B2B SaaS

What is B2B SaaS?

B2B SaaS is short for business-to-business Software-as-a-Service. In the B2B SaaS industry, companies offer software products and services to other businesses on a subscription basis. This means that instead of purchasing a software license and owning the product, they pay a recurring fee to access and use the software.

The idea behind the B2B SaaS revenue model is to provide businesses with a cost-effective and efficient way to access the software they need without having to invest in expensive hardware or infrastructure. The vendor themselves handles maintenance, updates, and infrastructure. Businesses pay for what they use, which dramatically lowers total costs of ownership.

SaaS products are hosted on the cloud, which is what makes this software delivery model possible. Rather than downloading the software onto a computer, users can access it through an internet browser or mobile/desktop app. All their data is stored securely on remote servers, and updates are automatically provided by the vendor.

Synonyms

• Cloud-based software
• Business software
• Enterprise software
• On-demand software
• Subscription software

B2B vs. B2C SaaS Products

There are two types of SaaS products: business-to-business (B2B) and business-to-consumer (B2C).

They both operate under the Software-as-a-Service model. But they differ significantly in several categories.

• Target audience — B2B SaaS targets teams or departments within a company, and the decision-making process typically involves multiple stakeholders, including IT professionals, executives, and end-users. B2C SaaS is aimed directly at individual consumers or end-users.
• Pricing models — B2B SaaS pricing is often based on the scale of usage, with tiered plans that can include factors like the number of users, the level of data usage, or the range of features they access. B2C SaaS prices are generally more straightforward and lower in cost, reflecting the individual consumer’s willingness to pay.
• Sales cycles — B2B sales are complex and take months to close, involving demonstrations, proposals, and negotiations. B2B sales are instantaneous (or close to it), with users able to sign up and start using the service immediately.
• Feature focus — Features in B2B software applications can be complex and robust because they’re designed to address specific business needs and workflows. They also require integration with other enterprise systems. In B2C, the focus is on user-friendliness, simplicity, and appeal to a broad audience.
• Implementation — Business software sometimes takes months to completely set up because it’s integrated with existing systems (which all need to share data) and customized for specific needs. B2C software is ready to use straight out of the box.

When you picture B2C SaaS, think of Netflix: Every customer sees the same home page, pays the same price, and accesses the same content.

To grasp the concept of B2B SaaS, think of Salesforce: Every organization’s workflows are customized to their exact needs, with different teams having different levels of access and functionality. Every Salesforce customer pays a different price than the next.

Growth of the B2B SaaS Industry

The concept of delivering software over the internet began in the 1960s with the advent of time-sharing systems, but the modern SaaS model didn’t take shape until the internet became widely accessible in the 1990s. Salesforce, founded in 1999, is credited with pioneering the B2B SaaS model with its CRM software.

The early 2000s witnessed the rapid expansion of SaaS and the subscription economy, driven by broader internet adoption and the increasing reliability of cloud services. Companies like Google and Microsoft began offering enterprise applications via the cloud, legitimizing SaaS for larger enterprises.

In the past decade, the adoption of cloud computing has skyrocketed, with SaaS becoming the default delivery model for many types of business software. In that time frame, subscription revenue has grown at 437%, outpacing the S&P 500 by 4.6x.

TL;DR: SaaS is huge in B2B, and it’s only getting bigger.

Types of B2B SaaS Products

These days, it’s impossible to list all the different types of business software available to B2B companies. Everything from the Chrome plugin you use for help with sales prospecting to the massive database you use to manage your customer data is a SaaS app.

Broadly speaking, we can categorize them based on their architecture, functionality, and the market they serve.

Multi-Tenant SaaS Applications

In a multi-tenant architecture, a single instance of the software application serves multiple tenants (i.e., users). Each tenant’s data is isolated and remains invisible to other tenants, yet the infrastructure and software code are shared.

This model offers cost efficiency, simplified maintenance, and virtually limitless scalability since all users are on the same infrastructure and software version. In fact, the vast majority of your favorite SaaS tools are almost certainly multi-tenant:

• DealHub
• DocuSign
• Dropbox
• Google Apps
• HubSpot
• Mailchimp
• Salesforce
• Zendesk
• Zoom

…to name a few.

