If you’re looking for a step-by-step guide for how to start a software-as-a-service company, you’re in the right place. Here, we’ll be discussing the steps it would take to start a software-as-a-service business as well as answering common questions.
As a disclaimer, I was compensated for this post. This post also contains affiliate links and I will be compensated if you make a purchase after clicking on my links. You can read more on my affiliate disclosure here.
It’s likely you’ve seen the growing number of software-as-a-service businesses: from accounting software to email marketing software to hosting and educational platforms. You might notice how they have a lower client-facing burden and often times, they can be run with location independence, so it’s a very intriguing business model.
You might see how they’re becoming a multi-billion dollar industry. They seem to be the talk of the town in venture capital circles, and they’re some of the fastest growing companies in the world! Why wouldn’t you want to know how to start a software as a service company? Hahaha.
Here, we’ll be talking about how to start a software as a service company including:
- What a typical day is like?
- What are the startup costs like?
- Who is a SaaS business right for?
- And, what skills do you need to have?
To view this content in video format, check it out here:
- 1 What is a Software-as-a-Service Business? An Overview
- 2 Who is a Software-as-a-Service Business right for?
- 3 What’s a typical day in a Software-as-a-Service Business like?
- 4 Who is the target market for a Software-as-a-Service Business?
- 5 How does a Software-as-a-Service Business make money?
- 6 What is the growth potential in a Software-as-a-Service Business?
- 7 What are the skills you’ll need to make a Software-as-a-Service Business work?
- 8 What are the costs involved with a Software-as-a-Service Business?
- 9 What are the steps involved in starting a Software-as-a-Service Business?
- 10 Ready to Start Your Software-as-a-Service Business?
What is a Software-as-a-Service Business? An Overview
First, before we dive into the business building steps, let’s first start by clarifying what a software-as-a-service business is. According to Wikipedia:
Software as a service (SaaS /sæs) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as “on-demand software”, and was formerly referred to as “software plus services” by Microsoft. SaaS is typically accessed by users using a thin client, e.g. via a web browser. SaaS has become a common delivery model for many business applications, including office software, messaging software, payroll processing software, DBMS software, management software, CAD software, development software, gamification, virtualization, accounting, collaboration, customer relationship management (CRM), Management Information Systems (MIS), enterprise resource planning (ERP), invoicing, human resource management (HRM), talent acquisition, learning management systems, content management (CM), Geographic Information Systems (GIS), and service desk management. SaaS has been incorporated into the strategy of nearly all leading enterprise software companies.
According to a Gartner estimate, SaaS sales in 2018 were expected to grow 23% to $72 billion.
Who is a Software-as-a-Service Business right for?
A software-as-a-service company is right for:
- Someone with a helpful software idea that would fit a subscription model. Companies who have software that would be used regularly or over a long-term would be ideal.
- Someone who would enjoy working with tech teams to ensure the software stays relevant and innovative
- Someone who is good at market research to decide on improvements to stay current with the market
- Someone who has sales and negotiation skills to get buy-in from customers, employees, and possibly venture capitalists or funding sources
What’s a typical day in a Software-as-a-Service Business like?
A software business can have several tasks including:
- Modifying code and software
- Product development
- Client demos
- Setting up ads
- Planning and implementing marketing campaigns
- Customer support (responding to tickets, phone calls, or email inquiries)
- Managing and following up with the tech team
- And more…
I recommend that businesses of all types divide their time into four ways: acquiring the work, doing the work, managing the work, and strategizing about the work. Here is how that would break down in the software-as-a-service business.
Acquiring the work: When you’re aquiring the work, you’re looking for customers for your company. You could be doing market research, identifying where potential customers would hang out, networking in circles where your target audience would be, sales, negotiation, and closing deals, and attracting new people to your sales funnel.
Doing the work: When you’re doing the work, you’re doing things like product development, process improvement, customer service, bookkeeping, and all the tasks that help you to satisfy the customers who have paid money.
Managing the work: When you’re managing the work, you might be following up with your tech team to ensure updates are done, bugs are fixed, software is operating well. You could also be managing other team mates like administration, marketing, advertising, accounting, or legal.
If you’re just starting out, and you haven’t reached the point of hiring yet, it’s important to still ensure you have this time slot available for managing the work, so you can prepare briefings and training that will help your hiring process flow smoothly.
Strategizing about the work: When you’re strategizing about the work, you might be
Who is the target market for a Software-as-a-Service Business?
There is software that solves all kinds of problems, and I’m certain there is still opportunities in the market for innovative software minds to solve problems. I’ve seen email marketing, website registrars, real estate property management software, software-as-a-service, accounting software, church management software, school management software, and so much more!
The target market is consumers, businesses, governments, and the majority of the world uses SaaS of some sort (especially considering companies like Google and social media). As more people begin using personal computers and smartphones more consistently, the demand for SaaS businesses will likely go up.
How does a Software-as-a-Service Business make money?
Products: Most SaaS companies make their money prominently from their software. They create software that solves a problem, and as people subscribe and pay for it, they make money.
Services: In addition, some SaaS companies also make money from services like tech support, custom modification, consulting, or anytime customers request services that are beyond the normal scope of their subscription.
Affiliate partnerships: In addition to selling their own products and services, many SaaS companies make money thru affiliate partnerships: often times as the merchant and sometimes, as the affiliate. For example, a company like Convertkit offers their email marketing software as a service. They also have an affiliate program, so when an affiliate shares their affiliate link, and someone makes a purchase thru the link, they’ll get a commission. This is a win-win. Convertkit makes more money from the sale of their software, and the affiliate makes more money by referring the customer.
