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SaaS businesses in general are probably the most complex business models in our explainer series. Dive in the article below to know the terms you need to take care before getting into Saas Business
SaaS companies have taken the world by storm in the last few years. SaaS stands for Software as a service. They have provided a service that has grown to be required by the general public. Back in the days, people saw technology and digital services and marketing as a bad and untrustworthy experience.
Now, we see that this is not the case. A SaaS company can be explained to be a company or business that hosts applications, servers, databases, and software of other businesses. This allows customers access to these other companies’ services over the internet. In other words, businesses of all categories and kinds can extend their business sales by putting it on a SaaS company’s server.
A SaaS company works very simply. As mentioned earlier, it hosts all types of software. The sass company would, in turn, be accessible from different web browsers all over the internet. They require a subscription fee— often monthly— to be able to access the application.
Some large SaaS companies are free. This monthly fee depends on the size of the SaaS company, the amount of tech support required, and the number of people who require the SaaS company’s server.
There are many forms of SaaS companies. Some are:
- Hospitality SaaS companies: This form is responsible for this smooth running of the customer’s life. It can be planning out a schedule, a plane ticket, hotel reservations, and so on.
- Customer resource management: They mostly deal with managing sales data, and tracking customer information, relaying this information to the clients.
- Enterprise resource planning: This is a SaaS company used by the big names in the market. They document records and track all activities of a firm.
- Account and invoicing: These SaaS companies help with anything that has to do with accounts. They provide easy, virtual transactions, as well as financial documentation services.
- Web hosting: These SaaS companies handle anything a company needs to perform online m. They could include meetings, forums, or other activities. They also help create a bigger online presence.
By now, we should have a pretty good conception about what a SaaS company is and what it is for. Above, there are a few examples of SaaS companies—there are quite many forms—that help make daily life and business transactions easier.
However, to run a successful SaaS business, you need to know some fundamental and important things, one of which is the terms used by SaaS companies. It is required to know all the terminologies of this company, so it’ll be easy to maneuver your way through reports, articles, and other written texts easily. Here are seven terms you should comprehend before you start a SaaS company.
7 important terms every SaaS Business holds dear
ARR is an acronym for Annual Recurring Revenue. As you may have deciphered already, this is a very important term to remember. This is used by SaaS companies that have subscription plans, which include a duration. ARR is the value of the revenue generated from your subscription plans over one year. ARR is mostly used by B2B subscription-based companies.
This is a highly coveted and used tool. One company that uses this skill expertly is GetLatka. They are a SaaS company that dispenses financial information related to SaaS companies. This includes average team numbers, articles, blogs, statistical information, and annual revenue data.
They are also involved in product line pricing examples . This involves the separation of goods and services into various categories to create a sense of quality levels in the mind of consumers.
This is a very useful resource. They allow companies, industries, and organizations to save their companies’ financial data. This information can be from podcast interviews, meetings, and lectures that are available to download on spreadsheets. This is a very effective and efficient way to save information for later usage.
They have a working ARR system that tracks their clients’ annual subscription plan revenue with ease. ARR is used for many purposes, but it is very important to track brand popularity, patronage, customer numbers, and so many other needed information.
MRR is a very crucial tool used by companies all over the world. MRR is an acronym for Monthly Recurring revenue. This is the value of revenue generated from a monthly subscription plan. You can say this is a shorter version of ARR. Subscription revenue is a very enticing feature of building a SaaS company. The possibilities are endless, and the profit margin could be potentially high.
GetLatka also does a perfect job of controlling and using MRR. As stated before, GetLatka is a financial-related company that documents, tracks, and manages all financial information, including MRR. They are also involved in product line pricing. It involves the separation of goods and services into various categories to create a sense of quality levels in the mind of consumers. This is a resource to be used by every Saas company.
Companies do not have to worry about people only buying goods as a one-time thing. A subscription-based plan means that companies would get returns on any physical product you’re offering every month; incredible. Choosing between ARR and MRR depends on the business model the SaaS company is running.
