As an entrepreneurially minded person, buying an online business is an exciting prospect. Whether you are seeking to escape the nine-to-five hustle, grow your income, or simply do something new, owning and running an online business brings many benefits.

There are many business models to choose from, and the right one for you might not be the right one for another individual. That being said, software as a service (SaaS) companies represent a truly exciting opportunity in the online business world.

In this article, we discuss nine compelling reasons why you should consider buying a SaaS business. These include:

• Recurring revenue
• Scalability
• Increased customer lifetime value
• Customer feedback and product improvement
• Proven concept
• Avoiding the start-up grind
• Established customer base
• Work flexibility
• Business value

Related Article: 5 Elements Every SaaS Marketing Strategy Should Include

Recurring Revenue

One of the most exciting and beneficial aspects of SaaS businesses is that they inherently rely on a recurring revenue business model. With an ecommerce business, when you win a customer you only achieve one sale. Yes, they might come back later and buy other products and develop a degree of brand loyalty, but it is not the same as a SaaS business. 

With a SaaS business model, when you win a customer they are signed up for an automatically recurring subscription payment. The subscription could be monthly, quarterly, or yearly, depending on your specific business plan. Regardless, unless the customer unsubscribes, you know that you will be getting continuing future payments from that customer. 

As you gain more customers, you have the opportunity to grow your monthly recurring revenue dramatically, making SaaS businesses extremely profitable. One of the keys to this, however, is making sure to keep your churn rate (how many customers you lose over a period of time) as low as possible. 

Recurring revenue also comes with the added benefit of making it easier to predict and plan your business’s future finances. At the same time, this stability can lead to reduced risk for your business compared to other business models.

“Recurring revenue also comes with the added benefit of making it easier to predict and plan your business’s future finances.”

Scalability

SaaS businesses are highly scalable. For starters, you aren’t dealing with any physical goods, only software. This allows for relatively easy scaling without the need to deal with supply chain logistics or other related matters.

Also, since each new customer is signed up on a recurring basis, you don’t need to win new customers at the same rate as an Amazon FBA business or other ecommerce business in order to grow your revenue. As long as you are taking on more customer subscriptions than you are losing, you can scale.

Lastly, you have the ability to roll out new products to your existing subscribers in order to further scale and increase revenue.

Increased Customer Lifetime Value

Customer lifetime value, or CLV, is the average amount of money each customer spends with your SaaS business. It is one of the key metrics to pay attention to as a SaaS owner. For example, if you have a subscription for $10 per month and each customer sticks around for four years on average, your CLV will be $480 ($10 x 48 months). 

When you know your CLV, it makes it much easier to know exactly how much you can spend to acquire each customer. In the example above, you know that if you spend $100 to acquire each customer, it still leaves $380 per customer to cover other overhead costs and generate a profit.

Customer Feedback and Product Improvement

When you run a SaaS business, creating loyal customers is key to long-term success. The easiest way to earn customer loyalty is to create a good product. One of the best ways to make a good product is to get frequent and relevant customer feedback and implement necessary changes.

The digital nature of SaaS products makes them easier to collect feedback on. When a customer buys a physical product, they may not interact with your company again, unless they buy another product. With a SaaS product, they are interacting with your company every time they use the service. This provides a great opportunity to solicit feedback. 

“When you run a SaaS business, creating loyal customers is key to long-term success.”

Once you collect feedback, it is relatively easy to implement necessary improvements. With physical products, once they are sold, they are out of your hands. There isn’t much you can do to improve a phone case, for example, once it is in the hands of a customer.

With a SaaS product, you can roll out changes to all of your future and current customers. This process of collecting feedback and making improvements makes it easy to iterate your SaaS product, ultimately leading to better customer satisfaction and greater customer loyalty.

Proven Business Concept

One of the big questions you might be asking yourself is whether you should buy a SaaS business or start one from scratch. When it comes to this topic, there are several important things to consider. 

When you start a business from scratch, it has a relatively high risk of failure. After all, a high proportion of new businesses fail within the first few years. All of the time, energy, and stress you put into getting it off the ground might not even generate anything tangible in the end. 

When you buy a successful business, on the other hand, you are buying a company that has a proven business concept. You know it has a developed service product customers are willing to pay money for. While all businesses have a risk of failure, regardless of how proven they are, buying a company with a proven concept is often less risky than starting a new business from scratch.  

Avoiding the Start-Up Grind

Starting a business from the ground up can be exciting and extremely rewarding. New ideas are flowing, and you have incredible latitude for creativity as the owner. However, the start-up game is not all fun and excitement. 

Starting a business requires a ton of hard work. You will spend countless hours creating the product and navigating the complexities of the initial start-up phases. It is stressful, thankless work. Many entrepreneurs underestimate the amount of work that goes into creating a successful company.

When you buy a SaaS business, you are able to skip this demanding phase. Sure, you will still have your work cut out for you, but it will (likely) not be nearly as time-consuming and stressful as it would be if you were starting from the beginning. 

Established Customer Base

When you start a SaaS business from the ground up, it can be challenging to gain momentum and build a sizeable customer base. Often, these initial phases can prove to be the most challenging.

When you buy a SaaS business, you can choose one that has an established customer base. In addition to providing you with cash flow right off the bat, an established customer base also gives you a degree of credibility in the eyes of other customers. This helps build momentum in your efforts to win new customers moving forward. 

“As a SaaS entrepreneur, you have the ability to work wherever you choose.”

Work Flexibility

One of the most attractive aspects of running an online business, particularly a SaaS business, is the flexibility and independence it can bring to your work and personal life. As a SaaS entrepreneur, you have the ability to work wherever you choose. At the same time, you have a very high degree of control over when you work. 

You can use this control and flexibility to create a work/life balance that allows you to spend time doing the things that are important to you. This could include living and working abroad, spending time with your family, watching your kids grow up, and more. 

“From a financial standpoint, buying, growing, and owning a SaaS business can be very profitable.”

Business Value

All of the factors we have discussed thus far translate to one important thing: SaaS businesses can be incredibly valuable. From a financial standpoint, buying, growing, and owning a SaaS business can be very profitable. 

Whether you buy and hold onto a business or buy, grow, and sell it, you have the ability to dramatically transform your financial picture. Given this, it is no wonder why so many entrepreneurs are interested in buying a SaaS business. If you do decide to go this route, you can expect to face competition from other interested buyers for any attractive SaaS company you put an offer on.

Regardless, buying a SaaS business can be a great opportunity for those looking to create a profitable, flexible, and rewarding new career path.