Which of the following is not a true statement about the software as a service model.

Why should you consider moving to a SaaS Model?

Time to Launch

Each SaaS application is already installed and configured in the cloud. This minimizes common delays resulting from often lengthy traditional software deployment.

Once development is complete, the software is ready to use. There is no additional time waiting for installation or resolving unexpected issues with the client’s hardware once the software is deployed on site.

Scalability

There is no need to worry about capacity as the software’s usage or users grows. Moving to a SaaS model means organizations can add users as needed without worrying about procuring new hardware and other infrastructure components.

Clients can receive additional storage space or bandwidth with the simple push of a button. When additional user licenses are needed, such as for new hires, they can be obtained by creating a new user ID and password rather than having to purchase additional physical software.

The product owner must be prepared to provide additional capacity but achieves economies of scale by hosting multiple products in the same place. Therefore, these costs are much lower than they would be for the client to upgrade their own hardware. In addition, the product owner can recover incremental costs by billing based on usage.

Costs

Costs in a software as a service model are also lower in several other ways.

Total Cost of Ownership
Even though clients often focus on the ongoing fees, the total cost of ownership is generally lower. This is due to a combination of lower hardware costs and not losing efficiency as traditional software becomes dated. In addition, the client doesn’t need to maintain a physical space to hold servers or other hardware.

Initial Setup Costs
Initial setup cost reductions include a much lower upfront software cost if any upfront fee is charged at all. The client also avoids purchasing new hardware and buying or renovating a physical space to hold it.

Support Rates
Efficiencies in providing support provide further cost reductions that the product owner can capture as profits or pass on to the client in lower fees. These include a greatly reduced need for on-site visits, incremental development serving as preventive maintenance, and having multiple clients using software based on a common set of features rather than as truly independent products.

Maintenance
Eliminating client-site hardware drastically reduces maintenance needs and downtime. The client never has to bring their system down for hardware upgrades or repairs, while the product developer can share backup systems between applications. The client’s IT team can also avoid spending time and money performing preventive checks to ensure system reliability and avoid unnecessary downtime.

Additional Benefits for Software Owners

In addition to the shared benefits, SaaS companies receive the following business advantages.

Increased Lifetime Value
Upselling and cross-selling are built into SaaS models. Instead of a single chance to pitch the customer on how many features they should take on, you can give them a menu of options. As the customer’s needs change or they see that you have an easy solution to a pain point, they can upgrade their services. This allows you to capture additional revenue even when the customer only selects your most basic options on the original sale.

Increased Customer Loyalty
SaaS companies gain a number of tools to increase customer loyalty. This includes the ability to add permanent or temporary benefits such as free features or storage, the ability to earn discounts, or gifts and contests.The app can also allow for built-in communication between you and the client. The ongoing conversation can help you maintain a rapport with the client while providing a high level of service that keeps them from exploring other options.Finally, even though SaaS can sometimes feel cookie-cutter and un personalized, adding design flexibility can allow the client to tailor the software to their own preferences and branding without affecting core functions.

Better Metrics
A SaaS model provides real-time metricsto understand how your clients use your software. This lets you make more accurate business projections and increase the lifetime value of your clients by being able to proactively adapt to their needs. You’ll also have better data to help you decide when it’s time to scale or pivot your product.

Increased Valuations
Company valuations are generally based on revenues, cash flows, and/or profits. This includes both current numbers and future projections.On-premises software providers typically see a plateau as their sales peak and previous buyers stay with their original software and don't make new purchases. On the other hand, SaaS providers typically see growing revenue as long as they control customer churn. Because of these growth projections, SaaS companies typically trade at much higher valuation multiples than other providers.

Additional Considerations for Your Clients

There are also several selling points you can use to help convince your clients to transition to a software as a service model.

Budget Flexibility
Buyers with a consumer mentality often object to ongoing fees, but a subscription model provides the ability to switch or stop service at any time without losing a large upfront cost. Clients can quickly add features when they need them and later scale down if they need to cut costs.

Easier Budget Approvals
One reason that many companies keep outdated and inefficient software is the difficulty of convincing managers to approve a large one-time expense. This could be because the company truly doesn’t have the money or because managers don’t want to take a hit on the income statement. A low monthly or annual fee that makes up a small portion of a company’s overall expenses can be much more appealing to these managers.

Configuration and Integration
Embedded settings still give clients a high degree of ability to customize the software to their needs. Integration with other services, either your own or through third-parties, further gives clients the ability to tailor a solution to their specific needs while gaining the efficiency of having a single connected system.

Time to Launch
Clients also gain by having a shortened sales cycle. Once a SaaS application is operating, the time to launch is almost immediate. There is little to no need for custom development, and there is no installation time. In many cases, clients may be able to create their accounts and start using the software on the same day they sign the contract.

Simplicity
On-premises software that is highly customized or designed for anticipated future needs can be needlessly complex. By focusing on core features, current needs, and continuous incremental improvement, subscription software and services can be much more user-friendly.

Easy to Review Usage and Billing
Built-in analytics allow customers to easily review their usage and what they’re getting for their money. Customers who aren’t making full use of their features can be guided to downgrade rather than drop the service entirely as a result of feeling overcharged. Those near their usage limits can plan for a potential cost increase. Finally, those who are currently paying the right amount can see exactly what value they’re getting for their money so that they’re less likely to explore other options.