How to Sustainably Improve Profit Margin at Your Software Development Agency
Improving your margin is an exercise in balancing costs against the tactics you are using to generate revenue while continually working to make your team more efficient.
B2C SaaS is software intended to be used by regular customers (non-businesses). The software is delivered online, either through a browser or an app. It is usually charged through a subscription model.
SaaS stands for software as a service. This means you only rent the software and never really own it. However, the huge benefit is you're always getting the latest updated version of the software. And, of course, all the new features and updates are already included in the price.
The most efficient way to build a B2C SaaS today is using low-code technology. It has everything a SaaS project would need, including fast development and out-of-the-box scalability.
This article will discuss everything from pricing models and project ideas all the way to best practices and building your own SaaS.
B2B stands for business to business. This means that the intended customers of the product/software are other businesses.
B2C stands for business to customer. The intended buyer (or, in the case of a SaaS - subscriber) of your software is a regular person.
Many of the apps and services you use on a daily basis are actually SaaS software. And even though some of those services look almost identical, their business models can be quite different (B2B, B2C, or a mixture of both).
Netflix is an example of B2C SaaS. The company's revenue comes from end customers (people who enjoy watching a good show) in the form of a monthly subscription.
YouTube might seem like a nearly identical service (a platform where you can watch videos). But its business model is very different. The revenue for YT mostly comes from ads (you know, the ones you can't skip). And since other companies pay for the ads, this is a clear example of B2B.
However, YouTube also introduced subscriptions (mostly to allow people to get rid of the ads). And this now adds an element of B2C to YT.
This goes to show that a lot of SaaS services have a mixture of both B2B and B2C in a single platform.
There are many different pricing models, but in the end, it all comes down to subscriptions one way or another. Primarily this means you can never really buy the software for permanent use.
The flip side is that you also don't have to pay the full price for the software even though you get full access. This is especially convenient for tasks you rarely do.
It is also worth mentioning that these pricing models aren't mutually exclusive. Just like SaaS can be a mixture of B2B and B2C, it's a similar situation for pricing models.
This is the simplest model, and nearly every B2C (and B2B) SaaS has it. Even the low-code platform that allows you to build SaaS apps uses this pricing model.
Freemium basically means you can get some basic functionality for free. Usually, it's enough for you to get a full grasp of what the SaaS app can do for you. And by providing you good results on a small scale, you are reasonably confident in what you're getting for a price.
Because the basic problem with every software is how can customers know it's good if they don't try it? But how can they try it without paying for it? And this is how freemium was born.
So regardless of the pricing model, freemium is frequently part of the strategy. Whatever the monetization model (fixed, usage-based, etc.), freemium is how people get to try the SaaS product for the first time.
It is important to mention trial as an alternative to freemium. However, this model simply doesn't work with SaaS, as you will see.
The first obvious problem is it's very easy to game the system and be on a trial period forever. Because if all you need is a new account to get the trial, many people would just continue creating new accounts. All you need is a new email address every time you need to "extend" your trial version.
This would inevitably lead to SaaS gaining more and more fake users who are creating disposable accounts. Which would also put a strain on the app itself. Overall, it would be a mess.
The second problem is trial duration might not be enough time for people to get used to and "get hooked" on the SaaS app they're using.
By providing some limited (but still very useful) features on the SaaS app, you encourage users to keep coming back again and again. Eventually, some of them will want all the features and pay for the full experience.
Fixed price means the customer can get all the app's features for a fixed amount. The app can be used as much as the user wants without limitations.
For example, if we're talking about image editing software, users always pay the same price, regardless of whether they edit a single image or a thousand images.
The only price difference happens if you're paying yearly vs. monthly subscriptions. And you basically get a discount for paying in advance.
Tier pricing is a great way to offer different sets of features to different types of customers. If the SaaS software is used both by individuals and businesses, both of them can get all features as part of the basic tier.
The businesses might need additional collaboration-related features. For example, the ability for multiple people/accounts to work on the same project.
This feature is not directly related to the main purpose of the software. It is entirely irrelevant to the individual users. But in a company/team setting, collaboration is essential.
And because of that, teams might pay a higher tier to make their lives easier and be more productive overall. So it's a win-win scenario.
In our previous example with image editing software, there is a limit on how many images a person can (realistically) work on in a month. It may be just one or a thousand on the higher end. But they would never be physically capable of clicking their way up to a million.
That is why the fixed price is the simplest model to sell, and all the outliers are already calculated into the final price.
But when you have products like a low-code SaaS Application Builder, the server usage can (wildly) vary.
After you build your app and it's running, it can have a single user that won't consume a lot of resources. However, it can also go viral and attract (literally) millions of users. And those users can consume a lot of computing power.
That is why the best way to charge such a SaaS product is pay-as-you-go usage-based pricing. But having "too many" users is probably the best problem in the world to have.
The best SaaS ideas are usually found in narrowly focused areas where you already have a lot of experience. Even though there are plenty of big players in every industry, their size is their biggest weakness.
When a large-scale SaaS is trying to appeal to a wide customer base, some compromises must be made. Specifically, it has to be general enough to apply to fairly different use cases.
On the other hand, if your SaaS targets only a single industry, this software can be a much better fit than any other existing market solution.
For example, a lot of people use Canva to do custom designs. But if you have software that only does designs for wine bottle labels, you are more likely to do a better job.
Some might say, "well, Canva already does that". That's true, but does it support label creation for non-standard bottles? How about non-square labels?
Suddenly, as you niche down, there are a lot of opportunities for improvement and becoming the best SaaS tool in your industry.
Two of the highest startup costs are development time and infrastructure. However, you can find a lot of useful information in these two articles on how to lower these costs:
In a nutshell, the best way to reduce these costs is to use the best tools available because that's the easiest way to increase productivity.
Currently, low-code tools are the best way to increase development effectiveness by 3-5X. This means the development cost can drop anywhere from 60-80%. And that is a real game-changer when it comes to software development.
Creating a startup brings its own risks. Most founders create contingency plans and always expect something unexpected will happen. It's just a part of the territory when it comes to startups.
Usually, the biggest struggle is launching the SaaS and getting new users. But what's worse than no one knowing about your product is everybody knowing how bad it is.
And this can happen very easily if you have a sudden surge in users that leads to server overload. Your app becomes either slow or completely unavailable. And your users witnessed it.
Therefore, any SaaS project (especially B2C) needs to be scalable. Otherwise, you are in for some very unpleasant surprises.
But working on scalability also increases development costs because you have to spend some time and effort on making your app scalable.
This is why building a SaaS using low-code technology is the best way to reduce costs, lower the risk, and get scalability out of the box.
If you want to jump straight into learning and creating your next SaaS, you can visit Low-Code Academy, where you will learn:
In short, the biggest decision with the most impact when it comes to building a SaaS is the choice of technology.
Choosing a widely known technology makes it easy to form and expand your development team. And using higher-level technology results in higher productivity.
It's simply a better, more productive tool. And everyone starting their web/app project using traditional programming will be at a disadvantage in the marketplace.
SaaS is software that relies on subscriptions as the main form of monetization. This software can be used by businesses (B2B) or regular customers (B2C).
The highest costs when creating a SaaS are development and infrastructure costs. Both of these costs are largely mitigated by the use of low-code technology.
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