Mary Francois Robinson

As technology advances, so too do company practices where automation is the evident next step in the evolution of the world of work. This prospect may make the current labor force insecure about their place in the future where it might help, instead, to focus on the opportunities that the 4th industrial revolution presents. Such opportunities include learning new skills required for innovation such as digital literacy.

In this article, we are looking at SaaS companies in more detail. We will also look at the benefits of this model for the user and the SaaS company itself. This will better help you understand if this is a business model worth pursuing. By the end of this article, you will also know what it means to use SaaS companies for your business.

 

What is a SaaS Company? 

Short for Software as a Service, SaaS’ are businesses that host an application so that users have access to certain software. Similar to the way a domain hosts a website. This means that the company using this service doesn’t need to install software such as a server onsite. Making this solution cost-effective because business owners don’t have to invest in the hardware that this requires. SaaS is therefore cloud technology where customers have access to their systems from any device or location. This type of business model has been growing steadily since the early 2010s.

Examples of SaaS Companies

Having established that SaaS’ is cloud-based technology that comes with its benefits and challenges, let’s look at some examples of these businesses:

Customer Relationship Management (CRM)

 Companies such as Salesforce offer this service to help small businesses grow with features such as tracking sales and managing client information to effectively engage with them in the future. Pipeliner also provides CRM to boost sales by automating the process and identifying gaps.

Project Management

 This SaaS allows for various role players to collaborate on a project. For example, where different departments need to coordinate their efforts. GitHub, for instance, is one such platform that allows users to plan and track work. This is so that your team can monitor performance and enhance productivity. 

Data Management

Platforms such as Nielson manage data in a way that makes analyzing it useful for marketers who have the option to choose various audience segments. 

Accounting

These SaaS’ offer billing and reporting services. Companies such as FreshBooks assist both service providers and clients in managing their invoicing and payments. They also offer reports such as time tracking and project profitability.

Human Resources

 Companies such as ADP, instead, offer payroll and HR solutions such as monitoring employee hours. Clearlake capital also assists businesses to strengthen to capabilities of their workforce with recruitment, training, and succession management tools.

 

What Business Models are Used by SaaS companies?

In previous articles, we’ve seen that business models are essentially how companies make money. SaaS businesses are classified as e-commerce because consumers purchase and make use of their services online. Their services, however, can be more accurately defined under one or more of the following models: 

Subscription model

SaaS’ in this category charge flat rates to clients. Rates depend on how much data they need to store and the level of technical support required. The benefit of this model is that you have a consistent customer base and reliable income. The key is to incentivize customers to purchase a yearly subscription. There are challenges related to this model, however. One is low profit margins. As a business owner, you’d need to increase your marketing efforts to make volume sales to compensate.

Storage

SaaS’ using this model offer their services for free. That is until clients reach a specified storage limit. At that point, the company charges customers if their business needs more capacity. The benefit of this model is that, as long as you’re offering reasonable storage space to attract clients, you can keep your threshold low. This way they may need to eventually upgrade later. The challenge, however, remains that you still must service companies who aren’t paying because their storage requirements are below the threshold. 

Free or ad-based

This model is also offered at no expense to the customer with the option to upgrade (for a fee) to avoid advertisements. The benefit here is that you’re making your service accessible to a significant number of customers. If those customers are satisfied, you may bag more clients by word of mouth.

On the other hand, the challenge with this model is that you would have to have an extended workforce. This includes a sales team to find paying advertisers to atone for non-paying users.

Per user

This model depends on how many people from one company will be using your application where, as the numbers increase, so does the charge. The benefit is that your service is easily marketable as a solution for companies looking to streamline their processes by having all personnel work from the same platform.

The challenge, however, will be selling to individuals outside the corporate space where you’d need to find ways of incentivizing individual users to expand their network by inviting their friends and family to join.

Feature-based tiers

Similar to the storage model, SaaS’ that fall into this category have function restrictions where clients can upgrade to get a wider range of capabilities out of your application.

The challenge with this is that you’ll need more hands to coordinate technical support because of the different functionalities for various users. 

