Business models
The software as a service business model
The software as a service business model: customers pay a subscription to use software online, instead of buying it once. Copies of software cost almost nothing to serve, so margins can be high once it is built.
How it makes money
Copies of software cost almost nothing to serve, so margins can be high once it is built. You keep earning as long as the product keeps being useful, but you have to keep improving it.
Real examples
- Salesforce sells customer management software.
- Slack sells team messaging.
- Shopify sells online store software.
The numbers to watch
- Monthly recurring revenue
- Churn
- Payback period: how many months it takes to earn back the cost of winning a customer
Who it fits
Builders who know one industry's repeated problem well.
What goes wrong
Building for months before anyone pays. Most early problems are about selling, not code.
Try it this week
Find 10 people with the problem, and charge them to solve it by hand first.
Then give it a time: one block of 90 minutes this week, in your calendar. Our playbooks have the next steps for finding your first customers.
Questions
What is an example of the software as a service model?
Salesforce sells customer management software.
What is the biggest risk with the software as a service model?
Building for months before anyone pays.
Plan your first week of building it
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