Projections indicate that the SaaS industry will be worth $700 billion by 2030, and 99% of companies will have at least one SaaS solution installed by late 2023. These numbers prove that now is as good a time as any to launch a SaaS company.
Are you working on launching a successful SaaS business? If so, you’re in the right place. In this guide, we’ll share the best tips for how to start a SaaS company. We’ll also reveal what makes a good SaaS product, so you can hit the market with a solution your target users won’t hesitate to pay for.
Why Start a SaaS Business?
The SaaS industry is already highly profitable, and its profitability is still growing. This is due to the increased adoption of SaaS solutions among small, medium, and large businesses. For instance, companies used an average of 12 SaaS solutions in 2016. By 2021, the average number of SaaS apps used in businesses rose to 110.
More businesses using SaaS products means a bigger market, which you can get a slice of by introducing a SaaS solution that solves a pressing problem. Fortunately, unlike most industries, the SaaS industry has low barriers to entry. You can start a SaaS company with minimal upfront investment because you don’t need much physical infrastructure or a big team.
Combine SaaS’ recurring revenue model with low overhead costs, and you can expect potentially high-profit margins. The winning mix has contributed to projections of continued SaaS industry growth.
Let’s now dive into the secret sauce for starting a successful SaaS company.
How to Start a SaaS Company: The Idea
The first and most vital step to creating a successful SaaS company is coming up with a solution idea. Your idea must solve at least one existing problem, and an effective way to get such an idea is to look inward.
What pressing issue have you experienced at work or in your personal life, and what would solve it? Your answer to this question will be your idea that you can turn into a SaaS product.
If you can’t think up a problem to solve, you can look outward by actively listening to those around you to identify the problems they want to solve. For example, what recurring issue do your friends, families, colleagues, or seniors mention, and do you have a solution idea for it?
However, note that you can’t pick just any problem to solve. The problem you want to create a solution (SaaS product) for must be relevant and specific. Otherwise, you may have trouble finding a market for it.
The problem must also be long-term and recurring. Otherwise, people could eventually have no use for your solution, leading to negative results.
Product Development: What Makes a Good SaaS Product?
The next step in starting a SaaS company is developing your SaaS product. As we’ve mentioned, you need an idea first. The product must solve an existing and recurring problem. The more widespread or popular the problem is, the more potential users you’ll have, meaning a bigger target market.
But there’s more to what makes a good SaaS product. Besides providing a valuable solution to user problems, a good SaaS product must be:
Unique: It’s rare to find a SaaS product with zero competitors. Differentiate yourself from the competition by offering a quality product that delivers value and something unique. The unique element could be cost-effectiveness, customer support, or something equally attractive.
User-friendly: Regardless of how much value a SaaS product delivers, users will avoid it if it’s difficult to use. Create a SaaS product that the average user can quickly understand and navigate to experience value without assistance or extensive training.
Scalable: Users should have no trouble scaling your product to match their growing or shrinking needs. From your end, your product should also be able to scale to accommodate your user base and traffic as it grows. Lack of scalability will lead to users experiencing performance issues.
Reliable: Your SaaS product should be reliable with consistent uptime and speed. SaaS products with excessive downtime and service disruptions are untrustworthy, leading to high customer churn.
Validating Your Idea
Once you have a product idea, you should test its viability. Doing so ensures that you build a product that users want and will be willing to buy.
You can test your product’s viability by performing product validation. While there are several ways to validate a product, in our experience, the best way to do it is to build a product and have target users test-drive it. However, building a fully functional prototype of your product only to have users go, “No, thank you” is expensive.
A much more cost-effective strategy is to build a prototype that showcases your minimum viable product (MVP). If users show interest and positively interact with your MVP, it means people care about your product, validating your product idea.
Developing Your SaaS Product
After confirming that your target users love your product idea, you can start building your SaaS product. Start with a rough sketch that showcases how your product’s interface will look.
Your rough sketch will help you identify and eliminate unnecessary elements, plot user flows, and map how your product will work. Next, turn your rough sketch into a prototype: a product mockup with clickable elements.