Pay-as-you-go

This model works in direct contrast to the subscription model. With this business model, there is no recurring bill and customers. Instead, customers just pay for your service on an ‘as and when needed’ basis. Although the benefits here are that neither you nor the user is bound by contract, you would have to continuously give users enough reason to stick with your services.

 

Benefits of a SaaS Business Model

Now that we’ve got a better understanding of the model revenue models, let’s take a look at the other benefits of running a saas company.

Recurring Revenue

One of the first benefits is the opportunity for recurring revenue. SaaS businesses typically rely on a subscription-based model. This means they can generate predictable and recurring revenue monthly or annually. This provides stability for the business and makes it easier to forecast revenue and plan for future growth.

Lower Costs

Compared to traditional software businesses, SaaS businesses have lower overhead costs. This is because they do not have to worry about physical product development, manufacturing, or distribution. That lack of reliance results in significant cost savings. Those savings can be reinvested in product development, marketing, and customer acquisition.

Accessible from Anywhere

SaaS products are typically cloud-based. Cloud-based products can be accessed from anywhere with an internet connection. This provides users with greater flexibility and convenience since they can access the product from any device anywhere in the world.

Scalability

SaaS businesses have an opportunity to scale their operations quickly and efficiently. This is due to the fact that they do not have to worry about physical constraints such as manufacturing capacity or distribution channels. Many SaaS companies can operate with minimal staff, as well. This makes it easier for these businesses to expand their user base and generate more revenue.

Adaptability 

Just like in any business, founders can expect change to come at any time. SaaS businesses can quickly adapt to changing market conditions and customer needs. Since the product is software-based, it is easier to update and modify. This allows SaaS businesses to respond quickly to customer feedback and make changes to the product as needed.

 

Risks of a SaaS Business Model

Reliance on Third-Party Infrastructure

SaaS businesses depend heavily on third-party infrastructure. Things like such as cloud service providers, data centers, and internet service providers are necessary for every SaaS company. Any disruptions to this infrastructure can cause downtime, slow performance, and other issues that affect the user experience.

Reliance on a Subscription Model

One benefit of a SaaS company can also be a risk factor. As stated earlier SaaS businesses rely on a subscription-based model. While this does create predictable income, it can also create the possibility of lost revenue. Customers can easily switch off subscriptions. This can happen during economic downturns or if they want to save money. It can also happen if users no longer see the value in the service.

Intense Competition

SaaS businesses face intense competition. New entrants are continually entering the market. To succeed, SaaS businesses must differentiate themselves from their competitors. One way of doing this is by providing better products, pricing, or customer service.

Customer Churn

Customer churn is a significant challenge for SaaS businesses. Customers may cancel their subscriptions if they are dissatisfied with the product or service. Or, again due to competition, customers may find a better alternative. SaaS businesses must continually improve their products and services to retain their customers and reduce churn.

Regulatory Compliance

SaaS businesses must comply with various regulations, including data protection, privacy, and intellectual property laws. Failure to comply with these regulations can result in legal action, fines, and reputational damage.

High Customer Acquisition Costs

Customer acquisition costs can be high for SaaS businesses. Especially during the initial growth phase. To acquire new customers, SaaS businesses must invest in marketing, sales, and customer support, which can be expensive.

 

Conclusion

In summary, we looked at what Software As A Service is and how companies can benefit from operating on this cloud technology. We also considered the risks involved for the user and the SaaS company itself. 

Some of the uses that SaaS provides are the management of customer relations and human resources, project coordination, and sales monitoring. Regarding the types of SaaS business models, we saw that they can operate based on six, or even a combination of these where they generate revenue through, for example, subscriptions, storage usage, or added features.

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The SaaS Company Business Model Explained Republished from Source https://startupmindset.com/saas-business-model/ via https://feeds.feedburner.com/startupmindset

Entrepreneurs launch their businesses as a result of a need they’ve recognized in the market. They often establish their operations, build a customer base, and make a profit before they think about the type of business model that aligns best with their company. This is because as businesses grow, their owners will inevitably stop to reflect on what’s working and what isn’t to identify areas of improvement to ensure sustainability. What they’re unconsciously doing is further defining their business model.

