Software as a Service is a very alluring business strategy for a mobile web startup. In this model customers are dependent on the system, and tracking usage statistics is easy. It’s cheaper to add features than in the client-side model, and all important code remains securely on private servers.

It’s also well-suited for mobile development, saving time and development costs. Responsive web design ensures service availability on a broad variety of devices, eliminating the necessity of developing apps for every device used to access the service.

As appealing as the model is, before providing even basic specifications to a team of app developers, it’s extremely important to have a well-defined revenue model. In order of increasing complexity, here are the most prominent revenue models for software as a service:

Advertisement

Advertisement is the simplest way to monetize a website. This model requires little back-end development; it’s unnecessary to keep a persistent database with personal information about customers. This method can also be used in conjunction with others to maximize return on investment.

On the other hand, advertisements can dilute branding and can distract customers from a site’s content. If there isn’t already a guaranteed user base, this may affect customer acquisition negatively.

Premium

This model allows the sale of memberships to a service. For enterprise applications with high demand, a business may be able to set the price of premium memberships at a level that will allow it to recoup costs and make a profit. In conjunction with the advertising-based model, it can provide an opportunity to expand profits by offering tiered service.
The development overhead for this model consists of a system for customers to create new accounts, a system to authenticate user identities securely, and a system for accepting payment.

Subscription

This model is essentially Premium, but with recurring payments. SaaS is very well-suited to this model, since customers need authenticated access to the service to use its features.

This model requires further back-end web development: the application database must track payment schedules and the business logic must include methods for expiry and cancellation of user accounts.

Customer acquisition will be more difficult with this model, especially for a startup, but may be more successful if the pre-launch strategy includes a well-received marketing campaign.

In-app Sales

This model allows the sale of goods or services, virtual or actual. In-app sales can be a cash cow… if that’s how the app was designed from the beginning.

In-app sales require a system for tracking what a user has purchased, and depending on what the application sells, can require additional infrastructure for new features.

Be Prepared

Choosing a revenue model should be a web entrepreneur’s top priority: putting off this crucial step or making last-minute changes can drive up costs and prolong development, miring a project in development hell. The revenue model defines how an application tracks its customers, and is therefore one of the first questions that needs to be answered.

The explosive proliferation of mobile devices and the growing demand for SaaS present a unique opportunity for mobile startups. The mobile startups that take full advantage of this opportunity maximize profits and minimize development time by choosing a revenue model before writing a single line of code.