Saas is full of innovative examples of revenue models.
A revenue model is a framework for generating revenue. It describes the process between your company and customers and defines the role of each party.
Revenue models are also known as monetization strategies, pricing models, ways to make money, and value propositions. A SaaS revenue model is a business model that generates revenue by selling software as a service (SaaS). It’s typically a software licensing model that allows companies and individuals to pay for the use of the software on a subscription basis.
Take a look below at the seven examples of revenue models that work for SaaS.
Examples of Revenue Models
A business model describes how a company creates value for its customers, captures value as income, and grows.
Revenue models are a subset of business models that focus solely on how a company generates revenue. They are an essential part of any business and play a massive role in how much money a company brings in.
It’s not an overstatement to say that they can be the difference between success and failure.
SaaS companies can use a variety of revenue models to generate income. Here are some of the most common.
Ad-Based Revenue Model
The ad-based revenue model is popular with SaaS businesses because it’s simple to set up and maintain. You make money with an ad-based revenue model by placing ads on your website, then earning a percentage of clicks or impressions (the number of times an advertisement has been seen). The more people click on your ads, the more money you will earn.
There are two main ad-based revenue models: cost per impression (CPM) and cost per click (CPC). CPM means that you earn money for every 1,000 impressions made by your ad, while CPC means that you earn money for every click on your ad. Each type has its pros and cons, but both types are becoming less effective compared to other strategies.
Indirect Sales
SaaS companies can sell their products or services through resellers or distributors. Under this model, your product or service is sold to companies who resell it to their customers. Indirect sales are usually made through a channel partner network.
This model is easy to scale and doesn’t require direct customer interaction. A company will make money on an item, but the customer is paying for something else. A software company may charge a subscription fee rather than collect the cost upfront. This model works especially if the product is not expensive or has low margins.
Direct Sales
This model is similar to indirect sales but involves working directly with end users instead of through resellers or distributors. Some SaaS companies choose this route because they want to build direct relationships with customers who will become long-term subscribers.
SaaS providers might choose this model with a more complex product because customers need installation and onboarding assistance.
Web Sales
In the web sales revenue model, you sell your product or service directly to customers through a website, mobile app, or other digital platforms. It’s also one of the most common and easiest ways to start making money from your product.
The web store revenue model is a popular choice for e-commerce businesses. Setup and management are easy, and it’s scalable. You can also use multiple web stores if you have different brands or products that you sell separately.
Affiliate Revenue Model
In the affiliate revenue model, a business uses affiliate links to sell products or services on another website. The company pays its affiliates a commission for each sale made through their links.
An affiliate marketer’s goal is to drive traffic to a particular site. When someone clicks on your link and buys something, you earn a commission. The more people you can get interested in selling, the better chance of making money. It’s a win-win situation for both the marketer and SaaS company.
The Product is Free, Not the Service
In this model, the product is free to use, but there is a cost for certain aspects of the service or after a fixed period. The idea is to offer a free trial of your product so that users can see how it works. If they like it, they’ll pay for it and continue using it.
This is often coupled with an upsell, where users who like the product are encouraged to pay more for premium features or additional seats.
Transactional Revenue Model
The transactional revenue model is the simplest way to make money from your SaaS product, and it involves charging a flat fee for each application used.
Simple but effective. A small monthly fee can go a long way towards covering costs and ensuring that your customers are happy with their experience.
This model works best when:
- Your application has a specific use case, like email or CRM software. The more specialized it is, the more likely you find customers who need it and are willing to pay for it.
- You have reasonable retention rates and low churn. If your customers stick around, they’ll be more likely to pay you monthly without needing much support or training.
- You have a small customer base. If you have more, you may need to begin looking at other revenue models that are more scalable.
The advantage of this model is that it’s simple and easy to implement. The disadvantage is that it can get expensive if your customer base grows beyond a certain point unless you find ways to increase sales volume (e.g., having multiple pricing levels).
Make the Most of Your SaaS Revenue Model
As your business grows, it’s more important than ever to stay focused on the most profitable revenue model for your product. The right choice can hugely impact your bottom line, help you reach your goals faster, and ensure your customers are satisfied.
Various factors go into selecting the model that drives the most profit. You need to consider how it will affect your cash flow, the expenses involved, and how it fits into your long-term growth strategy.
Founder’s CPA is here to help you with every aspect of your business. We offer a wide range of startup services, including accounting, bookkeeping, and tax preparation. Contact us today to learn how we can support you make the most of your SaaS revenue model!