This prototype will closely simulate the look and functionality of your finished product. With this prototype, you can iron out bugs and get user and stakeholder feedback regarding what to improve, add, or remove.
The prototype can then be used to develop the MVP (as discussed above). With the launch of an MVP, you can then gather user input and develop version one of your product.
Should You Develop Your SaaS Product Yourself?
You can hire in-house developers, freelancers, or a development agency to build your SaaS product. Hiring freelancers costs less, while in-house teams are more convenient due to their accessibility.
On the other hand, hiring a development agency is pricey, but you get expertise and a full-service team to handle all aspects of product development on your behalf. The right option for you will depend on your budget, how much expertise you need, and how hands-off you want to be.
Now that you know how to develop your SaaS product, let’s dive into how to start a SaaS company, including the six special ingredients you need to successfully build a SaaS company.
#1. Financial Plan
Starting a SaaS company costs money, and getting your return on investment can take a while. So, how will you get the money for your SaaS startup, how will you spend the money, and what will you do with your earnings? Your financial plan will answer these questions and more.
A financial plan is a written document that states your company’s financial goals and how you will achieve them. It’s basically a comprehensive roadmap for your company’s finances, and you can use it to track your progress toward achieving your financial goals.
Financial plans for SaaS startups typically detail revenue projections, cash flow, and expenses for specific periods. Without a financial plan, you may struggle with managing finances to ensure your business’s long-term viability.
Build a financial plan for your SaaS company by following this process:
Outline your financial goals: Specify the financial targets you want to hit and the timeframe to achieve each one.
Identify revenue streams: Revenue streams are sources of capital for your company. Since you’re a new company, you can generate revenue through pre-orders, loans, angel investments, and other sources.
Forecast future finances: Your financial plan should contain a forecast of your sales and revenue generation for the upcoming year. Effective financial forecasting requires identifying relevant data, such as target market size. With the data, you can estimate how many customers you’ll acquire and how much revenue each customer will generate.
Estimate operating expenses: Your business will incur operating expenses as part of its daily operations. Such expenses include salaries, utilities, marketing costs, and so on. Your financial plan must list these expenses because they will eat into your revenue and profit. Listing these expenses will help with budgeting and identifying areas for cost-cutting.
Determine cash flow: Create a cash flow statement that shows your cash inflow and outflow for a specific period. The statement can help you identify cash flow gaps or surpluses. It can also help you estimate how much funding you need and when your company will become profitable.
Create a budget: Analyze your revenue, gross profit margin, customer acquisition costs, churn rate, and other relevant data. Use insights from the analysis to create a realistic budget that will cover your expenses for the next six months to a year. The budget should align with your financial goals and help prevent overspending.
Use our financial model template to build a financial plan for achieving your goals.
#2. SaaS Pricing Strategy
Your SaaS pricing strategy determines your product price and how you’ll charge users to access your product. Charging very low (penetration pricing) to attract customers to your product may seem tactical, but it has its downsides. For instance, low prices can negatively affect your long-term profitability.
However, if you charge too high (far higher than competitors), you could put off potential customers and lose them to more affordable competitors. You need to find the pricing sweet spot that attracts customers, profits your company, and minimizes the risk of churning. Identify the right price for your SaaS product with these steps:
Analyze your product to verify its value
Research competitors to identify how much they offer similar products
Identify what potential customers are willing to pay for a product like yours
Based on your research, you can use a value-based pricing model, a cost-based (cost plus) pricing model, or a competitor-based pricing model. Value-based pricing involves charging a price that matches your target user’s perceived value of your product.
On the other hand, cost-based pricing involves identifying the cost of building, marketing, and distributing your product. You then add a premium to that amount to create your product’s price. Lastly, competitor-based pricing involves charging a price similar to your closest competitors.
Next, you need to pick how to charge. Will you charge monthly? Will you offer annual subscriptions? Or, maybe you’ll charge per feature or have a usage-based pricing model. How you charge is crucial as it will affect your product’s ease of adoption. It will also impact forecasting for your SaaS financial model.
#3. Customer Acquisition Strategy
After starting your SaaS company, it needs to start making money, and it can’t do that without customers. How do you get customers? With a customer acquisition strategy. This is a plan that lays out multiple tactics for attracting and converting new customers.
