by Alex Ho

These are some concepts about SaaS that I learned from the daily work and some insightful articles.

(Image source: freepik)

SaaS Intro

What is SaaS (software as a service)

1. The software is delivered to clients over-the-air through internet. No need to download in install file to the local side of your computer and then install it (as the traditional way to purchase the whole software)
2. The software itself and the related processing data are stored and managed in the cloud space.

Common characteristics for SaaS companies

1. In order to keep clients satisfied and continue to pay, SaaS companies need to keep investing in improving and updating their products
   1. Thus it’s reasonable for a SaaS company to reinvest its profit into product development for future growth, acquiring new customers, market expansion
   2. Even though a young SaaS company might looks like “losing money” in some way, they might be aiming at becoming defensive and generating future revenue
   3. Many SaaS companies focused on revenue growth in their early years, and became profitable in the later phases
2. Unearned Revenue (a.k.a Deferred Revenue 遞延收入)
   1. Even though customers might signed a contract for multiple years, the unearned revenue (to be paid in the future months or years) can not be included in the current financial report
3. Fast expansion to acquire more users
   1. SaaS companies might spend much budget in marketing and business development
4. Scalability
   1. SaaS companies can sell the same software to more and more clients, without investing more physical spending, it’s easier for SaaS companies to scale their business.
   2. And as the business is scaled up, the initial product development costs can be recovered. And thus the gross margin can go up.