Subscription Model In Saas

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Subscription Model in SaaS businesses

Introduction to SaaS
Software as a Service (SaaS) is a business model where the software is developed and hosted by the vendor and the user accesses it using the internet. The end user customer doesn’t need to install the software on his/her computer, as the software is hosted on the vendors servers, the customer can access it using the internet. It is most popularly known as hosted software or On-demand software. The customer does not own the software, he pays a monthly/yearly fee to rent it. The vendor owns the software and runs it on computers in its data centre.

Background of SaaS
The expansion of internet during the 1990’s brought along a new group of companies called Application Service Providers
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Target customers: Freemium gives the company an option to rapidly increase market share and adoption of its service. However, it is advisable for companies to keep an eye on SMB and Pro-sumers who may not be ideal for the business.
B. Creating Value from free users: The Freemium is feasible only when the free user upgrades to premium. It is important to determine the value that free customers are adding to the business, for some companies it means less marketing costs and viral adaptation of the product and for some it means making money through advertising and selling data.
C. Learn from free users: The companies can make a comprehensive analysis of conversion rates of free users and referrals given by them to determine the ROI from them.
D. Costs to serve free users: It is important not just to understand the acquisition cost of free users, but also costs of serving them. A comparision of acquisition costs and an estimated conversion rate of free users will help the company to determine whether the business is economically viable and whether the company is able to balance its costs of free users from a specific number of paid members. Costs may include bandwidth, storage, customer support and
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A. Packaging
Adjust pricing based on the product package (i.e. enterprise, small business, personal use, etc.). Package design and pricing are closely tied to product features and functionality. This is a typical tiered pricing strategy.

B. Bundling
This is a slightly different tactic from packaging and typically involves bundling complementary products together with the intent of creating market “pull” for complementary products to leverage off star products. Companies normally bundle laggard products with leading products.
This strategy was used by successful on -premise companies to transition to a new SaaS offering. Based on PwC’s data, this strategy was shown to lead to sharply increasing SaaS market share as well as increased sales of non-core products in the bundle. It helped these companies to successfully transition out core on-premise products without sacrificing revenues. Two examples of bundling are Sharepoint from Microsoft and Chatter from Salesforce.


A. Prepayment
The practice of offering discounts for upfront payments.
B. Payment Terms
Price premiums to provide nonstandard billing options or extended credit terms.
C. Module
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