Money for Something and your SaaS for Free

If you grew up in the MTV age you remember the Dire Straits song and video “Money for Nothing”.

The guys working hard every day delivering and installing appliances are jealous of the rock star that does little or nothing yet still gets the girls.

Money for Something and your SaaS for Free is a take on how SaaS platforms could tweak their business model to potentially acquire more customers and generate more revenue. Specifically how an application that has or can add payment solutions to their offering.

Saas for free image 3432The SaaS business model is now the norm. Think back to Microsoft business model. Release Windows version A and sell many copies. Lots of one-time revenue but once purchased that business or individual would not be sending any additional money to Microsoft until the next version or 2 was released. Microsoft like most software businesses in that time frame had to run its business on spiky revenues: An income flood when new releases came out but a trickle in the interim.

Today you pay $X per month and receive all updates and services for that subscription payment. Finding the sweet spot of where that $X can take significant time. For most industries you have competition so you tend to be forced into the range of your competitors. Gartner predicts 2019 SaaS revenues to reach 85 billion.

SaaS businesses are also typically valued at a multiple of their revenues. This multiple tends to be significantly higher than a more traditional business with 10X annual revenues a common valuation. More on valuation here.

As a startup this can be especially challenging as you must have some competitive differentiator that compels a prospect to choose you over another solution.

The question is: Could you offer your SaaS product at no monthly cost?

Clearly every business must make money to survive, so if you don’t charge a monthly fee where does your revenue come from?

Our answer revolves around payments but the premise can be applied to other areas of your business.

As an example we will use a Property Management SaaS. The application allows you to keep track of property info [record income, expenses, applicant screening, leases etc] as well communicate with tenants [eg repairs]. They target up to 10 unit owners. We will call them A1 Property Management Software.

There are MANY providers in this space. The vast majority operate in the traditional model and charge around $20/month. Some even offer free tenant ACH payment collection using an ACH API solution.

A1 goes to market at $0 per month. They decide they will monetize their application via payments, tenant credit reports and tenant insurance.

The payment fees are as follows: $2 per ACH payment. They also offer a tenant self service option to pay via debit/credit cards but charge a convenience fee to the tenant.

If there are 7 units under management and 6 pay via ACH processing and 1 by convenience fee then payment revenue could be $13-15+ per month. If each tenant generates $2/month in insurance premiums that client could be worth $25+ per month.

So in contrast to a platform charging a flat $20 per month A1 offers FREE. The platform user only pays when THEY GOT PAID. Much easier to sell than “it’s $20/m” regardless.

Free is much easier to sell. Having payment collection built-in creates a much stickier customer relationship. By exploring additional “upsell” offerings you may actually make more than your traditional competitor charging the standard monthly fee and will maybe even steal some business.

There are additional benefits of the partner ecosystem. Cross promotion, brainstorming and dialogue will often spark new product and service introductions.

Interesting related article: 4 Proven Marketing Strategies for SaaS That Deliver Results in 2019.