A business model is not only how your company makes and sells a product or service but how it can maximize profits by optimizing its value chain. Defining your business along these terms also helps clarify your value proposition to potential customers and create further growth by differentiating yourself from the competition.

In previous articles, we’ve looked at different business models including social media, peer-to-peer business model, and direct-to-consumer models. Here, we focus on the retail business model and how to enhance its efficiency to fine-tune your company strategy and meet its objectives.

What is The Retail Business Model?

The retail business model is a type of business model where companies sell their goods to customers from a fixed point of sale—whether that’s from a brick-and-mortar shop online store, or on social media. Online, a company can sell their goods on diverse platforms that have built-in commerce features such as Instagram shops.

The retail business model also contrasts with that of wholesale, where retail sales are direct to consumers and purchase volumes are low. This model also outsources manufacturing, storage, and distribution, which further contribute to standard company expenses. In this case, business owners must mark up their prices to cover these additional costs.

How Does The Retail Business Model Make Money?

The retail industry is highly competitive because there are countless companies offering the same products and services. This is because the nature of goods sold are mostly considered essentials which, as we will look at in more detail later, include groceries, banking, and gas.

Retail model business owners can increase revenue by brainstorming ways to differentiate their company’s offerings to attract customers. For example, you could create a retail destination such as a bookstore, where you can enjoy a cup of coffee while sampling different reads.

Besides offering in-store experiences, retail business owners can also enhance their income by managing their expenses. You can do this by hiring conservatively to maintain staff costs and investing in assets that generate income.

Another way that retail businesses make money is by managing inventory. Too much of it means high storage costs and less cash flow while with too little, you risk running out of something and customers going elsewhere to get it.

Encourage repeat buying by building customer relationships. Some ways to do this include incentives such as loyalty points and discounts for members.

If your business has the budget for it, you can also consider cost-effective advertising such as promoting your products in catalogs, email, and SMS marketing.

Examples of the Retail Business Model

Although most retailers offer their products and services from a physical store, more and more are selling goods online. Consumers often prefer the convenience this offers, as they not only save gas money but time as well.

Here are some examples of businesses based on the retail model:

• Groceries stores. Because they offer non-durable and durable goods, they are sensitive to price fluctuations.
• Furniture and appliances. Examples include Home Depot and Costco.
• Clothing stores. Macy’s, Nordstrom, and Nike are also some companies that use the retail model.
• Services such as banking, travel, pharmacies, and real estate. Examples include establishments such as JPMorgan Chase Bank, Intrepid Travel, CVS Pharmacy, and RE/MAX real estate.
• Gas stations. Shell, Exxon, and BP also fall under this model, and similar to grocery stores, this retail category is also dependent on external factors such as oil prices.

Department stores such as Costco, Target, and Walmart fall into more than one of the above categories since they offer food, clothing, furniture, and appliances. However, because of the competitive nature of the retail business model, it makes more business sense, as a startup, to start in one category and specialize in it before expanding into other areas.

Potential Challenges of the Retail Business Model

Incorporating Technology

The first potential pitfall that your company may face is not being able to innovate fast enough, where you risk losing customers because your mode of operation is outdated. For example, not incorporating e-commerce as a sales method isolates customers who would prefer to stay at home or visit friends than have to come to your store.

A lack of online presence is also a missed opportunity to recognize trends and get to know your customer better through analytical software. Retail businesses can secure return business by becoming more customer-centric to maintain their loyalty. Some ways to ensure this happens includes making your product or services easily accessible by, for example, making your website and online store mobile friendly. Product consistency and following through on professional customer service with fast delivery times are also other ways of building a solid working relationship with your clients.

Not incorporating technology into your business to optimize processes, such as automating easy and repetitive tasks to increase efficiency, also places your company at a disadvantage. Having said this, make sure that the individuals that you do hire are digitally savvy because AI and the human factor are complementary.

Staffing

Another potential challenge is a staff turnover to the point where you’re not able to meet employee expectations. You can retain talented employees by creating room for growth within your organizational structure by giving individuals tasks of which they can take ownership. Upskilling staff through training is another way that you can incentivize employees while closing the skills gap in your workforce.