Since SaaS companies are different from other business types, it requires a unique customer acquisition strategy. A SaaS customer acquisition plan must be purpose-driven and build long-term customer relationships. Create such a strategy with these steps:
Define your target audience: Identify the people you want to target with your customer acquisition strategy. Ideally, your target audience will consist of people who need and can afford your product.
Select acquisition channels: Your acquisition channels are the platforms for connecting with your target audience to market your product. Popularly used acquisition channels include social media, email, and business websites. Get the best results by connecting with your target audience via channels they already use. For instance, if most of your target audience frequently congregates on LinkedIn, then you should market on LinkedIn.
Build a marketing budget: Your budget will dictate how much to spend to reach and convert potential customers. Create a marketing budget that isn’t so large that it puts your company in the red but not so small that it yields insignificant ROI.
Have a well-optimized landing page: Your brand’s landing page is essential. It determines the first impressions of potential users led to your website by your marketing campaign. Make the landing page attractive, show social proof, add valuable content, and strategically place calls to action to convert visitors.
Share positive reviews: User-generated content, such as testimonials and reviews, is known to influence customer purchasing decisions. Showcase customer success stories by inserting the brand logos of satisfied customers on your homepage and sharing case studies and reviews.
Create valuable content: Your acquisition strategy should include content marketing, which involves sharing valuable, insightful, and engaging content. Share such content on acquisition channels to engage, educate, and convert your target audience.
Monitor performance: Lastly, frequently check the performance of your customer acquisition strategy and make adjustments to improve results. Skip this step, and you could blow your marketing budget without getting the desired return on investment.
With Baremetrics, you can view MRR, conversion rate, and other metrics within your dashboard to judge your customer acquisition strategy’s performance.
#4. Business Plan
Like every other business, companies using a SaaS business model need a written business plan. The plan for your new SaaS company will outline its marketing and sales strategies, financial projections, organizational structure, and operational details.
Your startup needs such a business plan because it will help clarify and communicate your vision and strategy to potential investors and customers. It can also help articulate your value proposition and build credibility by showing your roadmap to achieve growth and success.
Create a comprehensive business plan for your SaaS startup by adding these details:
Mission/vision statement: The mission statement will distinguish you from competitors by clearly stating your company’s core values, purpose, and overall mission. Your vision statement, on the other hand, will describe your company’s direction, long-term goals, and aspirations.
Executive summary: The executive summary is a concise and persuasive overview of your business plan. It gives readers a quick and clear understanding of your company’s value proposition, market opportunity, and growth potential.
The product: Your business plan should clearly describe your SaaS product or service. The description should cover your product’s unique value proposition and competitive advantage over existing products.
Target market: The plan should contain a detailed analysis of your target market. It should clearly state customer segments, demographics, and buying behavior so investors have a clear picture of your target audience.
Marketing and sales strategy: The business plan should specify your customer acquisition, retention, and growth strategies. It should also contain financial projections for your first and second years to paint a picture of your anticipated profitability.
Organizational structure: Your SaaS company can’t run itself. Specify your company structure and management strategy in the business plan. You should also add details regarding roles and who will be responsible for specific duties.
Note that the most successful SaaS businesses have business plans that prioritize customer retention. That’s because happy, long-term customers ensure uninterrupted recurring revenue, which is essential for a SaaS company to succeed.
Our how to start a SaaS company guide would be incomplete if it didn’t mention business formation. You must incorporate your SaaS company, but first, you must pick a legal structure. The legal structure may be an LLC, C corp, or S corp.
A Limited Liability Company (LLC) is a flexible and relatively simple business structure ideal for small businesses and startups. C corporations (C corps) have shareholders as owners, and you can raise capital through stock sales. On the other hand, S corps have certain tax advantages, such as not paying federal income tax on profits.
Before picking between an LLC, S corp, and C corp, talk to a corporate lawyer who can help you make a well-informed decision in line with your business plan. Other important legal considerations you shouldn’t ignore are:
Intellectual property protection
Data privacy and security
Compliance with relevant state and federal laws and regulations
#5. Launch Strategy
After creating your SaaS product, how do you bring it to the attention of your target customers so they buy it? That’s where a product launch strategy comes into play.