In addition to having their own affiliate program to amplify their product sales, SaaS companies can also become affiliate partners with complimentary companies. For example, hosting companies may often get asked for WordPress theme or plugin recommendations, so they could monetize their recommendations thru affiliate marketing.
To learn more about earning an income with affiliate marketing, check out my #1 recommended training here.
What is the growth potential in a Software-as-a-Service Business?
While the software as a service model is already seeing multibillion dollar annual revenues, I think they’re at the beginning of their growth curve. There is still nearly half of the world that doesn’t use the internet regularly. Those people would be less likely to use SaaS tools, but as the internet usage continues to scale, more and more people will use SaaS as a result.
What are the skills you’ll need to make a Software-as-a-Service Business work?
To make a software-as-a-business work, you’d need:
- Software development skills
- Web development skills
- Technical skills
- Marketing skills
- Management skills
- and more…
Many entrepreneurs who start SaaS businesses start with a skill like PHP or coding, and they network, work with others, and work with tech teams who are skilled and can help them grow their software and businesses.
What are the costs involved with a Software-as-a-Service Business?
Starting a software-as-a-service business is one of the higher cost startup business models which is why you see many starting out by asking for loans or venture capitalists to back them. It’s possible to start without funding from investors and loans, but it would require discipline and more focus on sales to drive revenue (which should be the case either way). Some of the costs may include:
- Hiring a tech team: Web developers (varying specialties depending on what type of software you’re trying to develop)
- A website
- Patents, Trademarks, or Copyrights
The startup costs can vary greatly, so it’s very difficult to forecast the startup costs of a SaaS company. It could be a very bare bones operation that starts at $5000-$10000, or it could be a very large endeavor (like Zenefits or AirBnB) that costs hundreds of thousands or millions.
What are the steps involved in starting a Software-as-a-Service Business?
These are the steps I recommend to start your software-as-a-service business…
1. Validate your Idea
First, you want to do market research to validate there’s a demand for what you’re looking to do. For example, if you’re looking to make a graphic design software, you’re going to want to valiadate that there is a hole in the market for your solution.
Affiliate marketing is a great way to validate your business idea because you can build an audience and start selling a comparable product, then use the revenue to invest in your own software company. Added to that, you’ll have a tribe ready to buy what you’ll make.
Once you’ve identified a demand for your solution, you’ll want to validate that this is a good direction for you. Analyze your life plan and overall goals, and decide if this business can contribute positively.
2. Prioritize Your Business
Once you’ve validated the idea, then it’s time to clear time from your schedule, and money from your budget to invest in the business. Clear some slots on your calendar to work on your business and set aside some money to pay for the things you’ll need.
3. Build Your Brand
When you have your time slots open, then you need to spend that time beginning to make a reputation for your business. If it’s new, then very few people will know about it.
You have to create a logo, color palette, brand story, and start to share with others what problems you plan to help them solve. As you’re intentional about building the reputation for your business, more people will begin to know, like, and trust you.
4. Start Getting Leads and Traffic
Your growing reputation will bring leads and traffic especially if you have knowledge about how to market and get customers. There are so many methods, but nowadays one of the leading methods for getting customers is thru internet marketing.
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5. Convert the Traffic into Customers
Once the potential customers are starting to pick up, you’ll notice free trial signups, more demo requests, email inquiries, phone calls, and more. At this point, it’s important you make sure to have a process to escort potential customers from the awareness phase to the advocacy phase of the buyer’s journey. You want people to see the value in the business, and to pay in exchange for your software, but you have to put the conversion process in place.
6. Form Your Business Legally
Once you’re getting more traction with leads, sales, and more intellectual property, you really want to make sure your protected legally and financially. Lawsuits and taxes can be huge and major expenses, so make sure to incorporate to lower the liability in both areas. I recommend Swyft Filings for business incorporation. Swyft Filings is a document filing service. They are not a law firm and cannot offer legal advice, but they can help you to have peace of mind by making your incorporation process smooth. You can learn more about them in my Swyft Filings review here.
7. Organize Your Books
As a business, your finances will serve as a roadmap to help make decisions, but they can only be effective if you record them. If you don’t record your finances, they can become chaotic, and dreadful. Software like Quickbooks or Freshbooks can be very helpful for tracking your finances easily, and you can try them each for free! Check out my reviews of each below.
8. Get Your Office Supplies
As a business owner, you’ll be asked to fax documents, mail documents, and perform other office tasks. It’s important to have the office supplies you need to ensure you’re highly productive. Check out the “recommended reading” below to see which office supplies I recommend most for entrepreneurs.
- 23 Best Home Office Supplies Every Entrepreneur Needs
- GSuite Review
- EVoice Review (#1 Recommended VOIP service)
- Grasshopper Review
9. Systemize Your Process
In the beginning, you might be tweaking your software, doing customer service, marketing your business, and juggling tasks in a very unstructured way, but in order to become very efficient, you have to create systems and patterns. As soon as you can, begin to try performing tasks in a systemized way, so you can improve your efficiency.
10. Reinvest and Scale
When you get revenue in the business, resist the temptation to spend the money on personal things. Instead, pay yourself and leave room for reinvesting in the business. Your business will need things like advertising, tools, equipment, and hired help, so make sure to leave room to grow a healthy company.
Ready to Start Your Software-as-a-Service Business?
The goal of this article was to show you how to start a software-as-a-service business. This is a business model that will continue to grow in demand as technology advances.
If you’re ready to get started with your software as a service business, I’d recommend you learn how to market your software online, and I’d love to help with that! You can get free training on internet marketing plus my Business Growth Framework when you sign up here.
You’ll also get 7 free days of coaching with, 10 lessons of training, access to a community of 1.4 million+ entrepreneurs, and two websites you can try out for free. Let’s get started learning to market your Software-as-a-Service business!