Conclusion

In summary, the retail business model is one where you sell your product or service—either traditionally or online—directly to customers. You can make money as a retail business owner by monitoring and closely controlling costs to retain income after having the added expense of outsourcing manufacturing, storage, and warehousing that this model requires.

We also looked at some examples of this model, and although the brands mentioned are established, they all started with the same entrepreneurial ambition that you have. 

Finally, we investigated the obstacles that may arise, where adaptability becomes key to creating a sustainable retail business. Taking a look at these points will help you decide if this is a business model that would work for your business.

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What is the Retail Business Model and How Does it Work? Republished from Source https://startupmindset.com/the-retail-business-model/ via https://feeds.feedburner.com/startupmindset

Your aspirations of building a successful business are slowly coming to fruition. You’ve established that there is a need for your product or service through thorough market research, your company has finally been registered, and you’ve officially opened your doors.

Chances are, you’re well aware of the resources needed to win over new clients, follow through on your commitments and ensure repeat business. When we say resources, yes, we mean communication channels to reach out to potential customers, production lines, and processes too, but more crucial to your operation’s lifeblood is its people.

This invaluable resource will drive your vision to reality, where finding the most suitable team members is the first step in building a sustainable company.

As a business owner or even senior manager of your department, part of your role is to ensure motivation among human resources by creating opportunities for growth and guiding their goals to align with company objectives. There are also things that you must avoid doing in order to keep employees happy in their roles.

It’s not always possible to keep employees happy, however. As a leader in your organization, it’s vital to look for signs of discontent, especially in resources that are key to your company’s success, and address these issues before the situation becomes unmanageable. 

 

1. No communication

As a leader in a company, you’ll have to communicate your business strategy from the top down. It’s essential that employees are aware of the company goals so they appreciate how their role in the business plays a part in it.

Not everyone who goes into business makes for an adequate leader where it’s one thing to recognize an opportunity or conceive the next best business idea but quite another to inspire employees to share in your ambitions.

Having the foresight to see how the potential of each team member fits in with the bigger picture allows leaders to plan accordingly and guides their decision-making. Communication is a two-way process. Creating a platform where employees can give feedback and voice their opinions makes them feel heard and this, in turn, builds company loyalty.

2. Unclear roles and expectations

Although you may have found the perfect candidate with the right skills and relevant experience to fill a vacancy at your company, role clarity is fundamental to getting things off to a good start.

Once you’ve managed to place someone who fits the job description, you’ll need to take the time to establish short, medium, and long-term goals with the new employee. This approach helps give them direction that aligns with the company objectives and creates a system to monitor their progress.

3. No growth opportunities

Most employees aspire to grow with the company they work for. Besides on-the-job learning that naturally takes place, managers should also consider opportunities for further training. Depending on the timeframes you have set with your workers to achieve certain goals when you sit down to assess their development and find that there are shortfalls, a manager will have to ascertain whether it’s from the candidate’s lack of willingness or their limited ability.

We will look at some of the reasons for the former further on in this article, but where poor performance is a result of incompetence in certain areas, we have to give them the opportunity to improve. Establishing a skills matrix within your organization helps identify the knowledge required to execute tasks specific to a particular job category.

Although taking time off work to do formal training can be disruptive to operations, it’s a necessary sacrifice a manager has to make. Reason being that if an employee can apply what they’ve learned in the classroom to their daily activities, the exercise will have proved to be a return on investment. Attending workshops and seminars is another way to create employee exposure to the best industry practices, bringing value to your business. 

4. Work overload

A business owner should aim for zero staff turnover because part of the company’s brand is maintaining a positive image in the public eye. One of the ways in which you can establish this is by setting achievable goals within reasonable timeframes. Although you want to encourage growth amongst your employees by giving them challenging tasks, you must moderate this so as not to make employees feel inadequate if they can’t deliver. It will also save you time, as you won’t have to reassign the task because you’ve set attainable targets.

