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Top SaaS Revenue Models to Consider

05.02.2013
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When you want to break into the cloud and SaaS software business, there’s one thing you have to plan out before you launch, because once you’ve committed to it, you’re stuck with it for quite some time. That is of course your SaaS revenue model. This entails your pricing, sales model and guaranteed monthly revenue measures, as well as a lot of affected UX and CRM details regarding these.

There are a multitude of choices for your SaaS revenue model, but which one is the most popular? There seem to be between two and four widely used revenue models which are successful and popular. These are the standards, and while copying another business’s model in detail probably won’t work splendidly, you can tailor one of these models to work just fine.

Which of these is the most popular though? It’s really a tie between the standard subscription plan model, and the ad-powered free model. Freemium has its defenders, but it’ actually more of a gamble, and it blurs lines the other two do not.

So, while I wanted to tell you about the top SaaS revenue model, I in stead and going to talk about the two that tie for the top model. Which of these is right for you? It depends on what you’re designing.

Ad Power

Is your target demographic a business environment, or casual users? If you’re targeting casual users, then you are probably going to do better by ad power than by anything else. It covers your guaranteed monthly revenue if you calculate it realistically going in.

This system works by users grinding ads by reloading pages that contain them. Each view earns a percentage, with clicks earning more. Each unit isn’t worth much, but with a lot of free users grinding pages, it can ad up pretty well.

Of course, you have to contend with ad blocking software, or hope your volume is enough to offset that. However, businesses are less interested in this, as they expect to pay for software, while casual users would consider paying a commitment.

Subscription Standard

A standard subscription model will allow a demo of the software, but one that is guaranteed to stop working. Subscriptions are a flat rate, and often there are tiers of functionality with differing prices to accompany them.

Casual users, unless you’re a gaming or video service, will likely not be willing to engage in this. Businesses, however, are prepared for this kind of relationship.

This model guarantees its monthly small revenue by having the month-long demo be powered by unobtrusive but lucrative ads. Going with this model means you have to contend with conversion and churn rates, as well as face fiercer competition.

However, if you want to target businesses, this is the model to go with.

Some of you probably read this and wanted to argue that freemium was the best SaaS revenue model. You are of course entitled to feel this way, but do bear in mind that freemium blurs lines on demos, and takes on the problems of both models, with a hard grade between them. Freemium is risky, while these are tested to work.

Published at DZone with permission of Omri Erel, author and DZone MVB. (source)

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)