Five rules you need to follow when launching a SaaS subscription product
Love to earn a residual income off a SaaS product? Here are five rules you need to follow when starting a subscription service.
How many subscriptions do you pay for regularly? Long gone are the times when your only subscription was your favourite magazine. It feels natural now to pay for movies, music, groceries, shopping, or skin care – all on a monthly or yearly basis.
Riding the wave of subscription services is tempting and potentially incredibly lucrative. After all, you get all the benefits from selling your service and getting a recurring revenue stream. That is, if you know how to build it right.
And it’s not just physical products you can sell on a monthly or annual basis to repeat customers – many people are making money from SaaS products too.
What is a SaaS and how do you make one?
SaaS is Software as a Service, a business model where you have a piece of software sold on a subscription basis. The good part about it is once the software is written, you can focus on selling it and mostly keep the product itself relatively stable.
Unlike e-commerce, where you need to take care of inventory and deliveries, your SaaS transactions begin and end in the digital space.
Take Setapp as an example. They found a niche that didn’t exist before – a collection of apps by subscription – and offered it to the public.
To an outsider, selling SaaS can seem like making a product once and profiting off of it forever. But for the people running a SaaS business, it’s a whole different story.
To create and successfully launch a SaaS business you need to get several things right. Here are the five key rules you need to follow.
Rule 1) Distill your ideas
Finding the right niche is one of the cornerstones of any successful business, but is especially important with a SaaS product.
To discover something that hasn’t been done before, you need to think of what you’d love to have or do, but is currently unavailable. Or think about the things you and the people you know complain about – is there a clever solution to any common gripe?
Once you have the germ of an idea, it’s essential that you properly research and test your idea and conduct competitor analysis.
You need to be sure that your deja really works, and is desirable to the people who will potentially buy it. It doesn’t matter if it’s not completely unique – you just need to ensure that your solution or execution is different from any existing alternative.
A great example of this is Slack. Before Slack came along, team messengers already existed, but they were terrible. The secret to Slack’s success isn’t being unique, but solving a common problem, in a perceptibly better way.
So it’s important to identify and clearly highlight your points of difference when shaping and launching a SaaS product. If not you’ll just waste your time developing a clone. And, unless you have an investor who’s willing to send millions your way for advertising, you’ll have a hard time competing.
Rule 2) Find the missing team-pieces
Successful SaaS products usually have a team behind them. Bringing a product to market requires more than just great ideas and coding ability.
If you’re on your own but you know how to code you can try to launch alone, but it won’t be easy. If you have great idea but no team and no coding skills, don’t despair quite yet.
You might have friends who share your vision and will partner up with you. Oryuo can try to look for a coding partner to join you on a profit share. If you have the funds you can even search for freelance coders, and people with the other skill sets you require to help you.
Just make sure, if you bring anyone into the business on any kind of profit share, that you get the correct paperwork to protect you all legally. This way, if anyone wants to leave the business, or you fall out later on, there won’t be any messy legal battles.
Rule 3) Don’t hone it until perfection
Few products emerge perfectly formed. Indeed, many of the famous websites and apps you use today have undergone several metamorphosis in their journey into the marketplace.
1Password, for example, started as a simple password manager and quickly evolved into a vault that keeps your credit cards, secure notes, bank info, documents, and identity details.
So you’ll need to be prepared to iterate, and do it quickly. There’s even a chance you’ll learn that people are using your product not for its original purpose and you’ll have to pivot altogether.
This is why it’s important you don’t wait until everything is just right. Instead you need to release a MVP – Minimum Viable Prototype to get people to start using it and feeding back what they think and how they’re using it.
Rule 4) Experiment with your pricing
There is no way of telling how human emotions translate into pricing. We are, for some reason, capable of evaluating our attachment or need in numbers on the screen. And you might not guess that number right on the first try.
So be ready to experiment with your pricing. But (and this is a big BUT) make sure you know your financials first. You need to know exactly how much it costs to create and deliver your product, and what you want or need your profit margin to be.
Never go below your bottom line when experimenting with pricing. Yes, you may sell products, but if you’re making a loss with each one, you’re not building a business.
And don’t assume that cheap = more business. As you learn in the Talented Ladies Club Pricing Masterclass, if you reduce your prices too low you’ll actually lose business, not gain it. You need to find that perfect sweet spot where your price tells people you have a quality product, but is value for money.
Rule 5) Don’t expect to make a profit immediately
In retail or e-commerce, the profit models are much simpler. Basically, it boils down to selling for more that you buy. But with a subscription business, you need to keep in mind another key metric — Lifetime Value, or LTV.
Lifetime value is how much a single customer brings you over the course of their subscription (their ‘lifetime’ with your business). So, if someone buys your software for $20/month and stays with you for a year, their LTV is $20×12=$240.
Since LTV can only be properly calculated over a period of time, when you can clearly define the average period of time people are staying with you, profits and profit predictions are crystalising only about a few years in.
So bear this in mind and, while you need to ensure you don’t price at a loss, don’t expect to get return on your investment in just a few months -especially if you’ve had a significant development and testing period, or have a large team behind you.
Ready to launch your own SaaS subscription?
Creating a SaaS subscription business is exciting and, for many people, an achievable dream – as long as you follow the right process.
So if you want to start investigating your own SaaS business, you just need to find a problem to solve, and a unique way of overcoming it!
James Dorian is a technical copywriter and a blogger. He is great at solving modern business issues and applying tech innovations. You can follow him on Twitter.
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