5. Ineffective team management

Teamwork is a key ingredient in creating a positive work environment where your staff cooperates to achieve results that they can be proud of. As a department head or business owner, you must have your finger on the pulse to pick up if there is any unhappiness because one team member isn’t pulling their weight.

This situation compromises group efforts where, if there is already discontent among the group about something work-related, the inclination is to think, ‘Well, if they can get away with it, why can’t I?’ To prevent this toxic work environment from manifesting, you’ll need to take difficult but necessary disciplinary action where you’ll have to determine whether the situation is salvageable or not.

6. No recognition

Rewarding employees is necessary to keep staff morale up, where employees feel that their efforts are recognized and are compelled to maintain their performance levels.  Over and above the standard yearly increase given, a business owner and/or manager may decide to provide additional rewards based on the following: 

• Timeous and accurate work. The majority of your staff complement will consist of the good ‘worker bee.’ This category of workers is happy doing routine tasks. They are consistent, diligent, and reliable. They are committed and are usually your long-standing employees whose length of service to the business should be rewarded.
• Going the extra mile. Employees that fall under this category look for ways in which to work smarter and not harder. They are solution orientated and persistently look for more efficient ways of doing things. By creating simplified processes and, ideally, documenting them, they make it easy to fill their role so that they can move up the company ranks because they’ve saved the business time and, in turn, money.
• Business-minded. Finding a candidate who falls under this category is rare; therefore, it’s in the management’s best interest to recognize them and not waste that potential. They are able to identify opportunities and are usually the ones who propose ideas to drive the business forward. This level of strategic thinking and commitment is highly deserving of some form of recognition.

Now that you’ve identified which staff merit a reward, you’ll need to consider what form this incentive takes. A good leader appreciates that different people have different values, where an individual may prefer to have extra time off of work instead of getting additional money.

Giving employees this option further solidifies employee loyalty to the company.

The bottom line

We have seen how communicating your company’s vision gives employees direction on how to put it into action, which is an important first step in retaining good employees. They see it as an opportunity for growth, and when given a clear role, they’re motivated to perform accordingly.

Retaining a productive workforce also entails coordinating operations so that everyone has a feasible workload, where they have the room to self-manage because they’re not having to crisis manage constantly.

We can also conclude that teams deserve the time they take to manage and keep motivation at optimum levels.

Lastly, we saw how having a reward system in place is in the company’s best interest. Recognizing employee achievements places the business in a better position to achieve its goals in the long term because it’s been able to keep its most fitting human resources.

While there are times when a good employee stops caring about their job that has nothing to do with the work or leadership, address these 6 reasons will help keep good employees on staff.

 

This article was first published in August 2021 but has been updated and expanded

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6 Reasons Why Good Employees Quit Republished from Source https://startupmindset.com/9-things-managers-do-that-make-good-employees-quit/ via https://feeds.feedburner.com/startupmindset

In previous articles, we’ve looked at why businesses must work within specific models depending on what they offer the market. Identifying exactly how your company makes money gives you the edge where, as an entrepreneur, you know which opportunities to pursue and which not to waste your resources on. In this article, we’ll look more closely at the Direct-To-Consumer (DTC) business model and its pros and cons.

As the name suggests, transactions within the DTC model happen between the company and the end user, that is, unlike the traditional retail business model, there are no intermediaries such as the wholesaler. This type of business model trades primarily online where you sell your goods through eCommerce.

Let’s look at the DTC business model in more detail.

What is a Direct-to-Consumer Business Model?

Online trading is not limited to the DTC model where you may decide to sell your product from a third-party platform. However, selling from your own website allows you to have control over how your brand is expressed and achieve brand consistency. Therefore, it’s worth investing in a professional who will ensure that not only do you have an attractive and engaging sales platform but that it is user-friendly, too.

Another unique feature of this model is that you can customize how you offer or introduce your products  to secure more sales. For example, if you have an online skin care store, you could have a quiz to determine what type of skin the user has and recommend products accordingly.

Within the DTC framework, the business is also in charge of service delivery where a significant amount of follow-through is needed post-sales. The responsibility will be on the business to prepare, dispatch, and deliver goods smoothly and in a timely manner.