Single-Tenant SaaS Applications

Single-tenant architecture provides each customer with a dedicated instance of the software, along with the underlying infrastructure. This can offer enhanced security, greater customization, and more control over the deployment environment.

It’s far less common than multi-tenancy (to be a true cloud app, it has to be multi-tenant). Microsoft Word, which lives on each user’s local device, is an example of single tenancy.

Microservices

Microservice architecture structures an application as a collection of loosely coupled services, which implement business capabilities. Taking a modular approach enables customers to build a composite application that combines only the services they need.

As an example, DealHub users might only use DealHub CPQ. If they need more than a quoting tool, they can use DealRoom and DealHub Billing for a completely integrated quote-to-revenue process.

Vertical SaaS

Vertical SaaS is tailored for specific industries or sectors, incorporating industry-specific features and compliance standards. It caters to niche markets with particular needs.

For example:

• Clio targets legal firms with its practice management software
• Infor Hospitality is built for hotels and restaurants
• Replicon helps professional services firms with time tracking and billing
• Zillow serves the real estate industry with its property management platform

These solutions deeply integrate into industry workflows. They offer more specialized tools and data models that reflect industry practices, but companies outside their ICP probably won’t see much value in them.

Horizontal SaaS

Horizontal SaaS is designed to be used across multiple industries or business sectors, focusing on broad functions. Think of horizontal SaaS as general-purpose tools, such as:

• Dropbox for file storage
• HubSpot for marketing automation
• Mailchimp for email marketing
• Salesforce for CRM
• Slack for collaboration
• Trello for project management

Horizontal SaaS products aim for a wide market base, addressing common needs that are not specific to any single industry. They may, however, offer customizations and microservices that make them suitable for some niche markets.

Sales and Marketing SaaS

SaaS apps focused on sales and marketing processes help businesses manage their marketing strategy, sales pipeline, and customer relationships. They offer tools for data analysis, customer tracking, and automation of sales and marketing processes.

Examples include:

• CRM (customer relationship management)
• CPQ (configure, price, quote)
• Sales enablement
• Sales engagement platforms
• Email marketing
• Marketing automation
• Social media management
• Contract management

Data and Analytics SaaS

You’ll use data and analytics platforms to gain insights into your user experience, customer journey, and business performance. These tools often require integrations with other apps to collect data from multiple sources.

Examples include:

• Data visualization tools
• Data warehousing
• Customer data platforms (CDPs)
• Business intelligence apps
• Web analytics (e.g., Google Analytics)
• A/B testing solutions

You’ll connect your data platforms to your day-to-day business software to measure and analyze data, understand your user’s behavior, and make data-driven decisions.

Finance and Accounting SaaS

These apps help businesses manage their finances, accounting processes, invoicing workflows, and financial reporting.

Examples include:

• Billing and invoicing systems
• Accounting and payroll software
• Expense tracking tools
• Enterprise resource planning (ERP)
• Financial forecasting tools
• Tax prep software

You will integrate these with your sales software to create an end-to-end sales workflow, automate billing and accounting processes, and track sales performance. For instance, you can have your CRM automatically update a customer’s profile when they make a payment or log an expense.

Collaboration Software

Cloud-based collaboration software helps teams work together more productively, remotely or in person. It makes communication and information sharing easier, whether that’s messaging, video conferencing, or collaborative project management.

Examples include:

• Web conferencing
• Messaging
• Project management
• Knowledge management
• Document collaboration and file sharing
• Industry- or role-specific tools (e.g., Figma for design teams)

Collaboration apps are especially valuable in remote work setups, where teams are distributed and have limited opportunities for face-to-face interaction.

Artificial Intelligence Applications

AI is one area of software that has permeated B2B companies across different industries. It leverages algorithms to help companies make more informed decisions and automate processes.

Examples include:

• Virtual assistants
• Generative AI
• Natural language processing (NLP)
• Predictive analytics
• AI-driven customer service (e.g., chatbots)
• Sales AI

Most of the abovementioned SaaS applications also incorporate AI capabilities. For instance, most CPQ software features pricing automation, dynamic product suggestions, and lead scoring.

B2B SaaS Pricing Models

Simple SaaS solutions might offer a flat subscription fee for unlimited use of the software. However, most software companies have more complex pricing models based on usage, number of users, and features.

