Testing a SaaS Model

Software is licensed and centrally hosted (vs. hosted by the customer) available through digital interface (app, browser, device)

Why a SaaS Business Model is valuable to your business:

  • Low friction shorter sales cycle move to departmental buyers 

  • "Click to ship" vs. costly installs
  • No need for multiple versions of the software
  • Often need a two-step value proposition
  • 1 for user (first) 1 for manager; or third value prop for data security
  • Net Promoter Score
  • Retention
  • The ratio of CAC (cost of customer acquisition) to LTV (lifetime value)

Why a SaaS Business Model is valuable to your customers:

  • Less IT infrastructure and support needed
  • Delivered digitally, lower setup and maintenance costs
  • Overcome benefits of ownership
  • Risk managing security in cloud-based data
  • Integration across multiple SaaS and on-prem solutions
  • Total cost to breakeven vs. on prem offering
  • Cost of ownership and maintenance vs. usage

Companies using SaaS business models:
Athena Health
Flatiron Health
Google G-Suite

KPIs of a SaaS Model evolve as the business grows, driven by retention and referrals from existing customers.

Note there are variations in SaaS metrics based on the sales channel and target customer chosen. Large enterprise vs. Small-Medium Business vs. Small Office Home Office.


What's the best example of a SaaS model?

The highest valued exit in healthtech to date is Flatiron Health, who excelled at providing a SaaS model to oncology practice owners, sold an a total practice ROI value proposition. The company, however, earns more from selling data insights to Pharma.


Key interview questions to validate a SaaS model:

Before you consider the SaaS model:

  • How do you go about purchasing and using this solution today? (Probe for the primary issues, determine if their is a hidden cost of ownership, understand other pain points involved in purchase and use).
  • Test for jobs to be done, level of pain on the pain scale. How much of a priority is (defined problem or pain)?
  • Is this a balance sheet capital expense, or is it expensed on your income statement? If yes would you benefit from shifting to a lower expense on the income statement?
  • How does the customer handle cloud-based and on-prem software decisions? What are the pain points of integration?

    When testing the solution:

    • What is the total cost of ownership of comparable solutions?
    • Arrange features, services, and benefits into key elements of your offer, and have the potential customer arrange the elements of the larger solution in order of priority. Then take away the lesser priority elements until you determine what would make an MVP (minimum viable product).
    • Determine the minimal offering that would be compelling enough to have the customer pay for the offering.
    • Can you design an MVP that has high usage and engagement with a minimal feature set?
    • Is there a user proposition that does not require sign-off from IT or a long buying cycle?
          • Example test cards (Osterwalder's Value Proposition Design)