How to make money with SaaS (full guide):
- Sell through direct distribution.
- Create affiliate programs and seek partnerships.
- Build custom SaaS.
- Offer paid training and extended support.
- Provide API integrations.
- Sell ad space.
- Charge transactional fees.
- Offer white labeling for your SaaS products.
- Monetize user data.
Making money with SaaS (Software as a Service) entails fulfilling your target market's needs. You need to offer products that fit their requirements. SaaS companies generate revenue by offering subscriptions to their software solutions. They provide ongoing value to their customers while ensuring a steady income stream. SaaS companies make money through various business models. In subscription-based models, customers pay a recurring fee to access the software. The freemium model is also famous because it offers basic services for free. Some SaaS companies include Salesforce, Zoom, and Slack. They have shown the profitability of this business model by innovating their offerings.
SaaS developers create products that streamline the user experience. The most in-demand SaaS products offer seamless integration capabilities. You can also create demand by offering priority technical support. That's why quality assurance is pivotal to keeping customers coming back. You need to ensure proper version control and software updates. SaaS companies ensure long-term profitability by focusing on software development and continuous improvement. These strategies allow SaaS businesses to cater to different market segments. It allows you to maximize your revenue potential.
One Redditor mentioned how he earns $300K in monthly recurring revenue (MRR). This SaaS vendor made an email marketing platform like Mailchimp. Another Redditor revealed that he makes $300K in MRR with 1,000 paying members. He suggests having fewer investors. This means that you get a significant monthly income.
Guillaume Moubeche says that SaaS is a profitable business model. It has a recurring revenue structure and high gross margins. Earnings can reach up to $50,000 monthly or $600,000 yearly. His strategy includes securing upfront payments to manage cash flow. He also leveraged the subscription model.
According to Alex Heiden, SaaS has large potential earnings. Effective strategies involve building a lean minimum viable product (MVP). You must use digital marketing techniques and automated tools to refine the product. It is also crucial to seek user/customer feedback. However, you need time and resources to develop and validate the software. This industry also has intense competition in many niches. There is a risk of high churn rates if the software doesn't integrate well.
The SaaS business model faces many challenges. It needs significant initial investment in software development and infrastructure. Continuous innovation and updates are necessary to stay competitive. The SaaS market is crowded, making it difficult to stand out. You also need effective customer support to keep customers and reduce churn rates. Plus, ensuring data security and compliance can be complex and costly.
In today's article, I'll explain the 9 ways to make money with SaaS. I'll also discuss the best pricing strategies to implement. Towards the end, I'll talk about the profitability of SaaS and if it's a good business in 2024.
1. Sell Through Direct Distribution.
Direct distribution or direct sales is a key strategy for making money with a SaaS product. This involves your employees, sales team, and technical assets. They contact and sell directly to your target customers. Direct distribution includes the 'Freemium' model and subscription revenue model. The 'Freemium' model lets users access basic features for free. If they want more advanced features, they must upgrade to a paid plan. This model helps attract a large user base. It can convert free users into paying customers. Slack is a good example of this.
The subscription revenue model is popular in SaaS. Potential customers pay recurring fees (monthly or annually) to use the software. This ensures a steady and predictable income stream. For example, a project management tool might charge $10 per user monthly. This leads to regular, dependable revenue. Some popular tools include Trello and Canva.
Direct SaaS sales have significant earning potential. According to a report by SaaS Capital, SaaS companies that excel in direct sales can achieve annual revenue growth rates of over 20%. This method also promotes close customer relationships, leading to high customer retention.
2. Create Affiliate Programs and Seek Partnerships.
Creating affiliate programs and seeking partnerships are effective methods to enhance a SaaS revenue model. By leveraging these indirect distribution strategies, SaaS companies can amplify their reach. They can drive more sales through the efforts of others.
3. Build Custom SaaS.
Building custom SaaS products lets you create long-term client relationships while making money. The key to building these products is understanding the needs of potential clients. You should tailor custom SaaS solutions to fit the unique requirements of businesses. This makes the product practical and functional. Some famous custom SaaS products include CRM systems and project management tools.
