This post was submitted by a TNS experts. Check out our Contributor page for details about how you can share your ideas on digital marketing, SEO, social media, growth hacking and content marketing with our audience.
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 day, people saw technology and digital services and marketing as bad and untrustworthy experiences.
Now, we see that this is not the case. A SaaS company is 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 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 the smooth running of the customer’s life. It can be planning a schedule, a plane ticket, hotel reservations, etc.
- Customer resource management: They mostly manage sales data, track customer information, and relay it to 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 related to 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 of what a SaaS company is and what it is for. Above 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, including the terms used by SaaS companies. It is required to know all the terminologies of this company, so it’ll be easy to easily maneuver your way through reports, articles, and other written texts. 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 significant term to remember. This is used by SaaS companies with subscription plans, including a duration. ARR is the value of the revenue generated from your subscription plans over one year. B2B subscription-based companies mostly use ARR.
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 handy resource. They allow companies, industries, and organizations to save their company's financial data. This information can be from podcast interviews, meetings, and lectures 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 easily tracks their clients’ annual subscription plan revenue. ARR is used for many purposes, but it is essential to track brand popularity, patronage, customer numbers, and so much 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 SaaS company's business model.
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 the steps to avoid excessive churn rates.
The average churn rate is 5%. While 5% in some founders’ opinions is pretty high, the research considered the difference in geographical zones and market values in all parts of the world to develop this statistic. Quite frankly, churn is important to a SaaS company’s long-term viability. GetLatka helps with this immensely.
GetLatka helps with financial information, of which churn rates are crucial to their studies. They track different companies’ churn rates and try to manage the churn rates. A more than 5% churn rate 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, while ACV helps with annual revenue from each customer in a SaaS company. Suppose 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 customers’ subscription revenue simultaneously. Piktochart is an excellent example of a SaaS business that uses this. Piktochart is a SaaS-based graphics company that creates reports, presentation 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 through graphics and spreadsheets to easily sort and calculate revenue gained at the end of the day. They have a sturdy ACV, as they have many 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 are 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 avoid 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 many clients to obvious 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 essential to 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, which is crucial to a SaaS company's success. Digital marketing is a process of marketing that uses the internet and online-based digital technology like smartphones and laptops to promoting brands and services.
This term began developing in the 1990s and 20s and has greatly altered how brands market themselves to their customers. It is a significant term to get accustomed to because it is used often.
Piktochart is highly skilled in presentation software and digital marketing strategies. They have a social media following and provide useful quality content for their 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 ensure a mutual agreement is reached between them and the company. It is a significant 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 distinct but important uses. Sass companies are the future of marketing and sales. The sooner you get aboard this, the better.
Subscribe to weekly updates
You’ll also receive some of our best posts today