SaaS startup business model

The Three SaaS Startup Business Models That Work – Pick One and Avoid The Graveyard

SaaS startup business model

It doesn’t matter whether you want investment or you bootstrap, as a company owner you have to decide which is the right go-to-market solution for you. Choose wrong and you will fail. So here you is your chance: read the 3 types of solutions and pick one working SaaS startup business model.

Price & Complexity – the two agents that define your SaaS startup business model

First and most important thing is to examine your software’s price. Is it high? Is it low? It matters for your prospects and for you as well naturally and will define your SaaS startup business model.

If you have high prices (for instance your clients pay you half million USD per sale) you have to manage a lot of things. It requires high commitment from you customers, which needs high trust level in your company, which means personal meetings and less number of deals in a certain period of time.

But if you have lower prices (for example 99 USD/month) you don’t have to meet your prospects personally. Because it requires lower commitment from them, therefore you don’t need high trust level so you can automate your processes to bring in high volume and do business almost automatically.

What happens, if it is difficult to understand your product easily for a customer? In case of a bigger ERP system, you need your prospects to change their processes. So it means that the velocity of your sales will be less: I mean converting prospects into customers will take much longer which will result in less number of closed deals. The higher cost of acquisition, more support work and so on.

But if your product is simple, easy to understand the real value of it and your prospects can easily use it, your sales cycle will become much shorter. You will have more closed deals in a certain period of time, less support work, lower cost of acquisition and so on.

You see?

If your product is more complex, you have to ask for more money and you will end up in less closed deals.
If your product is less complex, you can have lower pricing strategy and in return, you’ll have higher sales volume.

Sounds logical, eh?

Joel York – who is the father of SAAS startups in the Bay Area – visualized this below (you don’t know him? Click here, he is awesome):

saas startup business model

Joel says that if you know the price and complexity of your SAAS product you’ll know which SaaS startup business model you should choose.

  • For high price and high complexity, you’ll choose the enterprise path.
  • For high price and low complexity, you will choose the transactional strategy.
  • For low price and low complexity, you will choose the self-service solution.
  • For low price and high complexity, you will simply die. Sorry.

Do marketing, do marketing&sales or do only sales?

So it’s clear that if you have a product with high complexity, you won’t go with low prices, isn’t it?

Great! But what about the other three solutions? What is the best SaaS startup business model for you?

Some Saas startups should choose traditional sales because the value of a customer is very high and the product and buying process is very complex. Examples can be Netsuite or Passkey.

Sales reps are the stars here, usually focused on a narrow set of target. Marketers are responsible for brand awareness, education and trust building. They have a technical support team that focuses on trainings and onsite works.

Trainings

Those companies who have higher priced but still low complexity product will choose to have a sales team that is supported by a great marketing team. It’s because if you have high prices, your customers will want more personal attention and the relationship will need even personal meetings. Good example of this type of company is Zendesk or Xignite.

The marketing team is responsible for creating highly qualified leads for the sales team and passing to them when the time has come. They usually use automation to fill their funnel with as many leads as it is possible. Sales reps usually also use automated solutions, they are supported by internal trainings and metrics. They usually have lots of closed deals.

Sales automation

The self-service solution is very good because your customers understand the value of your product, know how to purchase it and how to use it. The perceived risk of using this type of product is very low and can be easily adopted even by a manager, a company owner or a marketer (etc.).

These companies don’t have sales reps – they don’t need them. They have a marketing team (or person) who is responsible for the whole revenue. These marketers or company owners are the heart of the sales process: they create awesome contents and automate as many things as they can to save time and improve effectiveness. It’s not surprising that lots of companies try to go with this types of saas startup business model.

email marketing automation

Your strategy defines your needs

Thank you, captain obvious!

But I assure you – although it sounds superficial and broad – it is a very good point.

Because the more sales you want to close the more you have to automate your processes. Automating social media activities, communication channels, billing, and so more will bring you closer step-by-step to the magic “unicorn” state.

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