The earning potential for custom SaaS builds is substantial. Businesses will pay premium prices for software that aligns with their operational goals. For instance, a fully customized CRM system can range from $30,000 to $150,000, depending on complexity. Relevant statistics show the growth in the SaaS market. According to Syndicode, it’s expected to reach $908 billion by 2030. Its annual growth rate is increasing from 18% to 18.7%.
Conduct thorough research on potential client's business processes and problems. Ensure the SaaS product supports the client’s strategic objectives. Then, design the solution to scale with the client's growth.
4. Offer Paid Training and Extended Support.
Offering paid training and extended support can be profitable for SaaS developers. Creating comprehensive training programs helps users fully understand and utilize your software. This leads to higher customer satisfaction and more subscription renewals. You can offer paid training for more in-depth features of your SaaS product. This involves charging customers for structured courses, webinars, or personalized training sessions.
You can also offer extended support services. Providing 24/7 customer service and specialized technical assistance is quite common. Some developers also customize their SaaS software for a fee to meet specific needs. Another great example is priority support. You offer faster response times and dedicated support teams.
According to Help Scout, passing on support costs to customers increases revenue margins. SaaS customer support organizations can achieve gross margins of 38%. Offering paid training and extended support can diversify your income stream. It can also improve user experience and drive long-term customer loyalty.
5. Provide API Integrations.
Providing API integrations is a lucrative way to make money with a SaaS solution. Companies seek SaaS products that can be seamlessly integrated into their existing systems. API integrations allow different software systems to communicate and share data. Most businesses prefer SaaS products that can integrate with their current customer relationship management (CRM) systems. This integration streamlines workflows, improves data accuracy, and enhances overall efficiency. Some famous SaaS API integrations include MuleSoft, SaaS Platforms, and eBay API.
API monetization strategies include charging for API access or offering tiered pricing models. Some SaaS developers also use APIs as a sales funnel. By incorporating versatile API integrations, SaaS providers can attract a broader audience. They can meet diverse business needs and create additional revenue channels. This approach ensures that SaaS solutions remain competitive and valuable.
6. Sell Ad Space.
Many SaaS developers monetize their applications by selling ad space within the software. They do this by offering their SaaS product for free. Then, they enable advertisements from other companies. i-AD is famous for bridging advertisers and SaaS developers. They cater to desktop and mobile ad layouts. One popular example of is Google Ads. Numerous SaaS apps use Google's ad platform to display targeted ads. Another one is Spotify. They offer a free version supported by advertisements. This allows them to reach a broad audience who may later convert to paid plans.
Selling ad space within your SaaS software can lead to higher revenue potential. Cutting out intermediaries like ad networks gives you 100% of the generated revenue. For example, with specific rates, a SaaS with 1,000 daily active users might charge $100 per ad monthly. This can yield a monthly revenue of $100,000. If there are multiple ad slots, your earnings can increase. You also get more control. SaaS developers decide which ads appear. This ensures that they align with the product's brand and target audience.
However, some advertisers prefer websites and apps with high traffic. This can be difficult for SaaS startups. Excess ads can also degrade user experience. That's why you must carefully select ad partners. Maintain a high-quality user experience. This way, you can monetize your apps through ad space while building a loyal user base.
7. Charge Transactional Fees.
Charging transactional fees is a lucrative strategy for SaaS businesses. It's perfect for those who handle payments or other high-volume transactions. Some good examples include Stripe and PayPal. They make significant revenue by taking a small percentage of each transaction. Platforms such as Airbnb and Etsy also utilize transactional fees. They take a cut off each booking or sale. This way, they generate steady income with no need to raise subscription fees.
Transactional fees also apply in SaaS for invoicing, travel bookings, and other services. Let's say a SaaS platform charges a 2% fee on transactions. If they process $1 million in transactions monthly, they get $20,000 in revenue. This model ensures ongoing cash flow. It promotes scalability with the growth of user transactions. Implementing transactional fees helps SaaS businesses align their revenue with their users' success. That's why you need to maintain a reasonable fee structure that users find acceptable.
