What is a SaaS subscription?

If you operate a SaaS company, you are likely familiar with the challenges posed by customer churn. Numerous factors can contribute to customer attrition, but one of the primary causes often lies in subscription management. Considerations such as providing flexible payment options, offering subscription pausing capabilities, and ensuring a seamless user experience play significant roles in retaining subscribers. What you need is a SaaS subscription. 

In this article, we will talk about what a SaaS subscription is, why it could benefit your business – and more. Let’s get into it! 

What is SaaS in simple terms?

Software-as-a-Service (SaaS) is a cloud-based software delivery model that allows users to access software applications online. With SaaS, the software is stored on remote servers, regularly maintained and updated by the service provider, and made accessible to customers through web browsers, mobile apps, and APIs. SaaS brings various benefits to users, such as reduced upfront costs, scalability, flexibility, and easy accessibility. As the software is hosted on the provider's servers, users are freed from the need to invest in expensive infrastructure. Instead, they can conveniently subscribe to the service and access the software on demand.

SaaS subscriptions: An overview

SaaS has gained immense popularity across various industries due to its numerous benefits. SaaS empowers businesses to enhance their agility by transitioning from on-premises software solutions to the cloud. This shift enables them to eliminate the expenses and responsibilities associated with managing and maintaining costly in-house servers. Additionally, businesses can effortlessly stay up-to-date with the latest patches and features, accelerate their software deployments and configurations, reduce reliance on additional IT staff, and allocate in-house professionals to strategic initiatives rather than being tied up managing software.

In this software model, subscription pricing becomes the preferred approach. Instead of selling perpetual licenses, which require a one-time payment for ongoing software access, SaaS vendors offer limited-duration subscriptions. This allows vendors to retain full ownership of the software and sell permission to access it rather than selling the software itself. As part of the subscription, vendors typically provide continuous maintenance, support, repairs, and updates at no additional cost. They also maintain the right to make changes to the software and user access, with clear terms outlined in the end user license agreement (EULA).

Also check out: 5 steps for successful SaaS subscription management

What is an example of SaaS? 

• The most common types of SaaS solutions are:
• Customer Relationship Management (CRM)
• Enterprise Resource Planning (ERP)
• Content Management System (CMS)
• Project Management Software

What is the difference between subscription and SaaS?

How they generates income

Subscription model

If your business adopts a subscription model, revenue is generated through contractual agreements and automatic renewals. A subscription model usually offers the same service or product across various periods at a consistent price. Furthermore, businesses utilizing a subscription model typically provide goods or services that are easily replicable and scalable to meet increasing demand.

SaaS model 

A business operating under the SaaS model can generate revenue through one or a combination of three methods:

1. Subscriptions: Users pay a regular fee to access the software/service.
2. Recurring revenue: Income is generated from users repeatedly utilizing the service over time. Two ways businesses can obtain repeat revenue are through retainer services and long-term contracts. 
3. Pay-per-use: Users are charged based on their usage of the service.

Regardless of the number of customers, the product offered by a SaaS business remains identical in terms of the software. However, specific provisions can be adjusted to cater to individual customer demands. The scalability of a SaaS business is virtually unlimited, with the only consideration being the need for increased server space as the customer base expands. Prominent examples of businesses operating under the SaaS model include Salesforce, HubSpot, and Slack.

The advantages of SaaS vs subscription

SaaS businesses can adopt the subscription model as a key component of their offering. However, compared to traditional subscription services, the true advantage of the SaaS model lies in the substantial amount of data that can be gathered through customer interactions. This data can be utilized to enhance the product itself and optimize marketing and sales strategies.

Even more advantageous is that the insights gained from this data can be extrapolated and applied to other business areas that extend beyond software supply.

What are the different SaaS subscription models?

Under the realm of SaaS subscriptions, various pricing options are typically available. Some of these may include the following:

Annual contracts

The most common type of SaaS subscription model is the annual contract, where users commit to a specific service for one year. Clients make a single upfront payment and can renew the contract after 12 months. While some businesses appreciate this approach as it eliminates the need for monthly or quarterly payments, it can also amplify concerns about long-term commitments among company leaders who must adhere to budgetary constraints.

Short-term contracts

SaaS subscriptions offer the flexibility of short-term options, allowing organizations to acquire licensing permissions for a limited duration, such as quarterly or monthly. Short-term contracts prevent long-term commitments, enabling users to reassess and potentially switch to alternative service providers if needed. Moreover, the risk of customer churn motivates vendors to enhance their products, ensuring customer satisfaction consistently. It is worth noting that vendors may charge higher overall fees compared to annual contracts due to the flexibility and convenience provided by short-term subscriptions.

