa S business can eat through all the profits, causing many people to buy Saa S businesses based on their confidence in continued, stable growth.
Click Here to Download the FREE E-Book Detailing All 11 Online Business Models As you can imagine, this is incredibly attractive as a service.
Business owners that do not want to invest huge sums of capital in creating an IT infrastructure often use a Saa S solution, and that Saa S solution often becomes incredibly integral to their businesses – such as sales teams using Sales Force or customer service departments using Zendesk.
While certainly smaller than Sales Force.com, Edgar has become quite the heavy weight in the social media Saa S niche and is worth watching and modeling other Saa S businesses after. Zendesk is a customer service ticketing system famous for its usability by small, medium, and even large businesses to better take control of their customer service and ultimately give the end consumer a much better experience.
The beauty of the Saa S business model is that your customers can become insanely loyal to your product.Software-as-a-Service (Saa S) is a relatively new business model and yet another model that literally could not exist without the internet.The premise of the software-as-a-service or Saa S model is that a piece of software is hosted on a cloud infrastructure (i.e., operated through a web browser), and businesses pay a monthly fee to get access to this software.The Saa S business eliminates this risk for the client that is using the service for their business, who usually only pays a small monthly membership fee.Though there are many ways for a Saa S business to earn money, typically the bread and butter of a Saa S business is going to be its recurring membership revenue.It automatically fills up a social queue and also allows posts to be be recycled over time.It operates on the premise that, since most social media posts will not be seen organically by those following someone’s Twitter feed or Facebook page, the content can be recycled and exposed to more of that business’s audience over time.One of the phases that is often not talked about, though it is one of the major stress periods for a Saa S business when they either make it or break it, is known as Hypergrowth.Let’s dive into the three phases: Many Saa S products are actually quite good, but the inability to manage hypergrowth is something that many businesses suffer from, which can cause many to fail as well. This will tell you how much you will make from your customers (their lifetime value) which will tell you your expected revenue. Understanding all of these costs will help you determine your fixed costs. Since few businesses are profitable on day one, knowing how long you can last until you reach profitability is a key fact. Cost includes not just servers and software, but your time, insurance, taxes, etc. This is the all important final question, because it tells you how much you can invest before the business needs to be profitable.