8. Offer White Labeling for Your SaaS Products.
Offering white labeling for your SaaS products allows companies to rebrand a SaaS platform you created and sell it as their own. It provides a significant opportunity to generate revenue through other businesses. Clients save on development costs while you earn from licensing. Other companies also like this business idea. They can quickly introduce a new product without the development hassle. White labeling lets you reach different markets.
WotNot and Simvoly are famous options for white-labeling SaaS products. WotNot offers a range of white-label SaaS solutions. This includes project management and client portals. Simvoly is ideal for website and funnel building. They allow other companies to market tools in this niche as their own.
White labeling can be financially rewarding. You can earn significant revenue through licensing fees, support services, and customization charges. Platforms like Semrush and SocialPilot offer white-label reseller programs. They entice other companies with comprehensive tools to amplify their earning potential. A 2023 survey showed that 70% of companies using white-label SaaS products experienced growth in their customer base. White labeling your SaaS products positions you as a key player in the industry. You also empower other businesses with robust, ready-to-market solutions.
9. Monetize User Data.
Monetizing user data is a viable strategy for generating revenue from a SaaS model. Companies can offer valuable insights by collecting and analyzing user data. This is often done by selling anonymized data sets or creating data-driven products. However, regulatory compliance is crucial. Companies must adhere to strict rules like GDPR and CCPA to protect user privacy. Violations can cause hefty fines and damage to a company's reputation. Therefore, implementing robust data protection measures is essential.
Google and Facebook are prime examples of companies that monetize user data. Google Analytics offers insights based on user data collected from websites. Facebook uses data to provide targeted advertising services. Spotify analyzes user listening habits to offer tailored recommendations and advertising.
The earning potential varies. For small SaaS companies, data monetization can provide a steady revenue stream. Larger enterprises can earn millions annually from data services. According to Luzmo, data monetization adds significant value to the SaaS business model.
5 SaaS Pricing Strategies
2 Real-Life SaaS Success Stories
1. Viral Vault: All-In-One Dropshipping Toolkit
Three years ago, Jordan Welch launched a SaaS company. He developed an app called Viral Vault. This app offers a comprehensive toolkit for beginners to start their online stores. Viral Vault provides daily curated products, complete with descriptions, and video ads. It also has a dedicated community where coaches answer users' questions. But, it wasn't easy. He almost went bankrupt and lost $30,000 because of a partner's betrayal.
Jordan followed a 4-step formula of research, testing, MVP, software building, and scaling. This validated his idea and ensured it met market needs without significant costs.
His YouTube channel grew from 29,000 to 200,000 subscribers in 2022. In 2024, he has over 1.5 million subscribers. He did organic marketing through his YouTube channel, where he scaled the app. This is where he reached $100,000 in monthly revenue.
Viral Vault is an all-in-one dropshipping toolkit. It simplifies starting a Shopify store. This makes it accessible and manageable for beginners. His story highlights the importance of audience engagement and strategic marketing. This helped him achieve success with a SaaS product.
2. ZenVoice: No-Code Stripe Invoice Generator
Marc Lou built and launched a SaaS product named ZenVoice within 31 hours. His journey was live-streamed on YouTube. He captured every moment, from writing the first line of code to welcoming the first customer. ZenVoice was born out of Marc's frustration with high Stripe fees. It prompted him to create a solution that allowed businesses to generate invoices. Using a pricing strategy of a onetime payment of $69, Marc monetized ZenVoice. He earned $2,000 in profit in the first week after launch.
Marc kept ZenVoice simple and focused. This ensured a quick turnaround and immediate market validation. He dedicated time to perfecting the landing page. He also communicated the value proposition and engaged with potential users. Marc leveraged platforms like Product Hunt, Twitter, Hacker News, and Reddit. This allowed him to get initial traffic and interest. This launch process showed Marc's ability to address a direct market need. It showed the potential of agile product development in the tech startup scene.