Here’s a brief rundown of different SaaS pricing models:

• Freemium — Offers free access to a basic version of the software, with limited features or usage, while charging for more advanced features.
• Flat-rate pricing — A fixed subscription fee for unlimited access to the software or specific features.
• Usage-based pricing — Charges based on the amount of usage or data consumed.
• Per-user pricing — Based on the number of users accessing the software, often with tiered pricing for different levels of access.
• Tiered pricing — Different tiers or packages with varying features and prices to appeal to a wider market.
• Value-based pricing  — Pricing based on the value or ROI the software provides to the customer.
• Enterprise SaaS pricing — Tailored pricing for your largest customers, based on their unique needs and usage patterns.

In general, SaaS business models entail multiple layers of pricing. You might charge a flat rate for each subscription tier with up to X users on the account, then charge an extra $Y/month for each additional user. For enterprise companies, you’ll offer sales consultations and personalized quotes.

Benefits of B2B SaaS Products

Compared to on-prem software (or worse, manual processes), cloud-based SaaS apps provide various benefits for businesses, including:

• Significantly lower upfront and ongoing IT costs
• Upward and downward scalability with changing business needs
• Accessibility from any location or device
• Seamless integration with other tools via microservices and APIs
• Continuous access to the latest features.
• Robust security measures.
• Advanced analytics for better decision-making.
• Easy team collaboration and communication.
• Customizability for your specific workflows

Measuring Success: Key B2B SaaS KPIs

To understand how your business is performing, you have to look at SaaS metrics. There are too many to count, but here are the most important:

• Customer acquisition cost (CAC) — The average cost of landing one new customer, from initial awareness through deal closure.
• Customer lifetime value (CLV) — The total revenue that customer brings in over the whole time they’re with you.
• Monthly recurring revenue (MRR) — Revenue you can expect to earn each month from your active customers (best for short-term analysis).
• Annual recurring revenue (ARR) — A similar metric to MRR, but measured over a full year (to zoom out over the long term).
• SaaS churn rate — The percentage of customers that stop using your software in a given period.
• Net Promoter Score (NPS) — A measure of customer satisfaction and loyalty, based on how likely they are to recommend your product.
• Customer acquisition rate — The number of new customers brought on in a given period.
• User engagement — e.g., active users, feature adoption, time to value

Common Challenges Facing B2B SaaS Companies

The B2B SaaS sector faces several key challenges in 2024, reflecting the industry’s dynamic nature and rapid technological evolution.

• Rising operational costs
• Intensifying competition
• Double-focus on retention and acquisition
• Changes in B2B buying behavior
• Adapting to digital-first, self-service customer experiences
• A shifting regulatory landscape
• Global expansion

Each of these issues creates additional strains on profitability, growth, and customer satisfaction. Without a dynamic approach to these challenges, B2B SaaS companies risk losing their competitive edge.

Closing the Deal: B2B SaaS Sales Methodologies

To sell effectively, B2B software vendors need to adopt a sales methodology that maps to their target customer’s buying process. Here are some of the most common sales methodologies for B2B SaaS companies:

• Solution selling — Identifying and solving a customer’s specific problems with your software.
• Consultative selling — Working closely with a customer to understand their needs and offer tailored solutions.
• Challenger Sales — Disrupting a customer’s status quo and introducing them to new ideas or approaches.
• Inbound selling — Focusing on attracting leads through valuable content and building relationships through open communication.
• Account-based selling — Customizing the sales process for each target account and building relationships with multiple stakeholders.
• MEDDIC — A comprehensive framework for understanding a B2B buying group’s pain points, economic buyer, decision criteria, decision process, success metrics, and the champion of the sale.

Future Trends in the B2B SaaS Market

The B2B SaaS market is evolving quickly, and keeping up with trends can help companies stay ahead of the curve. Some trends to watch in the coming years include:

• Growth in specialized niche solutions
• Increased emphasis on customer success
• Rise of AI-powered solutions
• Dynamic usage-based and value-based models
• Greater focus on personalization and customization
• Enhanced connectivity with iPaaS
• Faster development and iteration with no-code platforms, PaaS, and EaaS

As for the industry as a whole, the one thing that’s guaranteed is growth. By 2025, the subscription market size will reach a projected value of $1.5 trillion, and cloud services comprise a whopping 45% of it. 99% of businesses use at least one B2B SaaS product. And organizations worldwide use an average of 130 software applications each.

People Also Ask