SaaS recurring revenue streams

How business and operating model ensures the success of a SaaS recurring revenue strategy

SaaS sales

Relationship between value proposition, costs and SaaS revenue streams.

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motivation and goals

Find out more about motivations and goals of our project.

Check whether we offer what you are currently missing.

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business an operations blog

Interesting articles on setting up and operating cloud solutions.

SaaS strategy insights

Blog posts to further strengthen SaaS strategies for recurring revenue.

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Revenue streams - Our motivation and goals

:: our motivation

How closely the value proposition and features link to the operating costs and cloud resources only becomes apparent during operation, which then costs much more than expected. For example, Device A sends data to the cloud every 60 seconds for trend analysis. In contrast, Device B collects the data over the course of a day and sends it every 24 hours. Consequently, the cloud storage costs for A are 1440 times higher than for B.

We want to protect customers whose costs for a cloud solution are higher than the industry-standard subscription fees and whose recurring revenues are therefore not sufficient to cover the costs or do not allow for a sustainable business model.

:: our solution

As part of the business modeling, we outline an abstract model of the microservices without needing specific platform knowledge. Using iClients from m2sphere, we stimulate the system in a user-oriented manner and carry out a simulation based on operating model and the target platform (e.g. Microsoft Azure). As a result, we provide facts answering the following questions:

How high are the operating costs?
Does the solution scale as desired?
How to configure the platform resources?

:: our vision

We want to use our expertise to develop a toolset that helps all companies secure their digital business model and SaaS recurring revenue strategy in a cost-efficient and scalable way. Moreover, we are doing everything we can to ensure that our solution becomes an elementary part of the tool chain for the automated infrastructure deployment of modern Software-as-a-Service solutions.

Model-based generated infrastructure code and automatic provision of the required cloud resources.

Our approach ensures SaaS recurring revenue that works

We often find that business modeling is seen as a one-off activity. In our view, however, it is an iterative, incremental process that leads to successive enrichment and validation. Regardless of the method used for modeling, the value proposition, revenues streams, and costs always play a central role.

However, as the digital transformation example of central heating has shown, operating costs are difficult to estimate at an early stage and therefore represent a major risk for the Saas recurring revenue strategy.

Learn more about steps 2 & 3 >>…

If you would like to take a closer look at Business Model Canvas examples, we have put together a few links for you.

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1.Business model

1.

Business modeling is the most important step in any business (e.g., as example canvas). Moreover, we can help with many things, but the most important asset - knowledge of the industry and customer needs - comes from you!

2.Value proposition

2.

The same also applies to the value proposition as a central element of any business model. Specifically, it describes the unique value of a product or service for the customer's purchase decision.

3.Solution modeling

3.

This is where we come into play and can help to transfer the value proposition into an operating model. Consequently, this allows us to determine the scalability and operating costs for single features and the entire range of functions.

4.Revenues vs. Costs

4.

This enables a comparison of SaaS revenue streams versus costs. Subsequently, the findings are incorporated into the business model. If required, a new optimization run can be carried out.

1 min.

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Operating model - SaaS recurring revenues vs. expenses

We transfer the planned features of the business model piece by piece into an operating model and enrich them with data. Consequently, this makes it possible to simulate them immediately. For instance, the easiest way to explain this is with an example. Let’s take an energy management system for a private home, consisting of a photovoltaic system with included battery storage. The customers can use an app to view an energy balance graph with a sampling rate of 1 minute to see what their system is producing, the state of charge and what electricity is currently being consumed. The data is persisted on a storage in Microsoft Azure.

Don’t worry too much about why there are so many resource icons in the graph, the toolset will help you with that. Now, let’s explore different ideas on when to transfer the data and what the annual cost implications are, given that 10,000 storage operations cost 0.081 USD for 50,000 installations.

Model visualization

Transmission in real time every minute for each installation

The annual costs for data storage, excluding other expenses in this example, amount to USD 212,868.

Data aggregation and transmission only once per hour

The system transmits a data package containing 60 data records once per hour. As a result, the annual costs amount to USD 3,548.

Data transfer only once a day and when opening the mobile app

Once a day, the system transfers a data package containing 1140 data records. It is also assumed that 30% of users open the mobile app once a day for 5 minutes, with the data being updated every minute. As a result, the annual costs amount to USD 370.

Impact on the SaaS recurring revenue strategy

Of course, the case study, especially the minute-by-minute transmission, is somewhat contrived and can easily be determined by calculation. Nevertheless, it shows that minor unfortunate design decisions can have very large effects that only become apparent during operation. Consequently, these can have a very negative impact on SaaS sales success and recurring revenue.

Tools from the major providers:

For simple cost estimates, the pricing calculators from Azure, Google and AWS are a useful support, but as soon as dynamic relationships, databases or processing times are involved, these tools are far from sufficient.

Welcome to biz-blog preview

We are constantly writing new blog posts and interesting articles on topics such as cloud infrastructure, sales, cost and architecture traps for SaaS business and operating models. Specifically, we address developers, solution architects, and decision-makers in digitalization projects. Furthermore, we want to help you enrich your SaaS recurring revenue strategy with best practice principles and, consequently, further strengthen your success story with high sales figures.

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The articles come from our professional experience rather than being constructed. Additionally, we are always interested in new exciting topics, case studies, and guest articles. If you have a topic or problem that fits into this context, we invite you to get in touch with us. Perhaps we can give you some positive input free of charge!

Thank you for your interest!

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Markus June 20, 2024 No Comments