3. Churn rates
Nowadays, Churn rates are unavoidable. Churn rates can also be called the rate of attrition or customer churn. This is the rate at which customers stop doing business with a particular company within your SaaS server. They also include customers who cancel subscription plans with companies over some time. Every SaaS founder should know what churn rates mean for his business and steps to avoid excessive churn rates.
The average churn rate is 5%. While 5% in some founders’ opinions is pretty high, research took into account the difference in geographical zones and market values in all parts of the world to come up with this statistic. Quite frankly, churn is a metric important to a SaaS company’s long term viability. GetLatka helps with this immensely.
GetLatka helps with financial information, of which churn rates are a crucial component of their studies. They track different companies’ churn rates and try to manage the churn rates. A churn rate of more than 5% is detrimental to a SaaS company’s business. Nobody wants that. GetLatka also keeps its churn rates impressively below 3%. This is crucial to the success of any SaaS company.
Annual Contract Value should be pretty common on the lips of any ACV founder. ACV is the annual yearly revenue generated from each customer contract. Business owners have been confusing ARR WITH ACV for a long time. Although they have a lot of similarities, there is one main difference. Finer detail.
ARR helps you with annual revenue from a SaaS company as a whole, while ACV helps with annual revenue from each customer in a SaaS company. Let’s say a customer signs a three-year deal with your company worth $30,000. This would mean the ACV of that customer for one year is $10,000. Pretty detailed, right?
On the other hand, ARR helps with all customer’s subscription revenue at the same time. Piktochart is an excellent example of a SaaS business that uses this. Piktochart is a SaaS based graphics company that creates reports, presentations software, infographics, and social media graphics. They connect different freelancers and graphic designers to their target audience, ensuring smooth transactions between the two.
They can easily document and store financial revenue information, which includes MRR, ARR, and ACV. They also interpret ACV information in the form of graphics and spreadsheets to easily sort and calculate revenue gained at the end of the day. They have a sturdy ACV themselves, as they have a high number of subscribers that opt for annual subscription plans.
5. Legally Mandated Data Protection
Many SaaS founders think they have their data completely covered and protected and, thus, do not need to follow the legally mandated Data protection rules and regulations.
There are so many data protection rules to follow, some of which is letting your team and clients know about the rules, preparing for subject access requests, asking for consent, and managing how you seek and record consent. These are requirements that business owners have to comply with to avoid being sanctioned. Osano delivers well in this regard.
Osano is an easy-to-use data privacy platform that instantly helps your website become compliant with legally mandated data protection laws. They help you keep out of trouble and monitor your vendors or clients individually. This is to make sure everyone’s playing nice and safe.
They are very compliant with the GDPR. GDPR is an acronym for the General Data Protection Regulation. The regulation was created to save businesses from overreaching and provide customers with more assurance of privacy in terms of personal data.
This regulation is not easy for SaaS companies to follow, and Osano understands that. For example, the GDPR laws state that all data older than two years should be deleted from their servers. It can be hard for a SaaS company with an enormous amount of clients to completely clear all old information.
Even though it was an honest mistake on its part, it is a violation and would be sanctioned. Legally mandated data protection laws are a very important part of building a successful SaaS company.
6. Digital marketing
In this day and age, nobody is a stranger to digital marketing anymore. We all know how important it is, and for a SaaS company, this is crucial to success. Digital marketing is a process of marketing that uses the internet and online-based digital technology like smartphones and laptops to promote brands and services.
This term began development in the 1990s and 20s and has greatly altered the way brands market themselves to their customers. It is a very important term to get accustomed to because it is used a lot.
Piktochart is highly skilled in presentation software and digital marketing strategies. They have a social media following and provide useful quality content for its customers. They have communities that engage in insightful discussions and helpful tips. These both directly and indirectly help to push their brand popularity.
7. Service Level Agreement
They are a company concerned with keeping all your legal matters under check. These legal matters include service level agreements. They automatically inform every client about your service level agreements and make sure a mutual agreement is reached between the client and the company. It is a very important term to accustom yourself to, as it gets you out of trouble that can be easily avoided.
These terms are all required for a SaaS business to thrive. They are used frequently and have their distinct but important uses. Sass companies are the future of marketing and sales. The sooner you get aboard this, the better.
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