A launch strategy outlines the steps to introduce your new product to your target market. It involves:
Identifying target customers
Determining product pricing
Developing and executing marketing and communication tactics
The goal of the strategy is to generate excitement, awareness, and interest in your product. The more aware and excited people are, the more sales you can expect once your product launches, ensuring a strong start for your company.
On the other hand, generating insufficient awareness and excitement for your product can lead to slow sales and trouble raising sufficient revenue to keep your startup afloat.
Use the below tips to launch your SaaS product:
Conduct market research: Your research should help you identify and understand your target audience. Insights from the research will also help pinpoint the best communication channels for connecting with your audience. Lastly, it will reveal the most effective content and language for engaging your audience to get them excited about your product.
Create a product launch plan: Your launch plan should include the timeline and budget for your product launch. It should also list your strategy for generating buzz and key performance indicators (KPIs) to measure your launch’s effectiveness.
Announce your product: Let the world know your product is coming and target your messaging at prospective customers. Share your announcement via multiple marketing channels, but focus more on your target audience’s preferred channels.
Launch an MVP: The MVP is a base version of your product with only core features and functionalities. Release this prototype so people can test drive your product before it launches. Besides generating awareness of your SaaS product, you can use the MVP to collect feedback on ways to improve your product before release.
Perfect user onboarding: Create a simple and intuitive onboarding process that ensures new users can easily access your product and experience value. The sooner new users can try your product and experience value, the more excitement it will create, leading to free word-of-mouth advertising.
Engage users: Maintain excitement levels by engaging users via social media and communication channels. Also, provide ongoing support and updates to deliver the best user experience.
#6. Metrics & Results
Congratulations! You’ve launched your SaaS company, but your journey’s not over. You have to measure your startup’s growth and performance to confirm you’re on track to achieve your business goals. Tracking your results will also reveal underperforming strategies and operations you can improve to get better results and protect your ROI.
Some of the most important metrics SaaS startups track include:
Active Customers: This reveals how many users your product has.
Customer Acquisition Costs (CAC): This is the amount you pay to acquire each new customer, including the cost of marketing, onboarding, and so on.
Churn Rate: This is the percentage of customers lost within a specific period.
Average Revenue Per User: This is the average amount of revenue you earn from each active customer monthly.
Customer Lifetime Value: This is how much you can earn from a customer during their relationship with your company.
Monthly Recurring Revenue (MRR): This is how much you expect to earn from your users each month.
Conversion Rate: This shows the percentage of users who take your desired actions, such as signing up, booking a demo, or paying for a plan.
Baremetrics is the easiest way to track the above metrics and understand the data. With the Control Center of our user-friendly SaaS reporting solution, you can see and react to real-time events and insights. Track events and transactions, such as cancellations, signups, payments, and downgrades, and make well-informed decisions.
Baremetrics facilitates quick and accurate analysis of SaaS and subscription KPIs via its Smart Dashboard. The visual and interactive dashboard turns complex data into simple information so you can dive deep into relevant metrics. Even better, the segmentation feature allows you to filter insights by segmenting customer data into specific categories. That way, you get to see only the data you need.
Other valuable features include the Benchmarks and Forecasting tools. With Benchmarks, you can compare your metrics with competitors. The insights from the comparison will help you identify how to improve and compete more effectively in your market.
The Forecasting tool is excellent for predicting and planning your company’s future. The tool uses relevant data to forecast MRR, customer churn, cash flow, and more. With this information, you can make data-driven decisions to scale your business and minimize churn.
Reach SaaS Success With the Help of Baremetrics
Baremetrics is the only tool you need to view and understand your company’s customer and growth data. With our tool, your SaaS startup can track and measure various KPIs to understand how close you are to reach your goals. Insights from measuring your SaaS metrics will also reveal performance areas you can improve to stay on track and achieve better results.
Know what’s going on with your revenue and customers in real time by taking a test drive of Baremetrics today!