Furthermore, because this business model is so customer-centric, optimizing user experience also depends on whether they can give feedback, and your ability to respond to it and adapt if there is enough demand to do so. Allowing feedback also presents diversification opportunities where you can pick up unmet needs and in turn, extend your product offering. This gives customers the power to co-create products where you, on the other hand, can test the market on the existing customer base.

How Does This Business Model Make Money?

The DTC business model retains income from not having to pay outside suppliers, such as third-party online retailers, or not giving discounts for bulk purchases by wholesalers. This allows the DTC business owner to sell products at a low cost, creating a budget for marketing.

Another way DTC businesses make money is through subscriptions where, for a monthly or yearly fee, regular customers become members and receive added benefits, such as discounted items. Subscription boxes are an example of this where members get a small selection of goods to try which then drives future sales.

The digital retail space offers business owners access to seller data, such as their demographics and buying habits. These insights allow companies to customize their service offerings and in turn charge more for their products and services.

Online retail also increases a company’s potential for sales by using search engine optimization (SEO) tools. SEO tools work by using specific keywords in your website content that then increases a business’s discoverability.

Business owners can also generate income from notification systems where users of your platform can sign up to receive information about sales by email with embedded links.

Creating a Sustainable DTC Business

The success of this business model relies on creating an authentic experience for the end user in how they identify with your brand.

Creating an authentic experience for the consumer happens when a company organically produces a product (or service) based on what matters to consumers. If businesses are successful, then they will attract customers that can relate to the company’s values.

Alternatively, you can create experiences for your target audience where entrepreneurs spot a need in the market and create goods that cater to that need. For example, maybe you started a sustainable clothing store because you wanted to do something about the negative impact the fashion industry has on the environment.

Another example is that you may have established a healthy foods online store and one of the main requests that you get is to offer meal kits. These kits allow you to expand your service offering based on customer needs.

Examples of the Direct-to-Consumer Business Model

The three categories to consider are:

Product and services

An example of the DTC model is the Dollar Shave Club, which offers monthly subscriptions where based on the information you give them; they will then tailor-make packages with quality products. Another subscription-type DTC business is JustFab, a fashion eCommerce site. that offers a personalized shopping experience where they curate looks that match your style preference.

Product only

BarkBox offers members monthly boxes for their pets with different themed toys and treats. They entice customers to join by offering double the number of items you’d get on any other month when you first sign up with them. Another way BarkBox retains members is by asking them to provide feedback on which tools their dog(s) loved. This way, Barkbox can customize future orders accordingly.

Service only

DoorDash is a popular food-delivery service that will drop off your favorite food from various restaurants at your door. DoorDash also offers a monthly subscription that allows users to bypass their fees associated with each order. Similarly, FreshDirect offers customers the convenience of having their groceries delivered to them.

Another example of a DTC business is online training. Users can subscribe to virtual courses without having to go through a university or school. LinkedIn is a good example of this, as they offer paying members a large variety of courses in a wide range of fields and expertise.

Potential Challenges

Due to the exclusion of third parties, the DTC business model requires that orders are fulfilled internally. They must manage activities that companies based on the retail model would usually outsource, such as cybersecurity, warehousing, coordinating shipping, handling returns, and customer service. Because of this, you may need to have more departments, which will involve higher labor costs.

Another challenge with this model is that there is high competition where there are a great number of companies offering the same product or services that you are. Differentiating yourself from the rest will require innovative thinking, significant marketing efforts, and professional customer engagement.

Conclusion

In summary, the DTC business model is based on transactions between the company and the customer where income from sales is kept high because of the exclusion of  the “middleman.” We’ve also seen how, at its core, this mostly web-based trading depends on modifying your offering to personal expectations to enhance user experience and, as a result, ensure repeat customers.

This strategy, together with efficient service and ascertaining how a product is received, is what will put you in the position to set yourself apart from competitors. For more on the different types of business models, read our article 21 Different Types of Business Models With Examples.

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The Direct-to-Consumer Business Model Explained Republished from Source https://startupmindset.com/direct-to-consumer-business-model/ via https://feeds.feedburner.com/startupmindset