Is Saas Profitable?
Yes, SaaS is profitable. This is because of recurring revenue, low operational costs, and business scalability. A study by SaaS Capital found that the median gross margin for SaaS companies is around 78%. SaaS businesses can generate continuous income through subscription fees. This makes them financially stable and attractive to investors. In fact, two Reddit users mentioned how they earn around $50K to $200K in MRR.
The profitability of SaaS companies can often surpass traditional software businesses. According to a report by KeyBanc Capital Markets, top-performing SaaS companies can achieve gross margins of up to 90%. The SaaS industry benefits from recurring revenue streams and high customer retention rates. These cloud-based solutions also offer better scalability.
According to Robiul Rosel, selling SaaS can be lucrative. It’s one of the highest-paying sales positions in the world. He mentioned that the top earners make over $200,000 a year. He adds that the average SaaS salesperson earns over $100,000. Thomas Smale also says that the SaaS market is profitable and offers opportunities. He attributes this to its growth of 113.1 billion in 2021.
What is the Average Revenue per SaaS Customer?
The average revenue per SaaS customer ranges from $500 to $1,500 monthly for mid-market SaaS companies. It's also known as ARPA (Average Revenue Per Account). According to a report by OpenView, the median ARPA for mid-market SaaS companies is approximately $1,200 per month. To calculate ARPA, you divide the total monthly revenue by the number of active customers. This provides a clear picture of the revenue generated per account. If a SaaS company has a monthly revenue of $150,000 and 100 active customers, the ARPA would be $1,500. Pacific Crest also found that SaaS companies that install upselling strategies increase their ARPA by up to 30%.
What are the Best Courses for Learning How To Make Money With SaaS?
Build a Micro SaaS Academy and Zero to SaaS are the best courses for learning how to make money with SaaS. These online programs teach you the basics of creating a SaaS product. They also show you proven strategies for launching your own business. Build a Micro SaaS Academy is a course by Jamie Tam. It helps individuals create and launch micro SaaS products without hiring extra help. The course offers a step-by-step guide to building a micro SaaS. It begins with idea generation and validation. Then you dive into development, publishing, and marketing strategies. The course is for those with some familiarity with software development. This makes it accessible and practical for aspiring SaaS entrepreneurs.
Zero to SaaS by Mike Strives focuses on creating and scaling your SaaS business. It teaches you to develop a winning SaaS idea. The course includes a SaaS blueprint, helpful tools, and exclusive community access. It covers building a minimum viable product (MVP) and effective marketing tactics. It also emphasizes developing specialized solutions for niche markets. This presents significant income growth potential through subscription-based revenue models. The community aspect of the course provides support and networking opportunities.
Should You Start a SaaS Company or a Local Lead Gen Business?
You should start a SaaS company if you are passionate about software development. This is a viable idea if you like solving specific problems for a target audience. However, a local lead gen business is more profitable and predictable. There is always a high demand for high-quality leads. Businesses want to convert paying customers. SaaS can be a lucrative business model, especially for programmers and developers. You can leverage your skills to create and maintain the software. But, it's important to note that the SaaS industry has a relatively high failure rate.
A report by McKinsey & Company found that approximately 92% of SaaS startups fail within the first three years. So, you'll need a comprehensive business plan. You also have to do thorough market research and devise a robust marketing strategy. With local lead generation, you don't need complex marketing or cumbersome software updates. This business model requires less maintenance.
Local lead generation has lower risks. It is suitable for both developers and non-developers. This business model involves creating and optimizing local service websites. You can use drag-and-drop website builders to simplify the process. You capture leads by ranking on the first page of search engines through SEO. Then, you can rent out these websites to local business owners to earn recurring profits. Local lead generation offers 80% to 95% in margins. This translates to up to $50,000 monthly in passive income.
Start a business that frees you from significant time and financial commitment. Local lead gen offers unlimited scalability without the hassle of technical issues.