Pay per use

While pay-per-use pricing models are commonly seen as an alternative to traditional SaaS subscriptions, they can actually be viewed as a subset within the SaaS framework. In a pay-per-use model, clients are billed based on the quantity of data or resources they utilize, or the number of users on a specific account. This allows businesses to scale down their usage without the concern of paying for unused services. Vendors also stand to gain advantages from this model, enabling them to align incoming revenue more accurately with expenses.

Micropayments

Micropayments in SaaS subscriptions expand upon the pay-per-use model by involving nominal sums of money in exchange for specific access to software services. While each transaction may involve minimal amounts, such as less than a dollar or even less than a cent, the cumulative effect of high-volume microtransactions can generate significant revenue for the vendor. Vendors can maintain customer satisfaction by distributing these transactions across a large user base by keeping costs low. However, vendors need to consider potential cost barriers, as some credit cards and non-credit card payment methods may not be equipped to handle such small individual purchases. 

What are the benefits of a SaaS subscription model?

The SaaS subscription model offers numerous advantages. Below, we highlight key benefits that are worth considering:

1. Simplified expenses
   
   Subscription-based SaaS models present a significant advantage with lower upfront costs than traditional pricing options. Instead of needing to allocate resources for a substantial one-time purchase, expenses are spread out into more minor, predictable charges. This makes budgeting more manageable and simplifies tax considerations by providing a clearer and more consistent financial outlook throughout the year.
2. Cost transparency
   
   SaaS subscription expenses are predictable and itemized, allowing organizations to anticipate their SaaS costs for a specific duration accurately. This level of predictability enables companies to plan effectively and allocate resources accordingly. Moreover, by understanding their current pricing structure, businesses can forecast future expenses and confidently plan for growth.
3. Reliable support
   
   Subscription SaaS providers face the genuine risk of client organizations switching to alternative vendors. To mitigate this risk, vendors must prioritize delivering exceptional support services. This commitment extends to the quality of the service itself, as users are more likely to terminate their subscriptions and seek alternatives if the software lacks user-friendliness, intuitiveness, and robustness. As a result, intense competition exists among subscription SaaS providers to offer a satisfying customer experience.
4. Unrestricted scalability
   
   As businesses adapt to changing demands by scaling their operations, adjusting their IT resources is necessary. Subscription SaaS offers the required flexibility to achieve this. Organizations can effortlessly modify their subscription agreements to accommodate fluctuations in data requirements, allowing them to ensure optimal availability of software resources precisely – when they are needed. This scalability feature enables businesses to align their IT resources with their evolving needs efficiently.
5. State of the art security
   
   Cyberthreats pose persistent and ever-changing risks, necessitating dynamic software security measures for businesses. Subscription SaaS vendors thrive by staying ahead of the diverse threat vectors that target their clients. Their responsibility extends beyond promptly providing patches and solutions for newly identified vulnerabilities; they also proactively and tirelessly search for undiscovered loopholes to preemptively block any potential exploits. In most instances, these updates are seamlessly deployed automatically, ensuring uninterrupted customer service.
6. User freedom
   
   In the modern business landscape, organizations must be agile enough to seize new opportunities and adapt to unforeseen circumstances swiftly. Subscription SaaS empowers them to do exactly that, providing the flexibility to explore new approaches, adopt new services, and even trial alternative vendors to find the most suitable solutions for their specific requirements. If these trials do not yield the desired results, organizations can effortlessly revert to their previous subscriptions once the current subscription term expires. This liberation from vendor and tool lock-in distinguishes subscription SaaS as a significant advantage, setting it apart from traditional perpetual licensing models. 

Learn more in: 8 reasons why you should automate your SaaS subscription business with Upodi

Automate your SaaS subscription business with Upodi

As your SaaS business experiences growth and scales up, you'll encounter two key dynamics: increased pressure on your tech stack and a heavier workload for your employees. The complexity of subscription billing also rises, compelling you to explore new setups or solutions to manage it effectively. 

Our core expertise lies in subscriptions, and our product is exclusively dedicated to handling recurring billing and subscription management. By choosing our solution, you won't have to deal with a cumbersome system loaded with unnecessary add-ons that impede efficiency and disrupt your existing setup.

We automate your manual bookkeeping, subscription management, and payment tracking work to help you efficiently secure, retain, and grow your revenue. Control and scale your SaaS recurring revenue smoothly. 

Handle subscription management with full confidence and flexibility. From signup to reactivation - we help you maintain the entire customer cycle. 

A reliable recurring billing and subscription management platform can have a transformative impact on your SaaS business. However, finding a partner committed to providing comprehensive support and continuously enhancing your business model is crucial.

See how Upodi can help improve your subscription billing efforts; book a free trial: