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Saas security risk and challenges.

The hybrid work model imposed by organizations during the height of the COVID-19 pandemic triggered many enterprises to accelerate moves to cloud-based services for better resilience and efficiency. In its ongoing evolution, Software as a Service (SaaS) has empowered organizations with the tools necessary for effective management, communication, and collaboration, regardless of the location of the organization or its employees. Moreover, it does not require customers’ investment in physical infrastructure, platform administration, patching, or monitoring. However, these benefits are associated with notable risk factors and challenges for both SaaS customers and providers.

SaaS Customer Challenges

Cloud computing is no longer considered an emerging and disruptive technology, but rather a mainstream trend that has become more mature over the years. However, new cloud-based services such as SaaS are thriving due to their numerous benefits. SaaS is a software distribution model in which the provider is responsible for hosting applications and providing security, development and maintenance to its customers. The adoption of SaaS has become increasingly critical for enterprise success, though it requires the organization to release some of its control over data, application management and customization. Therefore, hacker focus has shifted from the cloud in general to emerging tools and technologies that reside within the cloud and, more specifically, to SaaS. Consequently, SaaS customers face several notable challenges.

Data Loss Organizations have less control over and visibility into their data when using SaaS. Therefore, there is a greater risk of accidental data deletion or leakage. If this risk materializes, it can result in permanent loss of sensitive data that often triggers a serious financial, legal and reputational impact. Costs can include compensating affected employees or customers, executing incident response plans, restoring data from backups, investigating the data breach, investing in new security measures, regaining customer trust, and paying legal fees, including fines for noncompliance with the EU General Data Protection Regulation (GDPR). Organizations that violate GDPR can be fined up to 4 percent of their annual global turnover or EU€20 million, whichever is greater. 1 In all cases, if sensitive data are compromised, whether intentional or not, affected individuals can seek legal action to claim compensation. In some cases, the fallout from data loss can threaten an organization’s survival. As such, it is essential for SaaS providers to identify relevant threats and reduce their attack surfaces.

Unauthorized Access When using SaaS, organizations face an increased risk of user account takeover. This risk is partly related to SaaS being exposed to the Internet. Geographic restrictions are not common in SaaS services, enabling brute force and other credential-based attacks to originate from anywhere. There are also opportunities for attackers to access user credentials obtained through the dark web and use those credentials to commit account takeovers. Authentication and authorization are critical aspects of SaaS application security. To improve identity and access management, organizations should evaluate the possibility of integrating SaaS platforms into their enterprise single sign-on (SSO) solutions and enforce multifactor authentication (MFA). SSO is also an efficient method for inventorying SaaS tools and providing detailed insights into their usage.

Insecure Application Programming Interfaces Some SaaS tools’ application programming interfaces (APIs) may lack proper role-based access control mechanisms and have exploitable vulnerabilities. Insecure or missing access control mechanisms and vulnerabilities in API endpoints result in unauthorized access to sensitive data. To mitigate this risk, organizations must protect their communication endpoints as per best practices, including vulnerability management and limiting API access, based on need-to-know and least privilege principles.

Shadow IT Shadow IT refers to the systems, devices, applications, and services accessed and used by employees or departments without the knowledge, explicit approval, or oversight of the IT, information security, and legal teams. The consumerization of SaaS services is a main driver of shadow IT. Users with Internet access can easily acquire and use SaaS tools. Organizational departments, including legal, procurement, IT, information security, and privacy teams often have no opportunity to vet SaaS tools prior to their use. This approach makes the organization vulnerable to tremendous risk from a compliance and security perspective, including data exposure, malware and productivity loss. Therefore, organizations should adopt effective technical solutions to prevent the installation and usage of unsanctioned SaaS tools to close gaps in compliance and security risk.

Vulnerability Management Customer organizations are at the mercy of SaaS providers to perform effective vulnerability management. Even a single vulnerability in SaaS tools provides attackers with an entry point to the organization’s data.

Even a single vulnerability in SaaS tools provides attackers with an entry point to the organization’s data.

There are several due diligence activities SaaS providers must perform for the sake of proper vulnerability management, including:

• Implement security training for developers and other IT staff to reduce the number of new security defects
• Introduce security earlier in the development life cycle to ensure security and privacy by design
• Develop a comprehensive and continuous vulnerability management program to identify, evaluate, report on and prioritize vulnerabilities
• Define security metrics to identify and visualize vulnerability trends
• Address identified vulnerabilities in a timely manner

Third-Party Risk Management Involving third-party vendors in an organization’s internal operations and processes poses security risk. Hence, organizations must implement a third-party assessment program to evaluate and monitor third-party risk. Third-party security assessment questionnaires are a powerful tool designed to help organizations collect data and other relevant security information about third parties, ideally before entering into a business relationship. However, many SaaS providers are unwilling to answer lengthy questionnaires about their current security postures. Instead, they might share their SOC audit reports and International Organization for Standardization (ISO) certifications, which provide some information about the vendor’s security posture, but lack essential details such as the effectiveness of their business continuity or disaster recovery plans, adopted encryption protocols, data backup plans, secure software development life cycle (SDLC) and more. Organizations using SaaS services often must settle for less detailed risk information than what is available for internally managed applications. This leads to the inability of SaaS customers to have a thorough understanding of risk in the SaaS environment and the overall organization.

Risk Mitigation SaaS providers are unlikely to change their environment and business processes to meet individual customers’ requirements and standards. This approach leaves customers to figure out other ways of managing risk. Risk identified in SaaS providers often must be mitigated via compensating controls in the customer’s organization, such as:

• Integrating SaaS platforms to the organization’s SSO solution and enforcing MFA for all logins
• Implementing a role-based access control (RBAC) mechanism (if supported by the platform)
• Storing data backups outside the SaaS platform
• Providing periodic security training for employees
• Restricting access to company APIs used to exchange data with SaaS providers

Event Visibility SaaS providers are unlikely to send infrastructure- and application-level security event logs to customers’ security information and event management (SIEM) solutions, leaving customers’ security operations teams lacking in terms of important information. This diminishes the ability to identify and manage potential security incidents. For example, it can be difficult to know whether and when a brute-force password replay attack is perpetrated against a SaaS customer user account. Such attacks could lead to undetected data breaches, resulting in the organization being considered liable for the data leak and for not reporting the incident to the appropriate parties (e.g., employees, customers, authorities) in a timely manner.

Risk Culture It can be challenging for customers to understand the fundamental nature of a SaaS provider’s risk culture. Audits, certifications, questionnaires, and other materials paint a narrow picture of the providers’ security posture. Moreover, SaaS providers are unlikely to share their risk register with customers, as this would reveal excessive details about the SaaS provider’s security posture. Further, SaaS providers are unlikely to undergo detailed customer audits due to limited resources. Despite external audits and completed questionnaires, the risk culture of a SaaS provider often remains a closed book.

Shared Responsibilities Some SaaS customers lack a fundamental understanding of the shared responsibility model between the customer and provider. Not all SAAS providers publish a shared responsibility matrix, complementary user entity controls (CUEC) or other useful artifacts. While some SaaS providers share CUEC information or shared responsibility information with their customers, many do not, leaving customers to discern on their own where key responsibilities lie. If the responsibility model communicated by the vendor is not clear enough, it is essential for customer organizations to contact the vendor and explicitly agree on this matter before concluding the contract. Lacking CUEC and other information, SaaS customers must undergo a detailed risk analysis to discern and reverse engineer a responsibility matrix.

Fourth-Party Data Access A common side effect of SaaS solutions is that data are shared with additional external parties. Specific fourth-party access can be legitimate and necessary. However, there are many cases where fourth-party access results from misconfigurations or careless or unintended data access, exposing organizations to large-scale data exfiltration. Therefore, organizations must adopt a zero-trust approach and continuously monitor all fourth-party applications integrated into their SaaS environment. As part of their evaluations, organizations should ask vendors to specify what services they outsource and identify the fourth parties involved. SaaS providers are often reluctant to provide information about their third parties, leading to more ambiguity surrounding risk.

Disaster Recovery The resilience of individual SaaS providers is largely unpredictable. Some SaaS providers may have high-quality, tested business continuity and disaster recovery plans, while others may not. Again, SaaS providers often do not provide these details, leaving customers in the dark regarding the resilience of their critical SaaS providers.

SaaS Provider Challenges

Many SaaS platforms store vast amounts of personal data that can be accessed from almost any device, putting critical data at risk. Therefore, SaaS providers face distinct challenges of their own to meet customers’ expectations and maintain efficiency in delivering products and services.

Attestations SaaS providers need to find the right balance between external attestations against cost and time to obtain them. Customers are usually interested in the effectiveness of the provider’s critical information security and privacy controls such as access management, change management, system development, backup management, encryption, physical security, staff qualification and training, and business continuity management/disaster recovery planning. Thorough and efficient SaaS providers identify and commit to the attestations (e.g., SOC 1, SOC 2, ISO certifications) that are the most meaningful to customers.

Disclosure of Security Program Details SaaS providers are often challenged in finding the right balance between revealing too little and too much information with their customers (i.e., security policies, procedures, standards, business continuity plans, controls, and risks). Sharing too much information could enable attackers to compromise the SaaS environment. On the other hand, sharing too little information may not be enough for customers to assess the security posture of the provider; consequently, they might not want to enter into a business relationship. SaaS providers should perform a risk assessment, a benchmark of customer requests and a cost-benefit analysis to define the right balance for information sharing.

Efficiency and Security SaaS providers are constantly struggling to achieve the right balance between economically scaling and mitigating the range of risk factors associated with multitenant environments. Multitenancy can be complex and expensive to implement correctly. Senior management in some SaaS organizations may not fully support the implementation of multilayer controls to prevent cross-customer data leakage. To obtain senior management buy-in, SaaS providers need to undergo detailed risk analyses of their environments to quantify the top risk factors. If senior management does not listen, it may be necessary to bring in outside experts to identify and explain top risk factors.

Configurability SaaS providers must develop a robust platform that provides rich configurability and flexibility for customers, to reduce the need for customization in the future. Customization leads to increased complexity, making it more challenging to ensure that there are no exploitable flaws in the SaaS platform.

Customization leads to increased complexity, making it more challenging to ensure that there are no exploitable flaws in the SaaS platform.

Third-Party Risk Management For organizations that store personal information or personally identifiable information (PII) in SaaS, their questionnaires may consist of hundreds of questions, especially if they are using standardized information gathering (SIG) questionnaires. SaaS providers should develop an efficient approach to avoid providing too much information when responding to customer requests via customers’ third-party risk management programs. An efficient approach may consist of demonstrating available security attestations (e.g., ISO 27001 certification, SOC 1 or SOC 2 reports) to the customer and responding to residual requests, or preparing a formal security posture statement and making it available to the customer. This approach significantly reduces the workload of the provider and is less time-consuming for customers because they do not have to wait long to receive the basic security information from the provider.

Shared Responsibilities Defining the line between customers’ and providers’ responsibilities is imperative to reduce the risk of introducing vulnerabilities into SaaS infrastructure. SaaS providers must define and outline the shared responsibility model and determine which party is responsible for individual security, privacy, and operational activities, to ensure accountability and comprehensive protection of sensitive data.

As the SaaS model continues to expand, organizations must take the necessary security measures by building a sound SaaS strategy, developing and updating their risk appetite statements, establishing incident response plans, and performing thorough due diligence through structured third-party risk management programs to gain visibility into each vendor’s security posture. These activities enable organizations to understand their complete security postures, including what is knowable about the risk associated with doing business with each SaaS provider. On the other hand, SaaS providers must consider standardizing their security processes, defining clear responsibility models, being transparent with customers, and striving for continuous improvement of their security postures. Anything less results in the presence of undiscovered risk.

1 Browne, R.; “ Fines for Breaches of EU Privacy Law Spike Sevenfold to $1.2 Billion, as Big Tech Bears the Brunt ,” CNBC, 17 January 2022

Ejona Preçi, CISM, CRISC, ITIL v4

Is an information security expert and an advocate for gender equality and diversity in the tech and security industries. She serves as the principal security risk manager for FREE NOW, a Daimler and BMW joint venture.

Peter H. Gregory, CISA, CISM, CRISC, CDPSE, CCSK, CISSP, DRCE

Is a career cybersecurity and privacy leader and the author of numerous books on cybersecurity and privacy. He can be reached at www.peterhgregory.com .

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What is a SaaS Business Model and How Does it Work

Dmytro umen.

Few innovations have been as disruptive, impactful, and recent as the SaaS business model. Whether a startup pivots to embrace this dynamic approach or emerges expressly to leverage its potential, the allure of SaaS revenue in today's bustling market is undeniable. With the aggregated industry value projected to soar past $25 billion annually, seizing the opportunity to delve into the SaaS presents an enticing prospect for organizations of all sizes. Yet, to thrive in this competitive arena, it's imperative to grasp the essence of successful SaaS business model excellence — the strategies, organizational frameworks, and pivotal metrics that underpin business success.

Key takeaways

• SaaS, short for Software as a Service, is a business model where software is hosted on the cloud, enabling users to access its features through monthly or annual subscriptions.
• The SaaS model benefits vendors with predictable revenue, lower upfront costs, and reduced maintenance expenses, alongside scalability, flexibility, and a strategic approach to combat software piracy. It attracts significant investor interest due to its growth potential and high retention rates.
• B2B and B2C SaaS models, while sharing core service and business metrics, differ in focus and strategies. Successful SaaS companies often blend these models, leveraging a dual-funnel strategy to cater to both business clients and individual consumers, enhancing their market reach and profitability.
• There exist six potential pricing options for monetizing your SaaS product: freemium, flat, usage-based, per-user, tiered, and hybrid pricing.
• SaaS founders face challenges such as ensuring data security, managing multi-tenancy complexity, and maintaining regulatory compliance, which are pivotal for sustaining user trust and competitive advantage.
• When bringing your SaaS business model to fruition, you have three primary options: either initiate the project independently and seek software development consulting when needed, assemble an internal team with further augmentation, or opt to outsource the product development process to a third-party service provider.

Why is SaaS taking over the world?

SaaS, or Software as a Service, has swiftly become the preferred choice for both customers and businesses alike. The allure of SaaS lies in its seamless functionality; it simply "just works", without the hassle of installations or the fear of data loss due to hardware failures.

From a business perspective, the economics of SaaS are irresistible, with recurring revenue streams enabling predictable cash flows that fuel rapid expansion. The meteoric rise of SaaS companies, boasting impressive growth rates and a collective industry worth of nearly $197 billion in 2023 , underscores their dominance.

SaaS business model in a nutshell

SaaS stands as one of the primary trio of cloud computing service models, sharing the stage with Infrastructure as a Service (IaaS) and Platform as a Service (PaaS).

In essence, the Software as a Service business model revolves around financializing software, transforming it from a product with a static price tag into a dynamic, forecastable cash flow instrument. At its core lies a straightforward equation that encapsulates the key metrics driving a SaaS venture's revenue:

Acquisition represents the effectiveness in attracting and converting prospects into paying customers, while ARPU denotes the average revenue generated per account. Churn, on the other hand, signifies the percentage of customers who discontinue their subscriptions over a given period. By understanding these components and their interplay, businesses can project their long-term revenue and customer lifetime value (LTV) with relative simplicity, facilitating strategic planning and growth.

For instance, imagine a SaaS product with a monthly churn rate of 3%. In this scenario, each customer's expected lifetime would extend to approximately 33 months (1 / 0.03), assuming a steady subscription fee of $50 per month. Consequently, the anticipated lifetime revenue per new customer would total $1,650 ($50 * 33 months).

Furthermore, because SaaS has high profit margins, even small improvements in how many people sign up can lead to immediate increases in revenue and, over time, increase enterprise valuation. While working on getting more customers, keeping them, and reducing the number who unsubscribe might require a lot of effort, changing pricing strategies is a relatively simple way to grow. However, it's important to understand that SaaS companies will approach revenue plateaus, dictated by the interplay of acquisition, conversion, and churn dynamics. If these areas do not improve, growth can stop, putting the company at risk. Especially considering the capital-intensive nature of SaaS expansion, with substantial upfront investments in marketing and sales driving customer acquisition and revenue growth.

Types of software business model

In the software business, various models shape how companies operate and generate revenue. These can be broadly categorized into three main types:

Software revenue model

The software revenue model is pivotal for understanding how a SaaS business generates profit and monetizes its offerings. It not only determines the pricing strategy but also sheds light on the target audience and effective marketing strategies. The following are common types of software revenue models:

• Subscription model
• Ad-based revenue model
• Channel sales
• Affiliate revenue model
• Direct sales
• Freemium model

Software pricing model

In the software pricing model, crucial decisions are made regarding the cost of the service or product. Researching competitors' pricing can offer a competitive edge. Key software pricing models include:

• Per-user pricing
• Tiered pricing
• Pay-as-you-go basis

Software distribution model

The software distribution model concerns how services or products are disseminated to customers, considering who sells them and the methodologies employed. Common distribution models include:

• Direct distribution
• Indirect distribution

Ultimately, the choice of software distribution model hinges on business requirements, budget constraints, and overarching objectives.

B2B and B2C SaaS models

B2B SaaS and B2C SaaS may share similarities in service provision, business models, and performance metrics, such as churn rate and conversion rate. However, the distinctions between the two are stark, particularly in terms of various departments critical to their operation and success.

Many new founders make the mistake of believing they must choose between developing a B2B or B2C SaaS product. However, contrary to this belief, numerous highly profitable SaaS companies successfully operate within both realms simultaneously. They adopt a dual-funnel approach, akin to the strategy exemplified by Dropbox.

Take, for instance, companies like Dropbox, Trello, Canva, Castos, and Squadcast. While primarily categorized as B2B SaaS, they also maintain a substantial consumer or prosumer tier.

Embracing a hybrid model offers significant advantages, including:

• Stable growth curve

By catering to a diverse clientele, you balance smaller customers with higher churn rates alongside businesses at higher price points with lower churn, resulting in a more stable growth trajectory.

• Enhanced brand presence

Engaging with consumers amplifies your brand's reach. A sizable consumer base fosters a strong brand following, facilitating organic word-of-mouth marketing on a larger scale.

• Increased Average Revenue Per User (ARPU)

The varied customer mix typically yields higher ARPU figures compared to traditional B2C SaaS models. Consequently, you can allocate more resources towards sales and marketing initiatives.

Ultimately, there's no definitive answer regarding whether to pursue a B2B or B2C SaaS approach. However, from an economic standpoint, B2B ventures tend to be more advantageous for bootstrapped or predominantly bootstrapped enterprises.

In addition, B2B SaaS solutions typically boast greater complexity and a wider array of features compared to their B2C counterparts. This complexity arises from the distinct requirements of B2B customers, who demand advanced functionalities and customization options tailored to their specific business needs. Moreover, B2B solutions often excel in integration capabilities, security features, and reporting functionalities, among other advanced attributes.

In contrast, B2C SaaS solutions prioritize simplicity and user-friendliness. These solutions emphasize intuitive interfaces and streamlined features to deliver a seamless user experience. While B2C offerings may lack the extensive customization and advanced functionalities of B2B solutions, they excel in accessibility and ease of use, catering to a broader audience.

In essence, success in the SaaS realm hinges on acquiring numerous customers and retaining them, rather than solely focusing on securing large deals.

Examples of successful SaaS platforms

Let's explore a few examples of successful SaaS platforms and delve into how they have transformed their respective industries, catering to both business and consumer needs alike.

LinkedIn stands as a cornerstone in professional networking, revolutionizing the way individuals connect, share insights, and advance their careers. As a B2B SaaS platform, it provides a digital space where professionals can access a suite of services, including job searching, talent recruitment, and professional networking tools. LinkedIn has become an indispensable resource for both professionals and businesses, facilitating meaningful connections and opportunities in the professional landscape.

As a B2B SaaS communication platform, Slack has redefined workplace collaboration and communication dynamics. Offering features such as instant messaging, file sharing, and seamless integrations with various productivity tools, Slack enables teams to work more efficiently and effectively. Its user-friendly interface and robust functionality have made it a staple in modern workplaces across industries, empowering teams to streamline communication and collaboration processes.

Spotify stands out as a transformative force in the realm of music consumption, offering a personalized and immersive music streaming experience. Operating as a B2C SaaS platform, Spotify provides users with access to an extensive library of songs, playlists, and podcasts on-demand through its subscription-based model. With personalized recommendations and curated playlists tailored to individual preferences, Spotify has become the go-to destination for music enthusiasts worldwide, reshaping how people discover, enjoy, and share music.

If you're seeking inspiration, dive into our article highlighting the top SaaS startups to watch in 2024.

SaaS product stages

Market research

Market research enables you to understand customer needs, market trends, and competitor landscapes. At Brights, we leverage industry expertise and data-driven insights to identify market opportunities and validate product concepts. With a detailed discovery phase, you gain valuable market intelligence sans development cost, guiding strategic decision-making and maximizing the potential for product success.

MVP development

The development of a Minimum Viable Product is a crucial stage in the SaaS product lifecycle, allowing businesses to validate their ideas and gather feedback from early adopters. Brights specializes in MVP development , leveraging agile methodologies and rapid prototyping to bring concepts to life efficiently and cost-effectively. With our expertise, you can launch MVP quickly and iteratively, minimizing time to market and maximizing resource efficiency in development cost.

Process improvement

Continuous process improvement is essential for optimizing SaaS product performance and enhancing customer satisfaction. We offer process improvement consulting services, conducting thorough assessments and implementing tailored strategies to streamline workflows, enhance scalability, and drive operational excellence.

Hypergrowth

Hypergrowth signifies a phase of rapid expansion and scaling for SaaS businesses, driven by increasing market demand and customer adoption. Brights team provides technical expertise with team extension to support businesses during hypergrowth phases, offering cloud infrastructure management, performance optimization, and scalability planning services. By leveraging Brights' capabilities, businesses can scale their operations seamlessly and sustainably, enabling them to capitalize on growth opportunities and achieve long-term success.

Read also: How much does it cost to develop a SaaS product?

SaaS business: benefits for vendors

Good signs for investors.

The subscription-based revenue model, coupled with low customer acquisition costs and high customer retention rates, can lead to exponential revenue growth over time. This growth trajectory is particularly appealing to venture capitalists and private equity firms seeking high returns on investment. According to Dealroom, 47% of VC was invested in startups with a SaaS business model in 2023, a trend that has been on the rise over the past decade. Additionally, the relatively low upfront costs associated with SaaS startups compared to traditional software companies reduce the barrier to entry for investors, allowing for diversification within investment portfolios.

Predictable revenue streams

Advantages of the SaaS business model include vendors' predictable revenue streams, with subscription-based pricing contributing to stable income. According to a report by Gartner, by 2025, SaaS is expected to account for 60% of all public cloud services revenue, highlighting its growing significance as a revenue driver for vendors.

Lower maintenance costs

By leveraging cloud-based infrastructure, SaaS vendors can significantly reduce upfront investment in hardware and IT infrastructure. Research by IDC forecasts that spending on public cloud services will reach $1.35 trillion by 2027, with SaaS accounting for a significant portion of this expenditure, underscoring the cost-saving benefits of cloud-based solutions for vendors.

Software privacy

One effective strategy in combating software piracy involves leveraging the inherent difficulty associated with pirating cloud-based software. Unlike traditional software installations, cloud-based solutions operate on remote servers accessible via the Internet, making unauthorized copying and distribution far more challenging. By adopting cloud-based models, software providers can significantly reduce the prevalence of piracy, safeguarding their intellectual property and revenue streams.

Scalability and flexibility

SaaS platforms provide vendors with scalability and flexibility, allowing them to adapt to changing market demands and user needs. A survey conducted by Flexera found that 93% of organizations reported using SaaS applications, indicating the widespread adoption of SaaS solutions among businesses of all sizes.

Challenges and risks of the SaaS model

Navigating the risks of the SaaS business model poses various challenges that require careful consideration and strategic management.

Multi-tenancy complexity

Multi-tenancy architecture poses intricate challenges in SaaS development, requiring a delicate balance between resource sharing and data privacy, security, and customization. Various models, including isolated, shared, and hybrid tenancy, each present unique complexities that must be navigated effectively to ensure optimal performance and user satisfaction.

Data security and privacy

Data security and privacy are paramount concerns for SaaS development, necessitating robust measures to safeguard sensitive information while maintaining user accessibility and experience. Balancing convenience with comprehensive protection requires careful planning and implementation throughout the SaaS development lifecycle, from design and testing to deployment.

Scalability and performance

Scalability and performance are fundamental considerations in SaaS development, demanding strategies to accommodate growing user bases and maintain seamless operation under varying workloads. Achieving zero downtime deployment, addressing integration challenges, and optimizing system performance are critical for sustaining competitiveness and meeting user expectations.

Integration issues and third-party options

Integration challenges, including third-party integration and data consistency, present significant hurdles for SaaS developers seeking to streamline operations across diverse platforms and applications. Seamless integration of cloud-based SaaS products with other SaaS apps meticulous planning and execution to minimize disruptions and ensure seamless functionality.

Regulatory compliance

Maintaining regulatory compliance is a complex challenge in SaaS development, as companies must navigate a landscape of laws and regulations governing data security, privacy, and financial transactions. Adhering to evolving legal requirements demands ongoing diligence and expertise, ensuring that SaaS solutions meet compliance standards across diverse industries and regions.

Brights SaaS expertise

Our proficiency in SaaS development is exemplified by our involvement in groundbreaking projects such as a creative-focused project management platform aimed at streamlining the production process of creative assets.

In this project we focused on making it easy for users to work with videos and large files. This means they can quickly turn their ideas into real work, and it's also easy to chat and give feedback in real-time now. We also worked on making it simpler to get approval for the work. We designed a system where users can decide how to get things approved. This makes the whole process faster and easier for everyone.

Security was another area where we made a big difference. We added an extra layer of protection, kind of like a secret code, to keep the work safe and make the platform intuitive.

Lastly, we made sharing and getting notifications better. Now, users can share the work with others and get notified instantly. This means they don't have to wait, and can see their work right from the email.

Our partnership has transformed it into a more user-friendly and secure platform, ideal for managing creative projects and working with the team and partners. Brights' contributions underscore the power of successful collaboration in delivering valuable tools for creative teams.

The future of SaaS

In conclusion, the future of SaaS is poised for unprecedented expansion and transformation. As technology evolves and consumer expectations evolve alongside it, the SaaS landscape will continue to evolve rapidly, offering novel solutions to address emerging challenges across industries. With advancements in artificial intelligence, machine learning, and data analytics, the potential for SaaS to revolutionize business operations, streamline workflows, and drive innovation is immense.

Moreover, the rise of edge computing, 5G technology, and the IoT will further propel the growth of SaaS by enabling seamless connectivity and unlocking new use cases. As such, entrepreneurs, developers, and investors alike stand poised to capitalize on the vast opportunities presented by the dynamic and ever-expanding field of SaaS. With the right vision, strategy, and execution, the possibilities are truly limitless in shaping the future of SaaS and redefining the way we work, collaborate, and interact with technology.

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Strategic SaaS Risk Assessment: Methods and Best Practices

Inherent risks of saas adoption.

Shifting your critical business functions to a third-party cloud environment introduces inherent vulnerabilities. These vulnerabilities can include:

• Data breaches: Unauthorized access to sensitive data stored within the SaaS application.
• Insecure APIs: APIs can be exploited by malicious actors to access data or disrupt functionality.
• Vendor lock-in: Dependence on a single vendor can make it difficult and costly to switch providers.
• Compliance challenges: Meeting regulatory compliance requirements can be complicated when data is stored and processed in a cloud environment.
• Lack of visibility and control: Limited visibility into the vendor's security practices and infrastructure can make it difficult to mitigate risks.

The Need for Strategic Risk Assessment

Ignoring these risks can have devastating consequences for your organization, including financial losses, reputational damage, and legal repercussions. To effectively manage these risks and ensure a secure and resilient SaaS ecosystem, a strategic risk assessment is crucial.

Risk Identification

Understanding the risk landscape.

Before diving into specific applications, it's essential to understand the overall risk landscape surrounding SaaS adoption. This includes:

• Industry-specific threats: Familiarize yourself with common threats targeting your industry and the types of data most vulnerable.
• Emerging threats: Stay updated on the latest security vulnerabilities and attack vectors targeting SaaS applications.
• Regulatory compliance requirements: Identify relevant regulations and ensure your chosen applications adhere to them.

Mapping SaaS Applications and Data Flows

Create a comprehensive inventory of all SaaS applications used within your organization. For each application, map its associated data flows:

• Where is data stored?
• Who has access to the data?
• How is data transmitted and processed?
• What are the security controls in place?

This mapping provides a clear picture of your organization's attack surface and helps pinpoint potential vulnerabilities.

Identifying Security Vulnerabilities

Conduct thorough security assessments of each SaaS application, focusing on areas like:

• Authentication and authorization controls: Are strong passwords enforced? Is multi-factor authentication enabled?
• Data encryption: Is data encrypted at rest and in transit?
• Vulnerability management: Does the vendor have a robust vulnerability management program?
• Incident response: What is the vendor's incident response plan?
• Compliance certifications: Does the vendor hold relevant security certifications?

Assessing Compliance Requirements

Identify and understand the regulatory compliance requirements applicable to your organization. These could include HIPAA, GDPR, or industry-specific regulations. Evaluate whether your chosen SaaS applications comply with these requirements and document your findings.

Risk Assessment Methods

Several methods can be used to assess SaaS risks, each offering unique benefits:

Standardized Frameworks (e.g., NIST, ISO 27001)

Standardized frameworks like NIST Cybersecurity Framework and ISO 27001 provide a comprehensive risk assessment methodology. These frameworks offer a structured approach and best practices for identifying, analyzing, and mitigating risks.

Threat Modeling and Attack Trees

Threat modeling proactively identifies potential threats and vulnerabilities associated with your SaaS environment. Attack trees help visualize how malicious actors might exploit these vulnerabilities and plan appropriate countermeasures.

Qualitative and Quantitative Risk Analysis

Qualitative risk analysis focuses on identifying and evaluating the nature and likelihood of risks. Quantitative risk analysis assigns numerical values to the impact and likelihood of risks, enabling informed decision-making regarding resource allocation.

Continuous Monitoring and Threat Intelligence

Continuous monitoring of your SaaS environment is essential for detecting and responding to potential threats promptly. This includes utilizing security information and event management (SIEM) tools and threat intelligence feeds.

Risk Mitigation Strategies

Several strategies can be employed to mitigate identified risks:

Vendor Security Evaluation and Contractual Clauses

Before selecting a SaaS vendor, conduct a thorough evaluation of their security practices and infrastructure. Ensure your contracts include clear provisions regarding data security, access controls, and incident response procedures.

Access Control and Identity Management

Implement strong access controls and identity management practices within your organization. This includes using multi-factor authentication, enforcing the principle of least privilege, and regularly reviewing user access rights.

Data Encryption and Security Controls

Encrypt sensitive data at rest and in transit. Implement security controls like firewalls, intrusion detection systems, and data loss prevention solutions to further protect against unauthorized access and data breaches.

Incident Response and Disaster Recovery

Develop a comprehensive incident response plan that outlines how your organization will respond to security incidents involving your SaaS applications. This plan should include communication protocols, data recovery procedures, and forensic analysis activities. Additionally, implement a disaster recovery plan to ensure business continuity in the event of a major outage or disruption.

Best Practices for Effective Assessment

To ensure your SaaS risk assessment is effective and delivers actionable insights, consider these best practices:

Establishing Clear Ownership and Roles

Clearly define ownership and roles within your organization for conducting and managing SaaS risk assessments. This ensures accountability and facilitates effective communication and collaboration.

Defining Risk Tolerance and Impact Levels

Establish clear risk tolerance levels for your organization. This helps prioritize mitigation efforts and allocate resources effectively. Additionally, define the potential impact levels of different risks to guide decision-making.

Prioritizing Remediation Efforts

Prioritize identified risks based on their potential impact and likelihood. Focus your mitigation efforts on the most critical risks first to achieve maximum benefit with limited resources.

Continuous Improvement and Review

The risk assessment process is not a one-time activity. Regularly review and update your assessments to reflect changes in your SaaS environment, emerging threats, and evolving regulatory requirements. This ensures your risk management strategy remains effective and up-to-date.

Tools and Resources for Risk Assessment

Several tools and resources can aid you in conducting effective SaaS risk assessments:

Cloud Security Posture Management (CSPM) Solutions

CSPM solutions provide comprehensive visibility into your cloud infrastructure and applications, including SaaS applications. They can help identify security vulnerabilities, monitor configurations, and detect suspicious activity.

Security Information and Event Management (SIEM) Tools

SIEM tools collect and analyze security events from various sources, including SaaS applications. They can provide valuable insights into potential threats and help you respond to security incidents quickly.

Risk Assessment Frameworks and Templates

Several standardized frameworks and templates can guide your risk assessment process. These resources can help you organize your findings and ensure you cover all critical aspects.

Third-Party Security Assessments

Consider engaging specialized security companies to conduct independent assessments of your chosen SaaS vendors. Their expertise can provide valuable insights into the vendor's security posture and help you make informed decisions.

Conclusion: Building a Secure SaaS Ecosystem

By implementing a strategic SaaS risk assessment process and adhering to best practices, you can build a secure and resilient SaaS ecosystem for your organization. This proactive approach will help you mitigate risks, protect your sensitive data, and ensure the continued success of your business in the cloud.

Remember, a secure SaaS environment is not a destination, but a journey. Continuous monitoring, adaptation, and improvement are essential in today's ever-evolving threat landscape. By embracing a proactive and informed approach to SaaS risk management, you can confidently navigate the cloud and leverage its full potential for growth and innovation.

1. What is the difference between SaaS risk assessment and vendor risk assessment?

While similar, SaaS risk assessment focuses specifically on the security risks associated with using a particular SaaS application. Vendor risk assessment, on the other hand, takes a broader view of all third-party vendors, including those providing SaaS applications.

2. What are the most common SaaS security risks?

Some of the most common SaaS security risks include data breaches, unauthorized access, insecure APIs, and lack of visibility into vendor security practices.

3. How often should I conduct a SaaS risk assessment?

The frequency of your SaaS risk assessment will depend on your organization's risk tolerance, industry regulations, and the specific SaaS applications you use. However, it is generally recommended to conduct assessments at least annually or whenever there are significant changes to your SaaS environment.

4. What are some best practices for managing SaaS security risks?

Some best practices for managing SaaS security risks include implementing strong access controls, regularly patching vulnerabilities, encrypting sensitive data, and having a robust incident response plan in place.

5. What tools can I use to help me with SaaS risk assessment?

Several tools can help you with SaaS risk assessment, such as Cloud Security Posture Management (CSPM) solutions, Security Information and Event Management (SIEM) tools, and risk assessment frameworks and templates.

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SaaS Business Model: Secrets to Startups’ Success & Pitfalls to Avoid

Diving into the world of SaaS (Software as a Service) can feel like exploring a digital ocean, vast and teeming with opportunities. It’s a business model that’s reshaped how we use software, turning it from a product you buy once into a service you subscribe to.

Imagine having access to the latest software, always updated, without the upfront cost of a traditional purchase. That’s the beauty of SaaS – it’s not just convenient for users; it’s a game-changer for businesses. By offering software on a subscription basis, companies can secure a steady revenue stream and scale with ease.

So, if you’re curious about how this model works and why it’s become the go-to for startups and established companies alike, you’re in the right place. Let’s unravel the magic behind SaaS and how it might just be the future of software consumption.

Key Takeaways

What is the saas business model.

If you’re diving into the world of online business or looking for an innovative side-hustle, understanding the SaaS business model is an absolute game-changer. Imagine having a subscription to a magazine, where new editions are delivered monthly, directly to your door. Now, apply that to software, and you’ve got the SaaS model in a nutshell.

At its core, SaaS (Software as a Service) lets you access software over the internet, on a subscription basis. It’s a shift from the traditional one-time purchase of software. This means you don’t have to worry about massive upfront costs, installing, or maintaining the software. The beauty of it is that it allows for unparalleled scalability and flexibility, both for the users and the providers.

Here’s why it’s a total game-changer for entrepreneurs like you:

• Predictable Revenue Stream : Subscription models offer a steady flow of income. You can forecast future revenues with greater accuracy, a luxury many traditional businesses don’t have.
• Lower Entry Barriers : Customers are more likely to try your software with a low monthly subscription fee rather than a hefty one-time cost.
• Rapid Scalability : As your user base grows, so does your infrastructure, but without the need to sell physical products. This means you can scale almost infinitely, reaching new markets with ease.
• Continuous Improvement : Constant feedback from your subscribers allows you to refine and update your product, making it better over time and keeping your customers happy.

Remember, adopting the SaaS model isn’t just about selling software; it’s about delivering value and solutions to your customers on a consistent basis. Focus on understanding your audience’s needs and pain points. Tailor your services to address those issues directly, and you’ll be on your way to building a successful SaaS business.

Benefits of the SaaS Business Model

As an entrepreneur and business enthusiast, you’ve likely explored various models to drive your ventures forward. The SaaS (Software as a Service) model stands out for its unique advantages, especially for startups and side hustles craving for success. Here’s why you should consider it for your next online business venture.

Lower upfront costs are a significant perk. Traditionally, software investments required hefty initial spending, from licensing fees to hardware. But with SaaS, you simply subscribe and start using the service. This shift from CapEx to OpEx enables you to allocate funds to other critical areas of your business, enhancing your operational efficiency and agility.

Another standout benefit is the scalability it offers. The SaaS model adapts to your business needs, allowing for easy upgrades or downgrades based on your current requirements. Whether you’re just starting or experiencing rapid growth, SaaS grows with you, ensuring you’re only paying for what you need, when you need it.

SaaS also ensures you’re always using the latest technology , thanks to automatic updates. In the fast-paced digital world, staying up-to-date with the latest software is crucial for maintaining a competitive edge. Your SaaS provider takes care of these updates, saving you time and resources on maintaining and upgrading your software.

Let’s not overlook the revenue predictability aspect. With a subscription-based model, you can forecast future revenues with greater accuracy. This consistency aids in planning and securing funding, as potential investors or stakeholders have a clear view of your business’s financial health.

Lastly, customer feedback in the SaaS model is invaluable. It provides direct insights into user experiences, allowing for continuous improvement and innovation. This iterative process not only enhances your product but also deepens customer relationships, as users feel their feedback is heard and acted upon.

Adopting a SaaS business model can propel your online business or startup to new heights. Its flexibility, cost-effectiveness, and focus on customer satisfaction address many traditional business challenges, offering a modern approach to achieving success in the digital age.

How Does the SaaS Business Model Work?

As someone who’s dived headfirst into the world of online businesses and startups, you’re always on the lookout for models that streamline success and innovation. The SaaS (Software as a Service) business model is one such path that’s reshaping how entrepreneurs like you think about service delivery and customer engagement.

At its core, SaaS is a subscription-based model where software is hosted remotely on a provider’s servers. Instead of purchasing software outright, you pay a periodic fee to access it. This is a game-changer for startups and established businesses alike. Here’s why:

First off, the entry costs are significantly lower than traditional software solutions. You’re not purchasing expensive licenses or investing in hardware to run it. This means you can allocate more of your precious funds to areas like marketing, product development, or customer support.

Secondly, scalability is a prime feature of the SaaS model. You can scale your usage up or down based on your current needs without substantial investments or delays. This flexibility is vital for adjusting to market demands or business growth.

Moreover, you won’t be bogged down with updates or maintenance. The SaaS provider takes care of these, ensuring you always have access to the latest features and security patches. Automatic updates are a hallmark of the SaaS model, providing peace of mind and freeing up your team to focus on your core business activities.

Revenue predictability is another significant benefit. With a subscription-based model, you can predict your monthly or yearly earnings more accurately, making financial planning smoother and more effective.

Lastly, the SaaS model fosters a closer relationship with your customers. Through ongoing subscriptions, you’re able to collect continuous feedback and tailor your service to meet customer needs more precisely—helping you stay ahead in a competitive landscape.

By embracing the SaaS business model, you’re not just adopting a new way of selling software; you’re aligning your business with a flexible, cost-efficient, and customer-centric approach that’s built for the digital age.

Key Players in the SaaS Industry

Diving into the SaaS industry, you’ll notice it’s bustling with innovation and growth, which might inspire you for your next entrepreneurial venture. It’s critical to know the major players shaping this landscape. They’re not just the giants you hear about every day, but also the rising stars disrupting conventional workflows with their groundbreaking solutions.

Salesforce stands out as a pioneer, having revolutionized customer relationship management (CRM) through its cloud-based applications. This platform has become indispensable for sales teams worldwide, offering a suite of tools that foster enhanced customer engagement and sales productivity. Salesforce’s success is a testament to the scalability and adaptability of SaaS solutions, demonstrating how they can evolve to meet changing market demands.

Then there’s Slack , the ultimate collaboration tool that’s reshaped how teams communicate. By creating a platform that centralizes messaging, file sharing, and project management, Slack has made remote work more feasible and efficient for businesses of all sizes. It’s a prime example of how SaaS can foster a dynamic, connected workplace environment, breaking down traditional communication barriers.

Adobe Creative Cloud has transformed the creative industry by migrating its software to a subscription model. This pivot has allowed designers, photographers, and creatives to access a comprehensive suite of tools without the hefty upfront cost of traditional software. Adobe’s move to the cloud underscores the SaaS model’s capacity to democratize access to powerful tools, making them more accessible to freelancers and small studios.

Emerging players like Zoom and Asana have also made significant strides, highlighting the SaaS industry’s versatility. Zoom became the go-to video conferencing tool almost overnight, proving that even in saturated markets, there’s room for innovation and growth. Asana, on the other hand, has refined project management, enabling teams to streamline workflows and enhance productivity.

Whether you’re an aspiring entrepreneur or a seasoned business enthusiast, understanding the achievements and strategies of these key SaaS players can offer invaluable insights into developing successful, customer-focused solutions in this vibrant industry.

Challenges and Risks of the SaaS Business Model

While the SaaS model holds promise for entrepreneurs and startups, it’s not without its challenges and risks. Understanding these can help you navigate the complex landscape of online business.

First, data security is a critical concern. As your service hosts sensitive customer data, the responsibility to protect this information from breaches and cyber-attacks is on you. A breach can not only lead to financial losses but also damage your reputation, potentially undoing years of trust-building overnight.

Then, there’s the issue of customer churn . In the SaaS world, your revenue relies on subscriptions. If you’re not continuously adding value or your service doesn’t meet customer expectations, you’ll see subscriptions cancel. The key is to keep innovating and improving, ensuring your service remains indispensable to your users.

Competition is fierce in the SaaS sector. With low entry barriers, new players can quickly emerge and shake up the market. Staying ahead requires you to closely monitor industry trends, innovate, and, most importantly, understand your customers’ evolving needs better than your competitors do.

Operational challenges such as scaling can also pose risks. As your user base grows, so do the demands on your infrastructure and support team. Proper planning and investment in scalable technology and personnel are imperative to ensure that you can grow without compromising service quality.

Lastly, compliance with regulations can be a minefield. As you expand globally, you’ll need to navigate a complex web of legal requirements, differing from one region to another. Non-compliance can result in hefty fines and legal challenges, making it essential to stay informed and compliant with applicable laws.

By keeping these challenges and risks in mind, you’re better prepared to steer your SaaS venture toward success. Remember, knowledge and preparation are key to overcoming obstacles and thriving in the competitive online business landscape.

Embracing the SaaS business model opens up a world of opportunities for entrepreneurs and startups. It’s not just about the lower costs or the ease of updates and maintenance. It’s about being part of an evolving digital landscape where flexibility, scalability, and customer satisfaction are key. By learning from the giants like Salesforce and Slack or the innovative approaches of Zoom and Asana, you’re stepping into a realm where continuous improvement and customer feedback drive success. Yet, it’s crucial to navigate the challenges with a keen eye on data security and customer retention. Remember, in the fast-paced SaaS industry, staying informed and adaptable is your ticket to thriving. So gear up, stay focused on your customers’ needs, and let’s shape the future of digital solutions together.

Frequently Asked Questions

What is the saas business model.

SaaS, or Software as a Service, is a subscription-based model allowing businesses to access software hosted on a provider’s servers for a periodic fee. This model ensures lower upfront costs and offers scalability, flexibility, and continuous updates.

What are some benefits of adopting a SaaS model?

Key benefits include lower upfront costs compared to traditional software purchases, scalability and flexibility for growing businesses, automatic updates, and maintenance by the provider. This model also offers predictable revenue streams and immediate access to the latest features and security enhancements.

Who are leading players in the SaaS industry?

Notable SaaS providers include Salesforce for customer relationship management, Slack for team communication, Adobe Creative Cloud for creative tools, Zoom for video conferencing, and Asana for project management. These companies have significantly influenced and disrupted conventional workflows in their respective fields.

How does SaaS offer advantages for financial planning?

The SaaS model offers predictable revenue through its subscription-based framework, allowing businesses to forecast income more accurately. This predictability helps in better financial planning and resource allocation.

What challenges does the SaaS business model face?

Key challenges include data security, with the need to protect sensitive customer information, managing customer churn by continually adding value, staying ahead of the competition, and navigating operational challenges like scaling and regulatory compliance.

How can SaaS businesses overcome these challenges?

SaaS businesses can overcome these challenges by investing in robust security measures, actively seeking and implementing customer feedback, monitoring industry trends, and ensuring their services are scalable and comply with relevant laws and regulations.

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About the author.

Ryan Kingsley

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  • 9 min read

Effective SaaS Risk Management - A Guide for 2024

Sreenidhe s.p.

18th February, 2024

The expansion and integration of SaaS applications have become pivotal for IT managers for scaling operations. However, alongside their undeniable benefits, SaaS also introduces a spectrum of risks that can profoundly impact the entirety of your business.

As an IT manager overseeing a wide range of SaaS applications, managing SaaS risks isn't merely about fortifying security measures. Building a robust system that guards against threats and enhances efficiency and transparency across your organization is crucial.

Understanding these SaaS risks helps you make more intelligent choices to strengthen security and enhance operational efficiency. Let's first delve into what SaaS risk management is, its challenges, and the best practices for better managing and mitigating SaaS risks.

What is SaaS Risk Management?

SaaS risk management involves the strategic process of identifying, evaluating, and mitigating the risks linked to using SaaS applications. Beyond mere identification and assessment, this process involves a detailed examination of each application within an organization's ecosystem. 

It delves into scrutinizing vendor reliability, not just for the present but also in terms of their long-term viability and commitment to security updates and compliance. 

Furthermore, SaaS risk management isn't solely about identifying risks but is equally focused on implementing strategic mitigation strategies. These strategies are tailored to address identified risks, utilizing methods like robust encryption, stringent access controls, regular audits, and fostering a culture of cybersecurity awareness among employees.

Why is SaaS Risk Management Important?

SaaS risk management holds significant importance due to various key factors:

Data Protection: It is pivotal in safeguarding sensitive data housed and processed within SaaS applications. By implementing effective risk management strategies, organizations can shield this data from breaches, leaks, or unauthorized access, ensuring its integrity and confidentiality.

Operational Continuity: Mitigating risks associated with SaaS applications is essential for maintaining uninterrupted business operations. Businesses can avoid disruptions that might hinder their day-to-day functioning by minimizing the chances of security incidents or data breaches.

Scalability and Growth: As businesses expand and incorporate more SaaS solutions into their infrastructure, managing associated risks becomes critical. Effective risk management ensures this growth happens seamlessly without compromising security or compliance measures.

Competitive Advantage: Organizations prioritizing robust SaaS risk management gain a competitive edge. Demonstrating a firm commitment to data security and compliance fosters trust among partners, clients, and investors and positions the company as a reliable and responsible entity in the market.

What Are The Challenges Associated With SaaS Risk Management?

Some of the key challenges associated with managing risks in SaaS environments include:

Data Security and Privacy Concerns

Data security and privacy risks in SaaS arise from the challenge of securing sensitive data across multiple SaaS applications and diverse locations. Ensuring data security, encryption, and privacy compliance becomes complex in external cloud environments where control and oversight are limited. 

Moreover, as data moves between various SaaS applications, the risk of security lapses increases, demanding stringent measures to prevent unauthorized access and data breaches. Managing these risks demands stringent security measures, continuous monitoring, and robust data governance strategies to balance accessibility and safeguarding data integrity.

Lack of Visibility and Control

The lack of visibility and control within SaaS environments presents a significant risk. The decentralized structure of SaaS introduces complexities in overseeing and managing data access and utilization. 

Your IT departments face hurdles in obtaining a comprehensive view of all deployed SaaS applications, hindering their ability to uniformly implement and enforce security protocols across the organization. 

This lack of oversight increases the likelihood of inconsistent security measures and potentially leaves vulnerabilities unaddressed, heightening the risk of data breaches or unauthorized access within the SaaS ecosystem.

Compliance and Regulatory Challenges

Compliance and regulatory challenges pose a significant risk within SaaS operations. Negotiating the diverse data protection laws like GDPR and HIPAA across multiple jurisdictions where SaaS data resides creates complexity. 

Ensuring adherence to these regulations demands a nuanced understanding of regional mandates, intensifying the challenge of upholding compliance within the multifaceted SaaS landscape. 

Successfully navigating these diverse regulatory frameworks becomes imperative to safeguard data privacy, mitigate legal risks, and preserve organizational reputation in the face of potential non-compliance penalties.

Third-Party Risks

Third-party risks within SaaS environments emerge from the integration of external services or APIs beyond the primary SaaS provider, introducing additional security vulnerabilities. Verifying the security protocols of these third parties becomes imperative to mitigate potential risks. 

Organizations reliant on SaaS vendors for security measures confront challenges regarding vendor transparency, adherence to robust security practices, and the organization's capacity to enforce internal security standards effectively. 

This reliance on external entities for security implementations necessitates thorough scrutiny to ensure alignment with the organization's security requirements and protocols.

Shadow IT presents a significant hurdle in SaaS risk management by operating beyond the oversight of IT and security teams. This unapproved use of SaaS tools results in a lack of control and visibility, making it challenging to enforce security protocols and ensure compliance with organizational standards. 

The absence of proper monitoring opens the door to security vulnerabilities, potentially leading to data breaches, exposure, and the introduction of malicious software. 

Moreover, this unvetted use of SaaS applications can lead to non-compliance with industry regulations, further exacerbating security risks and governance challenges.

Best Practices for SaaS Risk Management

By adopting the below best practices, you can better manage and mitigate risks associated with SaaS usage, ensuring a more secure and reliable environment for their operations and data.

Information Security Policies

Creating robust information security policies is foundational in safeguarding SaaS environments. SaaS customers must craft a comprehensive security strategy aligned with their organizational goals, reflecting this strategy in a well-defined security architecture. This architecture is a blueprint encompassing intricate security policies, directing every facet of deploying and maintaining SaaS applications. 

These policies are pivotal in guiding the evaluation, seamless adoption, secure usage, and meticulous termination of SaaS services, ensuring a continuous and proactive approach to risk mitigation.

For instance, the policies specify that only authorized personnel with multi-factor authentication can access sensitive customer data stored in the CRM platform. Additionally, the policies mandate regular security updates and encrypted transmission of financial data across all adopted SaaS applications.

Asset Management & Access Control

Asset management and access control emerge as foundational pillars within SaaS environments, representing essential factors in fortifying cybersecurity and operational resilience. Effective asset management involves meticulous oversight of data assets, encompassing inventory tracking, ownership delineation, and establishing clear usage protocols. 

This approach proactively guards sensitive information, fostering accountability and strict adherence to compliance standards. Simultaneously, access control regulates and rationalizes access to services and data within the SaaS sphere. This entails thorough assessments of access needs, implementing role-based controls, and robust password security measures. 

These practices mitigate risks and erect robust barriers against unauthorized access or breaches by aligning access privileges with operational requirements. Together, they fortify the framework for data integrity, operational efficiency, and unwavering compliance in SaaS environments, creating a resilient and secure foundation.

Regular monitoring and auditing of SaaS applications

A pivotal best practice involves the continuous monitoring and auditing of SaaS applications. This practice serves as a proactive defense strategy, aimed at pre-emptively identifying and addressing potential vulnerabilities and irregular activities within the SaaS environment.

Continuous monitoring involves real-time, automated surveillance of the SaaS infrastructure, applications, and user interactions. This ongoing scrutiny enables immediate detection of potential vulnerabilities, compliance issues, and any irregular activities within the SaaS ecosystem.

Simultaneously, regular audits provide in-depth assessments of SaaS practices against established security standards. These audits meticulously review access controls, data handling procedures, and overall adherence to security protocols, ensuring alignment with best practices and regulatory requirements.

This combination of continuous monitoring and regular auditing serves as a proactive defense mechanism, enabling timely identification and mitigation of SaaS risks, thus safeguarding sensitive data, preserving operational integrity, and bolstering overall security in SaaS applications.

Employing multi-layered security measures 

Two vital components that play a pivotal role in SaaS risk management are multi-factor authentication (MFA) and single sign-on (SSO) . Here's why these practices matter and how they elevate security within your SaaS ecosystem.

Multi-Factor Authentication (MFA):

MFA goes beyond traditional passwords by adding extra layers of security. MFA significantly reduces the risks associated with compromised or weak passwords by requiring multiple verification forms like passwords, biometrics, security tokens, or mobile confirmations. This robust authentication setup acts as a shield, thwarting unauthorized access attempts and safeguarding your organization's sensitive data.

Single Sign-On (SSO):

SSO simplifies user access by allowing authentication once for multiple SaaS applications. This centralized authentication enhances user convenience and ramps up security by minimizing the need for multiple passwords. With SSO, you're reducing the risks linked with password fatigue, managing access more effectively, and ensuring consistent security across various SaaS platforms.

By prioritizing MFA and SSO, you're not just mitigating risks but also creating a fortified SaaS environment. This approach doesn't just strengthen security but also ensures efficiency and trust among stakeholders. It's a proactive step towards safeguarding critical data assets within your organization's SaaS infrastructure.

Utilizing backup and recovery solutions 

Effective risk management hinges on a robust incident management framework fortified by comprehensive backup and recovery solutions. This best practice involves a multi-phased approach: proactive preparation, swift detection, containment, recovery, and post-incident analysis. 

Preparation entails meticulous risk analysis aligned with corporate requirements during the procurement phase, ensuring readiness for potential vulnerabilities. 

Integrated with identity platforms and automated alerts, Swift detection mechanisms enable early identification of threats, facilitating rapid response. Containment strategies, including access restriction and collaboration with Cloud Service Providers (CSPs) for backup restoration, prove pivotal in minimizing the impact. Post-incident evaluations serve as crucial learning points, refining incident protocols and enhancing future readiness.

Central to this approach is the integration of robust backup and recovery solutions. These solutions act as the linchpin of incident management, assuring swift data restoration in case of compromise or loss, thereby minimizing disruptions and upholding data integrity. 

Their role extends beyond recovery, serving as a proactive measure to fortify SaaS environments against potential threats, ensuring the seamless continuity of operations, and bolstering the system's overall resilience.

Continual evaluation and adaptation of risk management strategies

Continual evaluation and adaptation of risk management strategies epitomize a best practice due to its proactive, responsive, and anticipatory nature in navigating the ever-evolving landscape of SaaS environments. 

By integrating this approach, organizations proactively anticipate potential threats, staying ahead of the curve by regularly reviewing and fine-tuning risk assessment protocols. This continual evaluation ensures that strategies remain aligned with emerging threats and technological shifts, bolstering the organization's ability to adapt and mitigate risks before they escalate swiftly.

A robust SaaS management platform offers functionalities like continuous monitoring of SaaS applications, providing real-time insights into their usage, permissions, and potential security vulnerabilities. These SaaS risk management software often incorporate AI-driven analytics and threat intelligence, allowing for proactive identification of emerging risks and suggesting adaptive measures to mitigate them swiftly. 

Amongst them, Zluri is a robust SaaS management solution for addressing SaaS-related risks within organizations. 

How Zluri Helps Revolutionize SaaS Risk Management

Zluri revolutionizes SaaS risk management by providing an in-depth understanding of your SaaS application ecosystem. 

Zluri’s robust discovery methods for SaaS Risk Mitigation:

Its capabilities offer comprehensive visibility and meticulous monitoring, utilizing five key discovery methods :

Single Sign-On (SSO) Integration : Tracks users, departments, and app types through major SSO providers.

Finance & Expense Management : Uncovers apps via financial systems like Quickbooks, capturing transaction details.

Direct API Integration : Connects with over 800 SaaS apps for precise usage data.

Optional Desktop Agents : Tracks device-level information and app usage comprehensively.

Optional Browser Extensions : Reports browser activities without compromising user privacy.

This comprehensive visibility enables effective approval processes, adherence to security standards, and optimized budget allocation, preventing security breaches.

2. Continuous Monitoring and Threat Identification:

Zluri employs continuous monitoring capabilities to keep track of the SaaS applications in real-time. It utilizes this feature to uncover and mitigate potential risks and threats as they emerge. This proactive approach enables the platform to swiftly detect anomalies, unauthorized access attempts, or security breaches, helping IT teams take immediate action to mitigate risks.

3. Threat level assessment & detailed security analysis:

Zluri performs thorough security assessments, offering detailed insights into SaaS app safety and compliance. It enables precise threat level measurement, risk scoring, and categorization into high, medium, or low-risk profiles.

Factors like data accessibility through SSO integration are considered. For instance, apps with potential file manipulation in platforms like Google Drive are tagged as high-risk.

Imagine an HR app accessing sensitive data—Zluri evaluates its access and associated risks. IT admins can then proactively implement security measures or adjust permissions to safeguard sensitive information.

4. Compliance Tracking and Management:

Zluri is a critical tool for IT administrators looking to enhance security. It provides valuable insights into security risks associated with different applications. Its standout feature is issuing timely alerts for risky apps that could compromise sensitive data. By promptly notifying relevant personnel, Zluri enables swift action to address vulnerabilities. For instance, if vulnerabilities are detected in a financial SaaS app, Zluri notifies stakeholders for immediate action to safeguard the data.

5. Enforcing Compliance & Strengthening Security:

Zluri ensures adherence to various industry-specific security and privacy standards like ISO 27001, SOC 2, GDPR, etc. It proactively fortifies compliance, strengthening defense against internal and external threats. 

For instance, in healthcare, Zluri verifies SaaS apps against HIPAA standards, guaranteeing patient data confidentiality and security.

6. Optimizing Decision-Making with App Segregation:

Zluri offers a comprehensive solution to organize the SaaS environment by categorizing apps into managed, unmanaged, restricted, and review-required groups. 

This systematic approach empowers IT teams to make informed decisions, aiding efficient resource allocation and better app utilization. For example, Zluri helps identify outdated apps, streamlining management and resource allocation for better efficiency.

7. Adaptive Security Measures and Threat Response:

Zluri adapts to evolving threats by continuously updating its threat intelligence. It employs sophisticated algorithms and machine learning to adapt to new risks, helping organizations stay ahead of potential threats and enabling rapid response to emerging security challenges.

Ultimately, Zluri's capabilities translate into tangible benefits for businesses. By optimizing app usage, you can drive cost savings and enhance operational efficiency, creating a more agile and productive team environment.

So what are you waiting for? Book a demo and understand it yourself. 

1. What are common risks associated with SaaS applications?

Common risks include data breaches, unauthorized access, compliance violations, lack of visibility into application usage, integration issues, and dependency on third-party service providers. These risks can compromise data security and impact business operations.

2. What are the benefits of SaaS risk management for businesses?

Effective SaaS risk management provides businesses with:

Comprehensive Visibility: Offers a clear view of application landscapes.

Proactive Vulnerability Identification: Facilitates early detection of weaknesses.

Regulatory Compliance: Ensures adherence to industry regulations.

Enhanced Data Security: Strengthens measures to safeguard sensitive information.

Optimized Resource Allocation: Enables efficient use of resources.

Informed Decision-Making: Helps in making well-founded choices regarding SaaS usage.

3. How can organizations ensure continuous SaaS risk management?

Continuous risk management involves regular monitoring, periodic assessments, staying updated with security patches and upgrades, conducting employee training on security best practices, adapting to evolving threats, and having a robust incident response plan in place.

About the author

Sreenidhe is a SaaS management expert and has a keen interest in ITAM and SAM practices. She is adept when it comes to SaaS Vendor Management and SaaS Spend management. Her knowledge of SaaS and SaaS management is self-thought and is based on a lot of reading. Before joining Zluri, Sreenidhe was working as a full-time journalist. She is also equally passionate about fashion and aspires to own a boutique someday.

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SaaS business model: Stages, pros & cons + essential tools to get ahead

The SaaS business model is unlike the traditional business model in many different ways. Perfecting it can be difficult without the right tools. Explore the fundamentals of how SaaS works, including models, metrics, and tools for SaaS growth.

What is SaaS?

• The SaaS business model

SaaS business stages

9 saas business examples.

• Key SaaS business metrics
• 4 SaaS growth tools

What’s next for SaaS businesses?

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Ever since John Koenig first coined the term “SaaS” back in 2005, the software-as-a-service industry has been one of the fastest-moving and creative in the world. And with the field having undergone a couple of “ knockout expansion years ,” with more revenue pouring into SaaS than ever, it has never been a better time for a young SaaS company. The SaaS business model powering all of this activity is startlingly unique, still young, and inextricably tied to the power of cloud computing. Understanding the fundamentals of how SaaS works is vital when building out a plan for your company’s forward growth.

SaaS, or software as a service, is a delivery model in which a centrally hosted software is licensed to customers via a subscription plan. Any company that leases its software through a central, cloud-based system can be said to be a SaaS company. A SaaS company maintains responsibility for the servers, database (and the data they contain), and other software that allow their product to be accessed and used. The subscription plans offered to customers can vary considerably within separate companies; some SaaS company business models involve offering multiple applications within their product, with different subscription plans giving access to different services.

How does the SaaS business model work

The reason we’re distinguishing between the SaaS business model and the rest is that the SaaS model includes a number of factors peculiar to it, such as:

Recurring payments

In SaaS, clients do not buy hardware. The software-as-a-service business and pricing model involves providing a  subscription  service to use the app, so you will have to worry about paying the yearly or monthly subscription as opposed to only once. Recurring payments take the form of monthly recurring revenue, otherwise known as MRR. Because a  SaaS company  provides a service, not a product, accounting for revenue properly can be difficult. When your customer signs the contract and subscribes, you may get some cash upfront, but that cash cannot be counted as revenue until you've earned it. Until then, it is a liability—money that your customer can ask to be returned at any point if you don’t deliver your service. As a result,  revenue recognition  is a fundamental part of the SaaS business model.

Heightened customer retention

All businesses care about customer retention, but in the SaaS revenue models, it is 10 times more important because retention of paying customers is the only thing that keeps you afloat. As we said above, you can’t lay claim to all of your clients’ subscription money until you’ve provided a complete term of service, so if you’re signing customers up for 12 months who are then leaving after 2, then you’ll be without the other 10 months of recurring revenue. As a result, the SaaS business model puts tremendous value on cultivating customer relationships and upselling. An existing SaaS customer spends more, on average, than a new customer, and are more than seven times more likely to churn (leave your business) to go to a competitor because of poor customer service than they are for a better product.

Consistent updates

While other products may come out with “next-gen” product versions, SaaS consistently provides smaller and more frequent upgrades to their services to keep the end-users happy and have better customer lifetime value. Part of this comes from the nature of being in the software business: software vulnerabilities can put customer information at risk from hackers, so continually assessing the state of security fixes is a top priority in the SaaS model. Hosting their own products also means SaaS companies can push updates whenever they need to, releasing new features, enhanced versions of old ones, and new product enhancements. By combining this with good customer communication, SaaS companies can be highly responsive to the  needs and feedback  of their customer base.

As we’ll see shortly, highly successful SaaS businesses can boast valuations in the $100 millions, serve a huge number of customers, and completely change the way in which entire industries think about aspects of their business. That, however, is the final and most successful stage of the SaaS business model. Broadly speaking, a SaaS business’s life can be broken down into three stages:

1. Early-stage

In the early stage of your SaaS business, you as the business owner or entrepreneur are still operating at the bare-bones level. You’re unlikely to have many customers, and your product will still be in its early  developmental stages . You may be seeking your first round of pre-seed  funding , or you may have decided to go for the  bootstrapping  approach to maintain better control of your operations. In the early stage, your staff roster will still be small, you will more than likely still have only one product you’re focusing your attention on, and you may not have started to turn real profit yet. At this stage, you should be asking yourself these main questions: Am I tracking metrics, bringing in new users, and looking to optimize pricing? Have I begun developing my own personal business model that will enable me to seek the right kind of funding and use it well?

2. Growth stage

The growth stage is where things start to get exciting. You’ve built something that’s growing fast, your product is gaining subscribers, and you’re beginning to bring in MRR and possibly positive cash flow. To kick off your growth stage and to continue powering through it, you will need to begin raising serious funds that will allow your company to grow its team, invest in product development and iteration, and scale. There are a number of funding types that serve the SaaS business model, including:

• Venture Capital:  The glamour means of procuring funds for your startup, venture capital is provided by firms or funds that see high growth potential or a strong track record of recent growth in a SaaS company, enough to merit substantial financial assistance.
• Angel Investors:  An angel investor is a single operator with substantial financial means who is prepared to make an investment in your company. They can be ideal for startups looking for their first big investment, although, more recently, so-called “super” angels have begun to play a decisive part in later funding rounds too.

Venture capitalists and angel investors are not the only routes to growing your business. Some companies go through  incubators  in their very early days; other, slightly more established SaaS companies find startup  accelerators  that meet their needs and use them for a different kind of funding experience. Some companies continue to bootstrap for a much longer time, and others are so adept at raising revenue from the start that they find they don’t need external funding until much later.

Now, you should be asking yourself these questions: Have I established key performance indicators (KPIs) to ensure I’m primed for further scaling? Do I have a strong monetization strategy in hand for when I do decide to seek some form of investment?

3. Mature stage

A SaaS company that has reached the mature stage has proved itself and can consider itself established. A company at the mature stage has a well-defined target audience that it’s catering to and has a reliable product that it’s making updates to. The company is bringing in good MRR, and all the other key KPIs (more on those to come) are stable. Mature-stage companies might still seek and receive investment, but it’ll be of a much larger order, aimed at breaking new markets or buying out competitors. The main question a SaaS company should be asking itself at this stage is: When is the last time we checked our pricing strategies? SaaS companies often reach the mature stage and settle into a sense of complacency, thinking that, because their business is solidly profitable, it must be running at its maximum potential. In fact, mature-stage SaaS companies are often positioned on a pile of potential revenue that they’re wasting with  poorly chosen price points .

The variety of successful SaaS-type businesses is astonishing; there are examples of tremendous success in the B2B and B2C spheres, in AI and video hosting, in e-commerce, in data analytics, and more. To show you just how broad success in SaaS can be, we’ve compiled a list of a few SaaS businesses that have made a serious impact in their fields — or, in some cases, created new ones!

Wistia is a company providing video-hosting services for businesses, from uploads to tracking performance to building audiences and brand attention. Brendan Schwartz and Chris Savage founded the company in 2006 and got their first client, a medical devices company, that year. In 2019, the picture is pretty rosy for Wistia. Despite taking relatively little investment in its early days, it's now the video-hosting service of choice for more than 300,000 businesses across 50 countries that depend on Wistia, bringing them more creative and authentic communications .

Shopify is an e-commerce platform for online stores, allowing businesses to create online stores without needing to know how to code. Shopify has completely revolutionized the way businesses think about e-commerce in the process; now, any retailers, big or small, looking to sell online, on social media, or in person have a single integrated solution that can meet their needs. Shopify has been amply rewarded for its innovations in e-commerce. It made over $1 billion in 2018 and have well-exceeded that total in 2019. Since then, Shopify has grown to 4.4 million active merchants in 2023 .

Artificial intelligence has been one of the primary growth areas in SaaS during the late 2010s, and no company exemplifies the potential of that field more strongly than Chorus.ai . Chorus is a leading conversation intelligence platform for sales teams. The company’s solution functions as a plug-in to video-calling services, allowing sales teams to record their business calls and extract meaningful data.By recording and analyzing the contents of sales calls, commercial teams are able to refine their approach to selling, curate new training surveys , and regimes for their reps, and come up with new in-depth strategies for better communicating with clients. Chorus’ solutions are used by world-class revenue teams at other great (SaaS!) companies like Zoom, Adobe, Asana, and Segment.

Just when you thought recruitment was one of those fields that could never change, a SaaS company came along and changed everything. Lever revolutionized the recruitment sphere with its streamlined processes for sourcing, attracting, and hiring new talent. Its talent software makes it easier for employers to vet candidates, take care of talent marketing, and foster connections between employers and employees through the company’s cloud service. Much like Chorus, proof of Lever’s success comes with it being used by such seminal companies such as Shopify, Eventbrite, and Netflix to fill their offices with the best employees.

Clearbit creates products and curates data APIs aimed at providing insights throughout the customer life cycle to help businesses grow. There are few industries where clear communication between client and customer is more vital than in SaaS, and Clearbit’s resolution to help those who work with it “ understand [their] customers " has made it a vital asset to those they work with. Clearbit’s ability to do this, as well as their cutting-edge means of identifying future leads and personalizing marketing approaches, has led it to be designated one of the fastest-rising companies in SaaS.

The SaaS business metrics to keep an eye on

SaaS companies are powered by data, and success in the field is predicated on how you maintain awareness of key metrics, how they interact, and how to improve then. The following are five key business metrics that determine the health and potential of a SaaS business.

Lifetime value, (LTV)

LTV is the total amount you’re due to receive from a customer over the life of their account with your product. The  LTV  of a user is one of the  most important metrics  for a SaaS business, and it’s vital that you  calculate it the right way . Retention-rate numbers (which we’ll come to shortly) are important but leave gaps in your understanding of how much retained customers are bringing in each month and won’t tell you much about the success you are (or aren’t) having with upselling. LTV brings you this precise understanding.

Customer acquisition cost (CAC)

CAC is the total cost of sales and marketing efforts that are needed to acquire a customer.

The fact of the matter is that bringing on new customers costs—and it’ll be a considerable time after bringing a new customer on board that the additional MRR offsets the cost of winning that new customer. You need to keep tabs on your CAC to ensure that your LTV is able to comfortably outpace it. Being too conservative with how much you’re willing to spend on CAC can lead to missed opportunities for revenue and growth from new customers; but being too reckless with it can lead to often critically low profitability.

Monthly & annual recurring revenue (MRR & ARR)

MRR and ARR are the lifeblood of a SaaS business. They measure the total amount of predictable revenue that a company expects on a  monthly or yearly basis. Many companies manage to make a mess of their MRR, nevertheless. A survey hosted by ProfitWell showed that one in five SaaS companies were not  reporting expenses  correctly when accounting for MRR; two in five were incorrectly including trialing or free users in some manner in their MRR; and a majority were making mistakes when differentiating between monthly, quarterly and annual payment timelines. There is no excuse for slackness with MRR, regardless of the fact that it’s not a figure you need to report to a government entity. It is a key statistic that allows investors to monitor the status of your company and is as important for you when plotting your trajectory.

Churn rate is the percentage of your customers leaving your service over a given period. It’s the nightmare statistic in the SaaS business model; even a little bit can be extremely damaging to a company’s hopes for sustaining the momentum of its growth. In fact, churn can be ruinous for companies  even when all of their other metrics are reasonably healthy. Knowing the foundation of your customer churn rate and the means by which you can reduce it could not be more important in SaaS. It can be a complex metric to get a full picture of. Breaking down your churn into segments and cohorts will reveal the different drivers behind your churn, while failing to correctly account for trialers or episodic/seasonal customers when plotting churn can muddle the picture. At our last count, there were 43 different ways public SaaS companies were accounting for the metric.

Retention rate

Your ability to retain customers is your  foundation for growth  in subscription-based services; churn is the flip side of retention, and keeping retention high is as important as keeping churn low. You may have noticed a pattern emerging in our speculations on key  SaaS metrics —and, yes, like all the rest, there’s a serious tendency among SaaS companies to calculate their retention rates incorrectly, too. Both user and MRR retention need to be calculated in tandem, so you can account for both the effects of your product, marketing, customer service, and pricing and the likelihood of sustaining profitability. You might not be taking care to differentiate between customer life-cycle stages when calculating retention rate, either, or between the plans your customers are on. In short, there’s a lot that can go wrong with your retention-rate calculations.

3 tools that help SaaS businesses grow

Now that we have a pretty solid understanding of the SaaS business model, you might already have started wondering what’s available to allow your business to get the best of the competition and really start to grow. We’ve got a few tools here at Paddle that can really help young SaaS companies grow.

Billing software

The SaaS business model is based on recurring billing, so you won't get very far without a decent recurring billing tool. There are a variety of solutions for managing subscriptions and recurring billing out there, but in many cases, you'll need to integrate these tools with a broader payments stack to manage payments and revenue. This can get messy fast. Or you can take an all-in-one approach and use a merchant of record .

As we saw above, your grasp on your data informs your success as a SaaS company: a well-organized, powerful  analytics solution  can make all the difference. Continued insight into the drivers behind your growth is fundamental for success in the SaaS business model: which customer segments are driving and detracting from subscription growth, which features in your product command the highest willingness to pay among your customer base, which features are leaving customers at more persistent risk of churn.

Retention software

For all their importance when gauging the health of your SaaS business, churn and retention rates are seldom completely understood by young companies. Identifying customer cohorts and tracking revenue retention, MRR churn, and delinquent churn can be difficult to do without resorting to a plethora of spreadsheets.  Tools  that aid your retention rates and help drive down churn, while minimizing the chances of human error or misreporting, are vital.

The range of applications in SaaS is virtually limitless, and with the means of fundraising continuing to diversify, it has never been a better time to join the field. Still, all of the most successful software-as-a-service companies underpin their success by adhering to a few fundamentals in the SaaS business model: a reliance on good statistics and the use of the right tools and solutions. Apply the same principles to your business and you might find yourself heading in the same direction.

Take the headache out of growing your software business

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What is SaaS business model?

SaaS business model is based on selling cloud-based software for a subscription fee. The cloud-based software is usually accessible via mobile, desktop, and web apps, and the subscription fee is usually monthly or annually.

What is SaaS revenue model?

The SaaS revenue model is based on regular and ongoing payments to use software or a different digital product or tool. The payments have a defined period, and the most common two are monthly and annually.

Is Netflix a SaaS?

It may sound unusual initially, but yes, Netflix is indeed a SaaS. Netflix sells the software to stream movies and TV shows, both licensed through distribution deals and produced by Netflix.

What are the benefits of using Saas?

There are many benefits to SaaS software. The biggest include cost-effectivity, scalability, better security, no licensing management, and more scalability.

Related reading

The SaaS Business Model: How and Why it Works

What is the SaaS Business Model?

The typical business model for a SaaS business is a unique and exciting one to dive into. Software as a Service (SaaS) companies are not going away anytime soon and there is much more innovation that will continue to come from SaaS businesses. Looking at companies like Salesforce, Slack, and Zoom (just to name a few), it’s clear that the business model works. But how and why does it work? Read on for a complete breakdown and understanding of the SaaS business model.

SaaS or “Software as a Service” is a delivery model for software where a centrally located, cloud-based software is licensed to its customers via a subscription model. This might be annual, monthly, per user, or by package level but a company can be consider a SaaS company if they are hosting their software on the cloud and licensing it out.

At the core through all of these stages, the business model is based on a subscription payment set-up. This is core to the business and the building block of the model. A SaaS company may offer various types of subscriptions for different products or various end-users, but the subscription model is key to the foundation of the business. Due to the fact that SaaS companies are hosted on a centrally located cloud, they are in a unique position to constantly be updating the software and pushing those updates to users. This update and growth process for SaaS products is much quicker then in-house hardware that used to require very manual processes for the end-user. The subscription model combined with the consistent updates typically present with SaaS products leads to a higher customer retention than other business models. SaaS companies aid this by baking in very high-touch customer success teams to their sales cycle, continuing to work with and serve the customer even after an annual or monthly subscription is committed to.

A SaaS company follows a business model typically goes through 3 phases: early stage, growth stage, and mature stage. All stages involve different levels of funding. For a deeper dive on that specific component, read more here .

Related Resource: 20 Best SaaS Tools for Startups

The early stage of a SaaS company is focused on building out a product-market fit and securing some early, loyal customers. The team is typically bootstrapped or operating on a very small seed or friends and family round. The team typically stays small at this stage as well.

The growth stage in the SaaS business model is focused on scaling extremely quickly by taking on funding via Venture Capital or Angel investors and pushing the limits of your product’s success by taking some risks, scaling the team, entering into incubators, taking on more strategic advisors, and selling up-market. This stage is all about establishing metrics to track success and working to go above and beyond those in order to keep growing the business.

Related Resource: Who Funds SaaS Startups?

The mature stage kicks in when success is proven, the audience is present and hungry for the product, and the focus is now on growing and retaining customers vs. proving out the concept. The focus now can shift to continuing to fine-tune the business via pricing updates, continued product growth and development, and brand building.

Stages of a SaaS Business Model

As we mentioned in our Startup Funding Stages Guide , “There are multiple stages of startup funding: Seed, Series A, Series B, Series C, and so forth. Startups should be conscientious about the funding rounds that they will go through, which are generally based on the current maturity and development of the company.”

The same idea holds true with respects to a SaaS company. A SaaS business model is one of the most attractive to a venture capitalist. The lifecycle and funding stages likely look something like this:

Related Resource: 23 Top VC Investors Actively Funding SaaS Startups

Related Resource: How to Start and Operate a Successful SaaS Company

Seed Funding

Seed funding is a startup’s earliest funding stage. Often, seed funding comes from angel investors, friends and family members, and the original company founders.

Series A Funding

“When a company is first founded, stock options are generally sold to the company’s founders, those close to them, and angel investors. After this, a preferred stock can be sold to investors in the form of a Series A. Series A allows investors to get in early with a business that they truly believe in. It’s a mutually beneficial relationship for both the company and the future stock holders.”

Series B+ Funding

“Once a business has been launched and established, it may need to acquire Series B (and beyond) funding. A business will only acquire Series B funding after it has started its operations and proven its business model. Series B funding is generally less risky than Series A funding, and consequently there are usually more interested investors.”

Important SaaS Business Model Metrics

While diving deeper into the SaaS business model, it’s important to understand the key SaaS metrics that will inevitably pop-up along the way. These key SaaS Metrics are critical to track in order to understand the health of a SaaS business.

MRR (Monthly Recurring Revenue)

Not to be confused with ARR (Annual Recurring Revenue), MRR is how much money your company can be expected to bring in every month. Going beyond the basic meaning, MRR is a functional metric through which you can gauge your company’s income and success. MRR growth equals business growth – the same goes for shrinking MRR most likely equaling a negative impact on the business. MRR trends are incredibly important to subscription-based businesses, because they compound over time.

CAC (Customer Acquisition Cost)

The sum total it takes for your team to acquire a customer. This includes the time of the sales reps but also the marketing dollars spent. Tracking your customer acquisition cost tells you a lot about how your company is operating. If the dollars and time spent to acquire a single customer is higher than the MRR or ARR that customer brings in, that can be a huge red flag for the business. Over time, your customer acquisition cost will also tell you whether it’s getting more difficult or easier to acquire new customers. You’ll be able to look at trends to see when acquiring customers becomes more affordable, and if there are specific seasons during which customer acquisition is more expensive.

LTV (Lifetime Value)

Here at Visible, we consider LTV of a customer to be the most important metric you can track. LTV is the average customer revenue multiplied by the gross margin percentage divided by customer churn rate. Another way to think about it is MRR or ARR X Customer Lifetime. Understanding LTV is important in assessing the overall health of your company as well as justifying CAC costs to your investors. Some good news as you’re starting your business – you can track CAC and LTV right in Visible .

Essentially, churn is loss. You can have customer churn – the number of customers that cancel their subscription to your business annually or monthly. You can also have revenue churn – how much money is lost annually or monthly. Churn is expected in most businesses but maintaining an acceptable rate in comparison with the growth of your business is a key metric to understand, measure, and track. You can accept about three to five percent of your small to medium sized businesses portfolio every month or less than 10 percent annually. As enterprise level businesses go, aim for a churn rate less than one percent. Your churn rate should continue to decline in subsequent years until you reach negative churn.

Customer Retention

This SaaS metric refers to how long you are able to maintain a customer per your subscription model. This could be annually or monthly. Healthy retention can also be customer growth. If a software is user-based or has multiple product components, upsell and expansion can be possible leading to annual retention exceeding 100%. Healthy customer retention may not mean you maintain every customer every year, but you ultimately are seeing growth in the business through a balance of renewals, upsells, and contract expansions.

Successful SaaS Business Model Examples

There are thousands of SaaS businesses in the world today with more growing every year. Despite the model being a popular and growing business practice, 93% of SaaS startups fail within the first 3 years due to a lack of product market fit, run into cash flow problems, or experience more churn than growth. Diving into a few examples of successful SaaS businesses can be a helpful way to better understand the business model.

Salesforce is one of the most recognizable SaaS companies and was a true Trailblazer in the space. You can read a brief history of the business here. Salesforce has been so successful because it was one of the first companies to truly implement the SaaS Business Model successfully and has intelligently scaled by continuing to not only update it’s products, but by acquiring products where they see new opportunity effectively retaining customers and upselling them into new products as well as constantly expanding out into serving new industries. They are a mature company now with roughly 30,000 employees globally and a heavy focus on customer story-telling and partnership as a way to stay top of mind in the SaaS world.

An extension of the SaaS model that has emerged and has proven to be successful is the “Freemium” model. This pricing structure allows a portion of the product to be used for free by a user or team with full features being available through a subscription. This model works because it allows users and teams to get hooked on a product, have a positive experience with it, and share it internally and externally. This model is a good way to prove product-market fit and keep CAC down by having the product and its use take on a viral aspect with customers being bought in to a point that when the ask comes in to purchase the full software, the education that typically happens around a sale has a lot less friction associated with this.

Two companies with extremely successful Freemium models are Slack and Zoom . Both tools can be used for free by individuals, teams, and even larger organizations but have limits on things like storage, meeting times, and seat #s that are only available when an enterprise package is purchased.

Pros & Cons of a SaaS Business Model

Like any business model, there are of course pros and cons to diving down any particular path.

Pros of a SaaS Model

• Rapid growth – if you find product-market fit early and are able to secure funding, the possibility of growing your company to a Billion dollar valuation is very real and can happen extremely quickly.
• Ease of deployment – because SaaS lives in the cloud, it can be easy to make quick fixes to your product and sell to and serve customers from virtually anywhere.
• Predictable revenue – the subscription model affords you the ability to fairly consistently understand how much money you can expect to make. There is no seasonality in a subscription model and annual or monthly contracts provide security that many other business models cannot guarantee.

Cons of a SaaS Model

• Upfront costs – If you aren’t able to secure funding right away, it can be tough to maintain the capital and manpower needed to grow your company quickly enough to be successful. It’s common to not see profitability in the first few years, so it can be a hard business model to follow by truly bootstrapping. Specifically the cost of a team, CAC, and cost to build out the infrastructure to host your cloud software are major factors to consider.
• High risk – growing fast also means you can fail fast. Taking on a lot of capital and scaling quickly can bring reward but if something changes in the market, your business could crash and burn overnight.
• Churn – although revenue may be predictable, if the wrong combination of events takes place in a year (major competitor comes to market, market needs change, economic changes occur), you may see a huge bout of churn in a renewal cycle. This extreme shift could be almost impossible to bounce back from.

SaaS Business Model Growth Strategies

In addition to the “Freemium” model shared above, there are many other growth strategies that can be implemented in a SaaS Business model. A few popular ones include:

Customer Stories and Referrals

If your SaaS is integral to the way a company does business, you may be lucky enough to have customers who are super fans and love advocating for the value you bring to their day, their work, and their business. Capitalizing on these success stories through marketing content, speaking events, or even referrals can be a smart way to grow your business in an authentic way. These customer stories are good proof points to why you work. Referrals can often lead to better conversations earlier on with prospective customers or even help your sales team break into accounts that have been historically tricky to sell to. Here is an example from one of our customers:

Thought Leadership

If your company is selling into a specific space, a common strategy is to try and become the “expert” in that space. If your company blog or community group can provide value to your end-user outside of your product, that credibility will spread. Lattice does a great job of this. They have built a free 10k plus HR community group for any HR leader. They keep this space completely focused on their ultimate end-user but never focus on the product, simply provide a space for that community to meet. From there they are able to source content and ideas on what to write about in their blog and share on their podcast, effectively providing value to their end-user before even attempting to make the sale. This name recognition and “expert” status makes the use-case for the product feel more in-line with what the user group is actually interested in.

3rd Party Resources

Companies that actively spend time building up great customer reviews on sites like G2.com or work to be analyzed for trusted reports like Forrester , can use that credibility as an outside proof-point for why their product is valuable when selling into new customers.

Social Media and Influencer Marketing

This strategy is all about going where your end-user is. Build a brand and a voice via social media sites that are popular with your customer. Showcasing your companies voice and personality as well as commenting and sharing insight into trending topics can be an easy way to grow your awareness in an industry. Influencers, or well-known folks in a specific space, can be valuable on social media as well. If a top marketing influencer endorses your marketing SaaS software, folks may come inbound based on that person’s recommendation. Connecting with and offering trials to influencers can be a great way to get this started. Additionally, identifying an exec at your company with a strong following can be a great way to build your company brand via that individual. Folks on LinkedIn, for example, are much more likely to engage with what a person has to say then what a branded company page does.

Tools to Help You Optimize Your SaaS Business Model

We recommend a few tools to start when jumping into a SaaS business model. Free or premium versions are great, but it’s important to invest in tools that allow you to measure the key metrics listed above and track overall business health.

CRM – A customer relationship management tool is key to maintaining an accurate and complete data-base of all of the accounts your team is actively selling to, are active customers, or who have churned. A complete picture of the relationships your company works with will allow you to measure growth and track CAC, MRR and churn. Salesforce, Hubspot, and Oracle all offer quality options but starting out you can build a basic CRM via spreadsheet tools – it will just be a lot more manual.

Analytics Tool – Invest in a tool that will allow you to accurately measure all the metrics for your company. We recommend google analytics or manually tracking your metrics via a spreadsheet tool if you don’t have the budget to invest right away. Looker and Tableau are great options once you have budget to spend.

Visible – We of course have to share how we can help with growing our SaaS business model, too. Once you take on funding, we are the most complete tool for sharing updates with your entire team and managing existing and potential relationships with investors. You can learn more and check out a free trial of us here .

7 SaaS security risks that every business should address

Compliance and Security

As the SaaS stack promises to be ever-growing, businesses need to take a special interest in their security measures to prevent expensive infosec blunders. Here are some of the top SaaS security risks to keep in mind when purchasing new software.

How SaaS security risks impact your business

• As SaaS usage and adoption continue to grow, SaaS security concerns grow along with them.
• The top seven SaaS security risks are misconfigurations, access management, regulatory compliance, data storage, data retention, privacy and data breaches, and disaster recovery.
• As SaaS platforms evolve, organizations must keep their security policies flexible enough to keep up with the changing environment.

SaaS is creating a revolution in the cloud service model and bringing up new security requirements and challenges. As the most dominant service delivery model today, it has the most critical need for security practices and oversight.

SaaS security has stirred up much debate in the software-as-a-service circle. All discussions revolve around the same question: Who is responsible for security? The supplier or customer? The recent SaaS security survey report answers this question. Fifty-two percent of respondents believe SaaS providers are responsible for checking and maintaining cloud security.

The survey aside, just like on-premises solutions, businesses must research their SaaS service provider’s policies on data security and compliance before signing up for their applications. This blog covers some common SaaS security challenges and proposed solutions to protect mission-critical business applications in the cloud.

Seven security risks to discuss with your SaaS supplier

Privacy advocates, like information security (infosec) analysts and IT departments, raise many concerns about SaaS purchasing and usage, and these concerns typically revolve around cybersecurity and privacy. Listed below are seven perceived security risks to discuss with a SaaS vendor during the evaluation stage.

1. Access management

Access management is critical for every SaaS application due to the presence of sensitive data. SaaS customers need to know whether the single access point into the public cloud can expose confidential information. It is also worthwhile to ask questions about the design of access control systems and identify whether there are any chances for network security issues, like poor patching and lack of monitoring.

2. Misconfigurations

Most SaaS products add more layers of complexity to their system, thus increasing the chances for misconfigurations to arise. Even small configuration mistakes can affect the availability of the cloud infrastructure.

One of the most well-known misconfiguration mistakes occurred in February 2008 when Pakistan Telecom tried to block YouTube within Pakistan due to some supposedly blasphemous videos. Their attempt to create a dummy route for YouTube made the platform globally unavailable for two hours.

3. Regulatory compliance

When you are ensuring that your suppliers have strong endpoint security measures in place, ask these questions:

• What is the relevant jurisdiction that governs customer data, and how is it determined?
• Do your cloud applications comply with regulatory, privacy, and data protection requirements like GDPR, HIPAA, SOX, and more?
• Are your cloud providers ready to undergo external security audits?
• Does your cloud service provider hold security certifications like ISO, ITIL, and more?

Before you purchase new software, it is vital to check where all the data is stored. SaaS users can ask the following questions to cross-check data storage policies:

• Does your SaaS provider allow you to have any control over the location of the data stored?
• Is data stored with the help of a secure cloud service provider like AWS or Microsoft, or is it stored in a private data center?
• Are security solutions like data encryption available in all stages of data storage?
• Can end users share files and objects with other users within and outside their domain?

5. Retention

You need to check how long the SaaS environment retains the sensitive information you enter into the system. In addition, it is recommended to check who owns the data available in the cloud: the SaaS provider or the user?

What is the cloud data retention policy, who enforces it, and are there any exceptions to this?

6. Disaster recovery

Disasters can happen out of the blue and can shake the foundations of your business. You must ask these questions to prepare yourself to face any impending disasters.

What happens to the cloud application and all your data stored during a natural disaster? Does the force majeure clause in your master service agreement come into play? Does your service provider promise a complete restoration? If yes, check how long that will take and its procedures.

7. Privacy and data breaches

Security and data breaches are common security threats that organizations face every day. Ask these questions to know how well your supplier can mitigate and overcome privacy and data breaches.

What measures does your cloud application provider have to prevent security breaches? For example, is their security team equipped to handle a direct ransomware attack or malware?

If a breach occurs, how does your supplier identify that? Do they have the capacity to investigate any illegal activity or intrusions? Can your contract enforce liability on the other party if the breach is caused by sheer negligence of your service provider's security services?

Solutions to help you overcome security risks

To address the security issues listed above, SaaS buyers should enhance their existing security practices and develop new ones as the SaaS environment evolves.

Related: An introduction to business IT security

The presence of firewalls and other security tools can do only so much; there is a lot more left in the hands of SaaS users, especially end users. As a result, there is a dire need for changes in the SaaS users' security practices, and the seven steps listed below can help.

1. Risk assessment

Practical risk assessment includes:

• Identifying the right technology assets and data
• Recognizing where the data is stored
• Recognizing how this data links with business processes and other internal applications.

Conduct security audits regularly and addresses any security risks that you find identified.

If one application in your SaaS stack exposes you to cyber risk, then all other applications connected will fall like a stack of dominoes. That’s precisely why you need to assess the risk of every SaaS application that you use. You need to check everything from the risk configuration of an application to its compliance with standard security standards and monitor access credentials for any unnatural behavior.

2. Security awareness

You will need to organize and launch security awareness campaigns for users in your organization to prevent security mishaps. If end users are not provided with the proper awareness about security mishaps in the cloud, they may become the point of entry for security threats and act as risk magnets.

The absence of a formal security awareness program for all users of a SaaS application can result in your data being exposed to many security risks, like social engineering attacks, phishing scams, accidental leaks of confidential data, and more.

Instead of waiting for SaaS providers to offer security training sessions, your organization should take charge of end-user training in cloud security. In addition, your internal security team must provide baseline training for everyone before they start using the application.

This fundamental security training should cover everything from data privacy measures to cybersecurity attacks.

3. SaaS security checklist

A solid SaaS security checklist will help you determine whether or not your cloud service provider can be trusted. It inserts a security checkpoint in the SaaS buying process , allowing you to assess your company's security needs and identify whether the supplier can fulfill expectations properly. In addition, this checkpoint prevents future surprises as you review cloud service providers thoroughly before using the system itself.

4. Policies and standards

Today, many resources are available to help SaaS users create information security policies and guidelines. Even if you do not have a dedicated cloud security team, you must develop basic policies and supporting standards to guide your users when using a SaaS application.

Rather than taking a one-and-done approach to policies and standards, business units need to keep revising and updating their policies to be relevant.

5. Third-party risk management

Third-party risk management is a crucial element of your security plan. If people are given a free pass to connect to any tool of their choice through APIs, it will result in a security nightmare.

There should be processes in place to regulate API connections with SaaS products. Additionally, it is better to offer such API access and connection permissions to a few who know how to perform necessary due diligence on third-party suppliers before connecting to them.

Here is where you can deploy cloud access security brokers (CASBs). CASBs can help you spot unauthorized SaaS products used across your organizations.

You can use this data to review those applications and decide whether to keep using them or look for a better alternative.

According to Gartner , CASBs can act as a single control point to set policy, monitor behavior, and manage risk across your SaaS stack regardless of users or devices.

6. Identity access management

Identity access management (IAM) covers authentication, authorization, and auditing. Authentication has long passed beyond traditional password-only authentication, and now, it must include steps like enabling multi-factor authentication. Multi-factor authentication demands users to submit at least two pieces of evidence that verify their identity.

Organizations can enable single sign-on if users find multi-factor authentication too hard to maneuver. Single sign-on allows users to authorize multiple applications with a single set of credentials.

Once verified, they need to perform operations in the system. Finally, auditing reviews authentication and authorization records to determine whether the IAM functionality is up to the mark.

7. Disaster recovery plan

A disaster recovery plan is a subset of the business continuity plan, a must-have tool in every organization's arsenal. It involves creating processes, policies, and procedures that will prepare an organization to recover the usage of its tech infrastructure in the event of a natural or human-induced disaster.

Stay clear of SaaS security and compliance risks

As the SaaS stack promises to be ever-growing, businesses need to take a particular interest in their security measures to prevent expensive infosec blunders. Of course, you can have excellent SaaS security checklists, impressive risk assessment processes, and enlightened end users. Still, if you fail to adapt to the ever-changing security landscape, all your hard work will go down the drain.

Stay on top of your SaaS security game by signing up for Vendr today . See how easy it is to manage and ensure the security of your SaaS stack.

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David Porter

The odds are extremely high that your team has already used the ChatGPT in their work. If that speeds up their work and reduces repetitive busy work, that’s a win for your team’s productivity. If that comes at the expense of data security, though, or opens up your company to potential copyright lawsuits, the benefits might not be worth the risk.

Learn how businesses prioritize data security, compliance, & growth in 2023. Discover top cybersecurity tools, compliance standards & strategies to build customer trust while protecting your business. Invest in robust security systems, adopt cloud & app security, and leverage data-driven decision-making.

In this guide, we’ll share best practices for building a realistic and usable SaaS security stack that’s focused on how modern organizations conduct business.

What Is SaaS?

SaaS (Software-as-a-Service) is a software delivery method that provides the value of a particular software through the internet instead of installing the software on their device.

SaaS stands for Software-as-a-Service. Customers license SaaS products on a subscription basis and receive them over the internet. The code, servers and database that make up an application are hosted and maintained by software providers like Amazon Web Services or Google Cloud . The customers then access the software through a web browser or a mobile app. 

Examples of SaaS Products

A SaaS product is one that’s built by a software vendor and licensed to a company. The company pays for the license on a monthly or yearly basis. Here are a few SaaS companies you may know. 

More From Built In’s Tech Dictionary What Is Latency?

How Does SaaS Work?

SaaS works in two parts — a vendor creates the software then a customer licenses the software. 

The vendor builds software to solve a problem for a sector of business. They typically gather requirements across the customer base and will likely trade off solving one customer’s problem by solving many customers’ problems at once. Vendors building this way allow for many advantages, such as scalability and lower maintenance to benefit customers. Customers then pay for the software over time (usually as a subscription) with the understanding that their feedback will create improvements down the line. The customer doesn’t own the software, and in exchange, they don’t have to worry about maintaining it. 

SaaS Architecture

SaaS applications and services use a multi-tenant approach. In practice, this means there’s a single instance of the application so all customers use the same version and configuration of the product. A multi-tenant approach allows SaaS engineers and cloud providers to manage upgrades and bug fixes much faster than a more bespoke approach, thereby creating a smoother user experience for all customers. 

The application is tied to data provided by the customer. That data flows, usually through an API , into the application’s database(s) . So even though there are multiple customers’ data held in a database, that information is secured so it doesn't mix with other customer data. When a customer accesses the application, it uses identifiers (such as a username and password) to understand what data to access. The application then combines the data and app into an “instance” which is what the user sees when they interact with the software. 

More From Built In Experts What Is a DDoS Attack?

Advantages of SAAS

SaaS offers an exciting alternative to the typical business model of installing software, which often requires building a server, installing the program and configuring it on-premise. Instead, SaaS products are located on a cloud network that customers can access online or through an API. SaaS differs from the traditional model because the software (application) comes preconfigured. 

Several benefits come with using the SaaS model to procure software, such as:

• Lower costs to install : SaaS products are installed in a series of clicks. Even for complex software, the time to end-user benefit is reduced since there is no need to set up servers. All the software needs is the right data, which is generally provided by the user, customer or an API. 
• Maintaining and updating software is cheaper for customers : The vendor handles all installation and software updates, then applies those changes globally. This means the software periodically gains new features without any work from the customer.
• Scalability and integration : The software is built on third-party vendors, like AWS, which can scale on demand. This means that even through unexpected increases in utilization, the software is unlikely to break.

Disadvantages of SaaS

Consider factors like support services, data security and hype before signing a contract with a software-as-a-service provider. SaaS has the potential to increase earnings and significantly boost productivity but when things go wrong, it becomes annoying, costly and even unsafe. Knowing the risks and drawbacks of SaaS can help you decide whether a SaaS product is the right option for your company.

• Loss of control and service-level agreements (SLA) :  You don’t have software control. Any fix your software needs boils down to the terms of your SLA. Unless you opt to break your SLA, you don’t have much recourse to solve your software’s problems with your in-house engineers.
• Software integration problems : Handing over certain operations to a vendor may make things easier up front but down the road you may find yourself  at the mercy of the vendor’s support team. This can, in some instances, harm your reputation with customers. If your software is integrated with a SaaS service and the product downtime negatively impacts your customers, your customers will only see you, not your vendor.
• Potential lack of security : SaaS works by giving your data over to a vendor. Though there are terms to which you agree, you ultimately have no control over how well the vendor secures that data. 

Get More From Built In Experts 7 Non-Technical Roles That Need AWS Cloud Skills

SaaS vs. IaaS vs. PaaS: What’s the Difference?

Saas (software-as-a-service).

Think about Netflix as noted above. Customers aren’t responsible for managing IT infrastructure or dealing with any aspect of software management when it comes to SaaS products.

PaaS (Platform-as-a-Service)

These products provide a framework for in-house developers to create customized applications. While developers maintain management of the applications they build, all of the servers and storage can be managed by the enterprise host or a third-party provider. AWS Elastic Beanstalk and Heroku are popular PaaS products.

IaaS (Infrastructure-as-a-Service)

These are products used by companies who seek to outsource their data center or computer resources. IaaS providers host servers, storage and networking hardware. IaaS customers must still manage their data use and operating systems. This is where tools like Microsoft Azure or AWS come into play, thereby allowing companies to access cloud services. While you as an individual customer may have a Netflix subscription, Netflix may have their own contract with an IaaS company. 

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The SaaS business model

Understand why SaaS businesses work and how to grow them.

Patrick has built four software companies (including two that sold SaaS). He now works on Atlas at Stripe.

• Introduction

Understanding the SaaS business model

Why is saas taking over the world, low-touch saas sales, high-touch saas sales, hybrid sales approaches, implications of the saas business model, low-touch saas benchmarks, high-touch saas benchmarks, product/market fit.

• Start your company 

Software-as-a-service (SaaS) is a billing and delivery model for software that is so superior to the traditional method for selling software licenses that it restructures businesses around itself. This has led SaaS businesses to have a distinct body of practice. Unfortunately, many entrepreneurs discover this body of practice the hard way, by making mistakes that have been made before, rather than by spending their mistake budget on newer, better mistakes.

This shouldn’t include you, so we’ll take you through a whirlwind tour of the state of play of SaaS businesses. You should gain a better understanding of the SaaS business model, be able to anticipate whether to sell your product on a low-touch or high-touch model, and (if you’re already operating a SaaS business) be able to evaluate its health and start improving it.

If you are a software entrepreneur, and you do not sell mobile applications (which have a separate billing model, imposed by the platforms’ app stores), you should thoroughly understand the business of SaaS. This will let you make better decisions for your product (and company), allow you to see business-threatening problems months or years in advance of them being obvious, and help you in  communicating with investors .

Customers love SaaS because it “just works.” There is typically nothing to install to access it. Hardware failures and operational errors, which are extraordinarily common among machines that are not maintained by professionals, do not result in meaningful data loss. SaaS companies achieve availability numbers (for example, percent of time where the software is accessible and operating correctly) that materially improve upon the numbers achievable by almost every IT department (and every individual, full stop).

SaaS also generally appears less expensive than software sold on other billing models, which matters for users who are not sure which software they should adopt over the long term, for example, or who have only a short-term need for the software.

Developers love SaaS principally because of the delivery model, not the billing model.

Most SaaS is developed continuously and run on the company’s infrastructure. (There are significant exceptions in SaaS in the enterprise, but the overwhelming majority of business-to-consumer [B2C] and business-to-business [B2B] SaaS sold outside the enterprise is accessed over the internet from servers maintained by the software company.)

Software companies historically have not controlled the environments their code executes in. This is historically a major source of both development friction and customer support cases. All software deployed on customers’ hardware suffers from differences in configurations of systems, interactions with other installed software, and operator error. This has to be both accounted for in development and dealt with as a customer service issue. Companies that sell their software on both SaaS and installable models frequently see 10+ times more support requests per customer from customers who install the software locally.

Businesses and investors love SaaS because the economics of SaaS are impossibly attractive relative to selling software licenses. Revenue from SaaS is generally recurring and predictable; this makes cash flows in SaaS businesses impressively predictable, which allows businesses to plan against them and (via investors) trade future cash flows for money in the status quo. This allows them to (generously) fund present growth. This has made SaaS companies into some of the fastest-growing software companies in history.

SaaS sales models

There are, broadly speaking, two ways to sell SaaS. The selling model dictates almost everything else about the SaaS company and the product, to a degree that is shocking to first-time entrepreneurs. One of the classic mistakes in SaaS, which can take years to correct, is a mismatch between a product or market and the selected model to sell it on.

You will find that the sales model for SaaS defines much more about a product (and company) than other distinctions, like whether a company sells to customers (B2C) or businesses (B2B), whether it is bootstrapped or riding the VC rocket ship trajectory, or what technology stack it is built on.

Some products sell themselves.

Low-touch SaaS is designed for the majority of customers to purchase it without sustained one-on-one interaction with a human being. The primary sales channels are the software’s website, email marketing, and (very frequently) a free trial for the software, with the trial being aggressively optimized to be very, very low-friction to start, onboard, and successfully make sustained use of the SaaS.

Low-touch products sometimes involve sales teams, but they’re frequently structured as so-called “Customer Success” teams, which are less focused on convincing people to buy the software and more on ensuring that users of the free trial successfully onboard and convert to paying users by the end of their trials.

Customer support in low-touch products is generally handled primarily in scalable fashions, by optimizing the product to avoid incidents that would require human intervention, by creating educational resources that scale across the customer base, and by using humans as a last resort. That said, many low-touch companies have  excellent  customer support teams. The economics of SaaS depend on the long-term satisfaction of customers, so even a product that expects only one ticket (a countable discrete interaction with a customer) every 20 customer-months might invest comparatively heavily in their customer support team.

Low-touch SaaS is generally sold on a month-to-month subscription with price points clustering around $10 for B2C applications and in the $20 to $500 range for B2B. This corresponds to an average contract value (ACV) of approximately $100 to $5K. The term ACV isn’t commonly even used by low-touch SaaS businesses, which typically describe themselves by their monthly price points, but it is important to do comparisons to high-touch SaaS applications.

If you asked a low-touch SaaS entrepreneur for their most important metric, they would say MRR—monthly recurring revenue.

Basecamp  is the paradigmatic example of a low-touch SaaS business.  Atlassian  (which makes Jira, Trello, Confluence, and several other products) is possibly the publicly traded company with the most success with the model.

Some customers need some help in deciding how or whether to adopt certain products.

High-touch SaaS is designed around there being a human-intensive process to convince businesses to adopt the software, successfully operationalize it, and continue using it.

The beating heart of the organization is almost always the sales teams, which are often broken down into specialized roles: sales development representatives (SDRs), who find prospects for the software, account executives (AEs), who own the sales process against particular customers, and account managers (AMs), who are responsible for the happiness and continued performance of an individualized portfolio of accounts.

The sales team is typically supported by marketing, whose primary job is generating a sufficient pipeline of qualified leads for the sales team to evaluate and close.

There are many truly excellent products sold on the high-touch model, but to a first approximation, engineering and product are generally considered less important in high-touch SaaS businesses than the sales engine is.

The organization of customer support is highly variable across high-touch SaaS companies; a commonality is that it is generally expected to be heavily utilized. The number of tickets per account per period is expected to be orders of magnitude higher than it is in low-touch SaaS.

Note that while, in principle, one can make high-touch sales to consumers (for example, insurance has historically been sold primarily through commissioned agents), in SaaS, the overwhelming majority of high-touch businesses sell to businesses (B2B). Within B2B, there is a wide range of expected customer profiles, ACVs (defined variously as average contract value or annual contract value), and deal complexity.

On the low end, SaaS sold to small and midsize businesses (SMBs) on a high-touch model generally has an ACV of $6K to $15K, though this can range higher. The exact definition of an SMB varies heavily depending on who you ask; operationally, it is “any business with sufficient sophistication to successfully adopt software that costs $10,000,” which probably excludes your local flower shop but includes a dental practice with two partners and four employees.

The high end is usually called “the enterprise” and targets extremely large businesses or governments. True enterprise deals start in the six figures; there is no ceiling.

If you asked a high-touch SaaS entrepreneur for their most important metric, they would say ARR—annually recurring revenue. (This is essentially all of the non-churned revenue of the company minus certain nonrecurring items, such as one-time setup fees, consulting services, and similar costs. Since the economics of SaaS are attractive because of growth over time, one-off revenue, particularly comparatively low-margin one-off revenue, is not maximally interesting to entrepreneurs or investors.)

Salesforce is the paradigmatic example of a high-touch SaaS business, and they literally  wrote the book  on the model. Small high-touch SaaS businesses exist in multitudes, though they’re less visible than low-touch SaaS businesses, principally because visibility is a customer acquisition strategy in low-touch SaaS and not always optimal in high-touch SaaS. For example, there are many small SaaS businesses that quietly make six or seven figures a year selling services to a tightly defined vertical.

There exist companies that successfully run a low-touch and high-touch business with functionally the same product. They are  exceedingly  rare relative to SaaS businesses. The most common result of attempting both models simultaneously is that only one of the models receives any traction, and (because these models weave themselves into all operations of the company) it typically strangles the other.

A more common form of hybridization is adopting certain elements of the other sales model. For example, many low-touch SaaS businesses have customer success teams that, if you squint at them, look almost like inside sales. High-touch companies typically borrow fewer tactics than low-touch companies; the most common one is having a product that the company does not (materially) sell, which they distribute in a low-touch fashion for the purpose of lead generation for the product the company actually sells.

The fundamental equation of SaaS

The SaaS model fundamentally works by financializing software: Instead of selling software as a product with a sticker price, it sells the software as if it were a financial instrument, with a probabilistically forecastable cash flow.

There are more sophisticated ways to model a SaaS business, but the no-MBA-required version just makes a few simplifying assumptions (like ignoring the time value of money) and uses high-school math. If you only learn one thing about SaaS, learn this equation; it is the Rosetta Stone to understanding all material facts about a SaaS business.

The core insight is really simple: one’s revenue, over the long term, is the number of customers times the average lifetime revenue per customer.

The number of customers you get is a product of two factors:  acquisition  (how effective you are at attracting the attention of prospects in low-touch SaaS or identifying and getting in front of them in high-touch SaaS) times your  conversion rate  (the percent of prospects you convert into paying customers).

The average lifetime revenue per customer (often called  lifetime value [LTV] ) is the product of how much they pay you for a particular period (such as one month) and how many periods they continue using your service.

The  average revenue per user (ARPU)  is simply the average revenue for an account over any particular period.

The  churn  is the percent of customers over a given period who do not continue paying for services. For example, if you have 200 customers paying you in January and only 190 of those pay you in February, the churn would be 5%.

The customer lifetime value can, with a few simplifying assumptions, be calculated as the  sum of an infinite geometric series ; this works out to simply taking the inverse of churn. A product that loses 5% of its customers per month has an expected customer lifetime of 20 months; if it charges each customer $30 a month, it has an expected lifetime revenue of $600 per new customer signed up.

Improvements to a SaaS business are multiplicatively effective. A 10% improvement to customer acquisition (via e.g., better marketing) and a 10% improvement to conversion rate (via e.g., product improvements or more effective sales techniques) sum to a 21% improvement (1.1 * 1.1), not a 20% improvement.

Improvements to a SaaS business are  incredibly  leveraged. Because the margins in SaaS are so high, the long-term valuation of a SaaS business is effectively tied to some multiple of its long-term revenue growth. Thus, a 1% improvement in conversion rates doesn’t simply mean a 1% increase in revenue next month or even over the long term… it implies a 1% increase in  enterprise value of the company .

Price is the easiest lever to improve a SaaS business. Acquisition, conversion, and churn often require major cross-functional efforts to improve. Updating your pricing model typically requires replacing a small number with a bigger one. (There exists enough nuance here that we wrote a guide to  pricing SaaS .)

SaaS businesses eventually asymptote. Given fixed acquisition, conversion, and churn, there will be a point at which one’s business hits a revenue plateau. This is predictable in advance: The number of customers at the plateau is equal to acquisition times conversion divided by churn rate.

A SaaS business that loses ability to improve acquisition, conversion, or churn will, with almost mathematical certainty, stop growing. A SaaS business that stops growing before it can cover fixed costs (like salaries for the engineering team, for instance) dies ignominiously,  even if they did everything right .

SaaS businesses can be capital-intensive to grow. SaaS businesses have large front-loaded costs to grow, particularly when growing aggressively; marketing and sales dominate the marginal cost per customer and, often, the total expenditures of the company. The marketing and sales costs attributable to a particular customer occur very early in that customer’s lifecycle; the revenue to eventually pay for those costs comes later.

This means that a SaaS company  optimizing for revenue growth  will  almost always  spend more money in a given period than they collect from customers. The money spent has to come from somewhere. Many SaaS companies choose to fund the growth via selling equity in the company to investors. SaaS companies are  particularly  attractive to investors because the model is very well understood: Create a product, achieve some measure of product-market fit, spend a lot of money on marketing and sales according to a relatively repeatable playbook, and eventually sell one’s stake in the business to someone else (the public markets, an acquirer, or another investor looking for a de-risked business with good growth potential).

Margins, to a first approximation, don’t matter. Most businesses care quite a bit about their cost of goods sold (COGS), the cost to satisfy a marginal customer.

While some platform businesses (like AWS) have material COGS, at the typical SaaS company, the primary source of value is the software, and it can be replicated at an extremely low COGS. SaaS companies frequently spend less than 5~10% of their marginal revenue per customer on delivering the underlying service.

This allows SaaS entrepreneurs to almost ignore every factor of their unit economics except customer acquisition cost (CAC—the marginal spending on marketing and sales per customer added). If they’re growing quickly, the company can ignore every expense that doesn’t scale directly with the number of customers (i.e., engineering costs, general and administrative expenses, etc.), on the assumption that growth at a sensible CAC will outrun anything on the expenses side of the ledger.

SaaS businesses take a while to grow. While tales of so-called “hockey stick growth” curves are common in the press, the representative experience of SaaS companies is that they take a very long time dialing in the product, marketing approaches, and sales approaches before things start to work very well. This has been referred to, memorably, as the  Long, Slow SaaS Ramp of Death .

Growth expectations vary widely in the SaaS industry. Bootstrapped SaaS businesses often take 18 months before they’re profitable enough to be competitive with reasonable wages for the founding team. After achieving that point, bootstrapped businesses have a wide range of acceptable outcomes for growth rates; 10~20% year-over-year growth rates in revenue can produce very, very happy outcomes for all concerned.

Funded SaaS businesses are designed to trade cash for growth, which means they’re designed to lose a lot of money up front while perfecting their model; almost no funded SaaS business has ever failed at that goal.

After they perfect their SaaS revenue model, they scale it, which generally results in losing more money, faster. That this is a successful outcome for the business is counterintuitive to many observers of the software industry. If the business can continue growing, there is no size of accumulated deficit that it cannot eventually repay. If growth does not happen, the business fails.

There exist many lower-stress businesses in life than SaaS companies being managed for aggressive growth; it’s likened to riding a rocket ship, where you burn fuel aggressively to achieve acceleration and, by the way, if anything goes wrong you explode.

The rule of thumb for growth rate expectations at a successful SaaS company being managed for aggressive growth is 3, 3, 2, 2, 2: starting from a material baseline (e.g., over $1 million in annual recurring revenue [ARR]), the business needs to triple annual revenues for two consecutive years and then double them for three consecutive years. A funded SaaS business that consistently grows by 20% per year early in its life is likely a failure in the eyes of its investors.

Benchmarks to know

One of the most popular questions for SaaS founders is “Are my numbers any good?”

This is surprisingly difficult to answer because of the differences across industries, business models, stages of a company, and goals of founders. In general though, experienced SaaS entrepreneurs have a few rules of thumb.

Conversion rate:

Most low-touch SaaS solutions use a free trial, with the sign-up either requiring minimal information  or  a credit card that will be billed if the user doesn’t cancel the trial. This decision dominates the character of the free trial: users who sign in to a relatively low-friction trial may not be very serious about evaluating the software and need to affirmatively decide to purchase the software later, while users who provide a credit card number generally have done more up-front research and are, essentially, committing to pay unless they affirmatively declare they are dissatisfied with the product.

This results in cosmically different conversion rates:

Conversion rates of low-touch SaaS trials with credit card not required:

• Substantially below 1%: generally evidence of poor product-market fit
• ~1%: roughly the baseline for competent execution
• 2%+: extremely good

Conversion rates of low-touch SaaS trials with credit card  required :

• Substantially below 40%: generally evidence of poor product-market fit
• 40%: roughly the baseline for competent execution
• 60%: doing well

In general, requiring a credit card up front will, on net, increase the number of new paying customers you get (it increases the trial-to-paying-customer conversion rate by more than it decreases the number of trials started). This factor  reverses  as a company improves its customer relationships and gets increasingly sophisticated about  activating  free trial users (ensuring they make meaningful use of the software), typically via better in-product experiences, lifecycle email, and customer success teams.

Conversion rate (to trials):

You should measure your conversion rate between unique page views and trials started, but it isn’t the most actionable metric in your company, and it is difficult to give a good guideline for your expectations driven from this number.

Conversion rate to the trial is incredibly sensitive to whether you are attracting high-quality visitors or not. Counterintuitively, companies that are better at marketing have  lower  conversion rates than companies that are worse at it.

The companies with better marketing attract many more prospects, including typically a larger percentage and absolute number of prospects who are not a good fit for the offering. Companies that are worse at marketing are only discovered by the cognoscenti of their markets, who tend to be disproportionately good customers; they’re so dissatisfied with the status quo that they’re actively searching for solutions, often intensely, and they’re willing to use a no-name company if it is possibly better than their current situation. The rest of the market might not be actively looking for a solution right now, might be satisfied with going with well-known players or only those who show up prominently on Google, and might not be incentivized to take on vendor risk of dealing with a newer provider.

Customer churn rates:

In low-touch SaaS, most customers are on month-to-month contracts, and churn rates are quoted monthly. (Selling annual accounts is certainly a good idea, too, both for the up-front cash collected and because they have lower churn rates. When reporting churn, though, typically the impact of them is blended in to produce a monthly number.)

• 2%: a very sticky SaaS product, with strong product-market fit and substantial investments in reducing involuntary churn
• 5%: roughly where you expect to start
• 7%: evidence of either low-hanging fruit for preventing voluntary churn or selling to a difficult market
• 10%+: evidence of very poor product-market fit and  an existential threat to the company

Some markets structurally have higher churn than others: Selling to “pro-sumers” or informal businesses such as freelancers exposes oneself to their high rate of exiting the business, which materially impacts churn rates. More established businesses fail far less frequently and have far less need to optimize their cash flows to the last $50.

Since higher price points preferentially select for better customers, increasing prices is  even more effective than entrepreneurs expect: Increasing prices by 25% can result in “accidentally” decreasing churn by 20%, simply by changing the mix of customers who buy the product.  This factor leads many, many low-touch SaaS businesses to march “upmarket” over time.

High-touch SaaS businesses generally have much, much more heterogeneity with regards to both how they measure their conversion rates (largely due to differences in how they define an “opportunity”) and in their realized conversion rates given similar definitions, due to differences in their industry, sales process, and so forth.

Churn rates , though, are closely clustered: Roughly 10%  annualized churn  is reasonable for companies in their early years, and 7% is an excellent churn rate. Note that mediocre high-touch SaaS businesses have materially lower churn rates than even the best low-touch SaaS businesses, structurally.

High-touch businesses often measure so-called “logo” churn (one business counts as one logo, regardless of how many units at that business use one’s software, how many seats they use, what they are paying, etc.) and revenue churn. This is less important in low-touch SaaS, as those churn rates tend to be quite similar.

Because high-touch SaaS businesses typically price their offerings such that they can increase the amount of revenue over the lifetime of a customer, by selling more seats or by offering additional products, etc., many of them track  net revenue churn , which is the difference in revenue per cohort per year. The gold standard for a high-touch SaaS business is  negative net revenue churn : The impact of upgrades, increases in contract size on a year-to-year basis, and cross-selling to existing customers exceeds the revenue impact of customers deciding to terminate (or reduce) their use of the software. (Virtually no low-touch SaaS business achieves net negative churn; their churn rates are too high to outrun.)

SaaS isn’t just about the metrics. The hardest thing to put a number on early in the lifetime of a SaaS company is called  product/market fit , a term  coined  by Marc Andreessen, which informally means “Have you found a group of people who  love  the thing you have built for them?”

Products that don’t have product/market fit yet are plagued by relatively low conversion rates and high churn rates. Products that achieve product/market fit often accelerate their growth rates materially, have much higher conversion rates, and are generally more pleasant to work on.

Serial SaaS entrepreneurs often struggle to describe product/market fit other than to say “If you have it, you will  know  that you have it, and if you have any doubt whether you have it, you do not.” It’s the difference between every sales conversation being you pushing a boulder up a hill and the customer practically pulling your hand off to get your software.

Many SaaS business models with product/market fit  did not launch with it ; it sometimes takes months or years of iterating to get there. The most important theme while iterating is to talk to many, many more customers than feels natural. Low-touch SaaS entrepreneurs can make an excuse to attempt to speak with  literally every  person who signs up for a free trial; the economics of this are unsustainable at the price point but  running a SaaS company without product/market fit is also unsustainable , so it’s entirely justified by how much you learn.

Achieving product/market fit isn’t just a matter of listening to feature requests and building those features. It is also listening closely to the commonalities of your best customers and leaning in on them. This can result in changes to the marketing, messaging, and design of the SaaS product to more closely target the needs of the best customers.

Who are the “best” customers? Generally speaking, they’re the segments (by industry, size, user profile, or similar) where you have high conversion rates, low churn rates, and (almost always) relatively higher ACV. By far the most common change in emphasis of low-touch SaaS businesses is to launch with a product that serves a wide spectrum of users at a wide spectrum of sophistication, and then double down on one or two niches for their most sophisticated users.

Stripe Atlas is going to be publishing future guides on finding product/market fit, incorporating a business , interviewing users, and optimizing every facet of your online business. If you’d like to hear about them, please give us your email address. If you have any thoughts about what other guides would be useful to your online business, please write us at: [email protected]

This guide is not intended to and does not constitute legal or tax advice, recommendations, mediation, or counseling under any circumstance. This guide and your use thereof does not create an attorney-client relationship with Stripe, Orrick, or PwC. The guide solely represents the thoughts of the author and is neither endorsed by nor does it necessarily reflect Orrick’s belief. Orrick does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the guide. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular problem.

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How to Mitigate the Top 5 Risks of SaaS at Scale

October 15, 2020.

As you scale your company, your SaaS applications and platforms also have to scale. Yet, as SaaS applications and platforms scale up, they bring a set of risks that can affect your entire business. Fortunately, there are also ways to mitigate those risks with effective SaaS risk management so that you can continue to grow and thrive.

As an IT leader responsible for your application portfolio, understanding these risks will not only help make your business more secure and cost effective, but it will allow you to bring a level of transparency to your operations that will help you build  better relationships with your functional business leaders.

Read on to learn what the top five SaaS risks are and how to mitigate them effectively.

What is SaaS risk management?

SaaS risk management is the process of identifying, analyzing, and mitigating the risks associated with using SaaS applications. As part of your SaaS risk management strategy, you’ll want to catalog all of the applications your organization uses, evaluate the vendors, monitor security and compliance, and more.

What are the top SaaS risks organizations?

Adopting SaaS at scale poses several challenges and creates a number of risks. The top five SaaS risks are:

• Data privacy
• Employee experience
• Long-term application strategy

5 tips for SaaS risk management

Increase saas governance.

Governance is a significant risk as your SaaS applications scale up. As your company grows, the number of users, as well as the number of applications, rises too. There’s also quite a bit of data floating around.

What are the two reasons that lack of governance is a risk?

From a financial standpoint, inadequate governance wastes money. You’re paying for SaaS applications and platforms, yet you don’t know who’s using them, how much they’re being used, or if these apps and platforms are even being used to their fullest potential. Moreover, research shows that without appropriate SaaS governance, your bottom line suffers. Studies demonstrate that organizations with above-average governance have over  20% higher revenue  than their peers following a similar IT strategy.

The effects of poor SaaS governance can be more immediate if you’re looking through a security lens. Because you don’t know who’s using these apps, or how they’re being used, they represent a significant security risk. Research from the  Cloud Security Alliance  shows that over three-quarters of organizations that have adopted SaaS have experienced security incidents directly related to those applications.

Ensure data privacy

Another SaaS risk that’s connected to security is data privacy. And the importance of data privacy has grown with the increase of laws regulating how companies can handle individuals’ data.

When firms don’t practice proper SaaS governance, they can’t guarantee that all of the apps and platforms they are using fulfill legal and compliance requirements. As a result, they don’t know whether they are compliant with data privacy laws.  Even if an app itself might be compliant, no governance means that the company doesn’t know how the app is being used.

Control SaaS costs

The cost of your SaaS apps isn’t a major concern when you first launch your company. You’re saving money because you’re not paying capital expenses. But what happens as you grow? That app that you originally thought of as a nice-to-have becomes an essential part of your processes, and for all of your employees to use it, you have to upgrade to the more expensive enterprise tier.

What other issues impact SaaS costs?

• Are employees using all of the apps and platforms to which you’ve subscribed?
• Is there any overlap between apps (for example, you might be paying for G-Suite, yet employees have set up  Slack  for messaging)?
• Are there orphaned apps (apps with no clear owner and no proof anyone is using them)?

Our research into SaaS sprawl show that organizations on average use over 300 SaaS apps. And just over half of those apps are shadow IT, or apps not owned or managed by IT. If those apps aren’t being governed or managed effectively, companies will find themselves wasting money on apps that don’t drive their business forward.

Improve employee experience

The concept of employee experience might not sound like it’s related to SaaS risks, yet there’s a strong connection. Moreover, employee experience, SaaS apps, and costs are also linked.

A well-curated SaaS app portfolio enhances  employees’ experience. It enables them to collaborate better and improve their productivity. Conversely, a bad app, or lack of access to the right app, or even not understanding which application to use when, has a negative impact on the employee experience. We surveyed enterprise tech leaders and found that over a third of employees reported low productivity because they couldn’t use the apps they needed.

When employees have a good experience, the company benefits.  Research from Gartner  shows that employees who are largely satisfied with their jobs are:

• 52% more likely to report high discretionary effort at the workplace
• 69% more likely to be high performers
• 48% more likely to meet the organization’s customer satisfaction goals
• 59% more likely to meet the organization’s innovation goals
• 56% more likely to meet the organization’s reputation goals

Create a long-term application strategy

When you establish your business, you’re focused on growth. You choose SaaS apps based on which ones can help you achieve your goals. As your business scales up, you might find your control over SaaS apps slips; at a certain point, you discover that apps have been chosen without any clear strategic direction.

As a result, your company might be:

• Using apps that don’t support business goals
• Subscribed to overlapping apps that cost the company money
• Utilizing only some of an app’s features
• Using apps that don’t enable collaboration or foster productivity

Top 5 SaaS risk management tips

The plethora of SaaS applications can present risks as your company scales. Fortunately, you can mitigate SaaS risk using the following methods:

• Create a SaaS app visibility strategy
• Understand contractual obligations to SaaS vendors
• Gain insight into the employee experience
• Align your app strategy with your business strategy
• Build a roadmap for application adoption

1. Create a SaaS app visibility strategy

Addressing governance issues requires a clear strategy to gain visibility into your SaaS application portfolio. How do you create such a strategy, though?

You could manually track SaaS applications and platforms manually – our research shows that 56% of IT executives still rely on those methods to gain visibility into their apps.

However, it’s difficult to track apps manually. Someone has to be in charge of updating them when more licenses are added, or when new apps are added. Additionally, manual data entry methods have  an average error rate of 1% , so you can assume that this type of tracking is never completely accurate.

Choosing the right tools to gain visibility into SaaS apps

Automating the SaaS app visibility process will significantly reduce errors in tracking this software. Today, there are SaaS app management solutions on the market that allow you to track your SaaS subscriptions effectively and accurately.

That being said, not all SaaS management software is created equally.

For your SaaS app visibility strategy to be successful, you need to choose a solution that doesn’t just track the number of licenses you have, or which apps you use. It needs to give you a deeper understanding of how apps are being used. We’ll explore what this means in the following sections.

2. Understand your contractual obligations with to SaaS vendors

When you think of contractual obligations to your SaaS vendors, the first thing that likely comes to mind is cost. However, there may actually be a second contractual obligation: usage.

It’s possible that only a certain number of users can utilize the app at a given time under the limitations of your contract. Or, perhaps you receive certain features as part of the contract, even if you’re not using them.

This is where choosing the right tools for SaaS visibility comes into play. Productiv provides you with greater visibility into your SaaS applications, so you can see whether users are maximizing all of an app or platform’s functionalities, or if they’re using the most basic features. This knowledge is vital when heading into contract renewal negotiations.

3. Gain insight into your employee experience

Your technology stack has a significant impact on your employee experience. If employees can’t collaborate effectively, they feel disengaged and unmotivated.

Research from Forrester published in March 2020 shows that employees in the lowest half of the analyst firm’s employee engagement index were most likely to be dissatisfied with their employer’s technology stack.

Partnering with a line-of-business manager who understands what apps and platforms employees are using is crucial. This partnership gives you deeper insight into how employees feel about the SaaS apps they use because if you’re not giving employees what they want, they’ll have a poor experience.

However, this doesn’t erase the need for a SaaS visibility tool – in fact, far from it. With the right SaaS app visibility solution, you have hard data that demonstrates how employees are engaging with an app or platform, and whether they’re getting the most value out of all of an app’s features.

4. Align your app strategy with your business strategy

To mitigate SaaS risks, you must align your app strategy with your business strategy. That can be challenging when your company has grown, and you might not be aware of all the apps and platforms in use at your firm.

This is where gaining greater visibility into your SaaS apps and platforms comes in. When you understand what apps and platforms your company is using, you can determine which apps fit into your overall strategy, and which apps aren’t helping you move forward.

When formulating an app strategy, you will need to answer the following two questions:

• How do you determine which SaaS apps your company really needs?
• Which SaaS apps are the best fit for your business strategy?

The apps will depend partially on your business and industry. If you’re in financial services, you’ll need related apps. However, there are some apps that are fairly universal; apps that enable employees to communicate and collaborate create value for businesses. It’s also important to remember that apps must be compliant with whatever regulations by which you’re bound.

5. Build a roadmap to application adoption

The final step to mitigating SaaS risks is building a roadmap to application adoption. A roadmap acts as a timeline for the app rollout. Timelines set realistic expectations – employees understand when they’ll be able to use an app.

Creating a roadmap is also useful because it cultivates a partnership between the IT department and line-of-business departments. You’re demonstrating that you want to make the workforce productive and effective while also weighing critical principles such as security and cost.

Productiv can help you with SaaS risk management

Productiv’s SaaS management software gives you visibility into your SaaS application portfolio so you can make better decisions for the entire business. To learn more,  request a demo .

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Top 7 saas security risks (and how to fix them).

Catherine Chipeta

Modern organizations are increasing cloud adoption to reap the operational benefits of outsourcing critical business functions. A 2021 study found that 90% of surveyed organizations now use cloud computing, such as software-as-a-service (SaaS) services.

SaaS solutions help organizations achieve vital objectives, such as cost reductions and faster time-to-market. However, like all other digital transformation products , they also introduce cybersecurity risks . 

Organizations ultimately need to trust their sensitive data in the hands of third-party vendors when they sign on as customers. Despite this trust, a data breach caused by the poor data security practices of a SaaS provider remains the responsibility of the client organization. 

This article outlines the top 7 cybersecurity risks introduced by SaaS solutions and how organizations can address them before they result in data breaches. 

Top 7 SaaS Cybersecurity Risks

The top 7 cybersecurity risks your organization should consider when using SaaS services are listed below.

1. Cloud Misconfigurations

As SaaS environments operate in the public cloud, organizations must consider cloud applications' unique cyber threats.

Cloud misconfigurations occur when a SaaS provider or SaaS customer fails to secure the cloud environment, compromising data security. Such lapses in security management expose organizations to many cyber threats, such as:

• Cloud leaks
• External hackers
• Insider threats

A common misconfiguration in cloud computing is allowing excessive permissions. This misconfiguration occurs when an admin provides too many access rights to an end-user, resulting in a permissions gap. Excessive permissions are a significant security concern as they often facilitate cloud leaks, data breaches, and insider threats.

A well-known example of a cloud service provider misconfiguration is Amazon Web Services’ (AWS) default public access settings for S3 buckets . Aside from considering misconfigurations on the cloud provider’s end, your organization should also look inwards at its own security measures; Gartner predicts 99% of cloud security failures will be the customer’s fault by 2025.

Another example of a critical software misconfiguration is the Microsoft Power Apps Data Leak. UpGuard researchers discovered misconfigured OData APIs in Microsoft’s Power Apps portals. This oversight resulted in the exposure of 38 million records across 47 organizations.

Read the Microsoft Power Apps data leak report here .

2. Third-Party Risk

SaaS services generate third-party risk – the risk deriving from any third party in an organization's supply chain . Third parties can pose different levels of risk to an organization’s information security . For example, an organization will likely consider a contracted office janitor a low-level security threat, whereas a SaaS vendor is likely high-risk. 

Most SaaS apps will access or store an organization's sensitive data , including publicly identifiable information (PII) and other privileged information. Your organization may have strict security measures to mitigate cyber threats , but your protection is only as strong as the weakest link in the supply chain.

Organizations must implement Vendor Risk Management Programs with continuous security monitoring features to effectively manage the unique cyber risks their SaaS vendors contribute to the attack surface.

3. Supply Chain Attacks

A supply chain attack occurs when cybercriminals target an organization through vulnerabilities in its supply chain . Vulnerabilities of this nature often arise from a vendor’s poor security practices. 

Cybercriminals can compromise your organization’s sensitive data by targeting the source code, updating mechanisms, or building processes of your vendor’s software. For example, the largest cyber attack on the US government to date was facilitated by an IT update from its SaaS vendor Solarwinds. 

Your organization can’t rely solely on robust internal cybersecurity practices to prevent supply chain attacks . Security teams need detailed visibility into the entire vendor ecosystem to identify and remediate supply chain vulnerabilities before cybercriminals exploit them. 

4. Zero-Day Vulnerabilities

A zero-day vulnerability is an unpatched software vulnerability that remains unknown to developers. Cybercriminals can exploit these vulnerabilities through cyber attacks , often causing data breaches and data loss across affected organizations. 

Zero-day vulnerabilities are particularly damaging when identified in popular SaaS platforms –  a significant number of organizations could potentially be affected, causing a mass shutdown of operations. For example, Accellion’s file-sharing system, FTA, was compromised in 2020 by web shell attacks and zero-day exploits to take advantage of an unpatched software vulnerability. The incident was part of a broader supply chain attack that breached the sensitive data of over 100 Accellion customers , resulting in widespread operational disruptions. 

Organizations must be able to rapidly identify existing vulnerabilities in their SaaS apps to prevent further security issues from occurring through delayed remediation. 

5. Insufficient Due Diligence

Vendor due diligence is the thorough assessment of a potential vendor by an organization before sharing sensitive company data with them. A due diligence assessment verifies the accuracy of a vendor’s claims regarding its security posture and regulatory compliance. It also identifies vendors’ existing security risks, allowing client organizations to request remediation before entering partnerships. 

Many organizations do not perform adequate due diligence by only assessing vendors during the onboarding process. If one of your SaaS vendors suffers a cyber attack, the threat actors can leverage its compromised systems to access your organization's sensitive data. Public exposure of this data means your organization, not the vendor, deals with the regulatory, financial, and reputational consequences.

Organizations should treat SaaS vendors as vigilantly as other attack vectors to prevent customer data breaches and other significant cyber attacks. Security teams must take a systematic approach to the due diligence process through a structured vendor risk management program to gain visibility into each vendor’s security posture at any given time. 

6. Non-Compliance 

Regulatory compliance and certification with security frameworks indicate an organization has adopted an acceptable standard of cybersecurity practices. Even if your organization complies with all relevant regulations and frameworks internally, you are still at risk of non-compliance if your SaaS vendors are non-compliant. 

For example, the PCI DSS standard has a specific set of third-party risk management requirements that organizations must ensure their vendors comply with to achieve full compliance. 

Your security team must regularly monitor and validate its SaaS vendors’ compliance with industry standards and regulations to highlight any security gaps for remediation. Otherwise, your organization runs the risk of data breaches, resulting in hefty fines and reputational damage. 

7. Unclear Responsibilities

Unlike traditional data center models, the security of cloud environments is the responsibility of both an organization and its cloud service providers. Your organization’s SaaS vendors will each have differing shared responsibility models outlining the roles and responsibilities of each party.

Security teams must consider each SaaS service’s unique security requirements or risk creating cybersecurity gaps under the assumption the vendor is responsible. Organizations should also remember that insufficient data security is ultimately their responsibility in the event of a data breach. 

Below are the shared responsibility models of two popular cloud service providers – Microsoft Azure and AWS.

 AWS’ shared responsibility model. Source: amazon.com  

Microsoft Azure’s shared responsibility model. Source: microsoft.com

How to Manage SaaS Security Risks

Research shows modern organizations will increasingly leverage SaaS solutions to drive many of their critical operations. According to Gartner , the SaaS market will grow by 21.7% from 2021, reaching $482 billion in 2022. 

Organizations must integrate SaaS-specific security processes into their existing information security policies or risk joining the 90% of organizations that will inappropriately share sensitive data if they fail to control public cloud use by 2025 . 

Below are 7 ways your organizations can effectively manage SaaS security risks and avoid costly data breaches.

1. Implement Cloud Security Mechanisms

Organizations are encouraged to adopt Secure Access Service Edge (SASE) to enable greater visibility over cloud security controls and security policies. SASE is an emerging cloud security architecture that offers more advanced cloud data protection functionality than traditional network security solutions. 

SASE architecture drives zero-trust network access (ZTNA) by enabling the least privilege principle and identity access management (IAM) mechanisms, like Cloud Infrastructure Entitlement Management (CIEM) and multi-factor authentication. 

SASE also facilitates the use of modern cloud security solutions to manage access control across SaaS applications, including:

• Firewall-as a-service (FWaaS)
• Secure Web Gateways (SWGs)
• Cloud Access Service Brokers (CASBs)
• Cloud Security Posture Management (CSPM)

Learn more about the SASE security model. 

2. Establish an Incident Response Plan

Even with a robust information security policy , security incidents still occur. If a data breach occurs at the hands of a SaaS vendor, organizations must minimize its impact to avoid costly damage. 

Your organization’s incident response plan should cover specific scenarios, ranging from malware infections to customer data breaches. An effective incident response plan performs the following roles:

• Outlining all key stakeholders
• Streamlining digital forensics
• Shortening recovery time
• Protecting your organization’s reputation 

Learn how to implement effective incident response planning. ‍

3. Exercise Thorough Due Diligence

Organizations must routinely assess SaaS vendors’ security postures at all stages of the vendor lifecycle, not just during the vetting process. With most large organizations managing hundreds or thousands of vendors, performing due diligence effectively throughout the entire vendor ecosystem can quickly become complicated. 

Implementing a vendor tiering process is the most efficient way for your security team to prioritize high-risk vendors, like SaaS providers, during routine risk assessments . 

UpGuard’s vendor risk management platform automates the vendor tiering process, enabling security teams to scale their efforts effectively without neglecting due diligence as the vendor ecosystem grows. 

Try UpGuard free for 7 days.

4. Visualize the Third-Party Attack Surface

Organizations can only respond to the cyber threat they can see. As innovative SaaS solutions continue to streamline business functions, your organization likely has an increasing list of vendors. 

It’s easy to lose visibility into the attack surface – as your vendor inventory grows, your security team doesn’t necessarily follow suit.  

UpGuard automatically discovers, monitors, and tracks the security postures of an organization’s vendors in real time. 

5. Provide Staff Training

The COVID-19 pandemic forced many organizations to adopt work-from-home (WFH) models, which have since remained. This transition to remote working increased the number of endpoints operating on workplace networks, such as personal phones and laptops. Introducing these additional attack vectors expands the attack surfaces and creates security inconsistencies, as admins do not have direct control over personal device settings. 

Your organization’s information security policy should include staff education initiatives to keep all employees informed on security requirements. Training should cover a variety of topics, such as:

• Social Engineering Tactics: Educates staff about common social engineering cyber attacks , such as phishing and spear phishing . 
• Clean Desk Policy: Ensures all work technology and material are either taken away or stored securely outside work hours. 
• Acceptable Usage: Sets forth what employees can and cannot use/access on work devices and the network. 

Learn how to set up secure WFH practices.  

6. Assess Compliance Regularly

Organizations must send routine security questionnaires to ensure high-risk vendors, such as SaaS providers, are complying with all necessary regulatory requirements. Manually recording hundreds of responses and tracking each vendor’s compliance status is an incredibly time-consuming process.

UpGuard’s pre-built questionnaire library includes templates for widely-adopted cybersecurity regulations and frameworks, like GDPR , ISO 27001 , PCI DSS , NIST Cybersecurity Framework , and more. Organizations can map questionnaire responses to each framework’s requirements to validate vendor compliance and request prompt remediation of identified areas of non-compliance. 

7. Consider Fourth-Party Risk

Your vendors generate third-party risk – and so do their vendors. Popular SaaS providers use hundreds to thousands of critical vendors, adding another layer of complexity to the already tedious third-party ecosystem.

Identifying your fourth-party vendors can be difficult as it’s often up to your service providers to disclose them. Maintaining an accurate inventory requires constant revision and back-and-forth with your vendors. 

UpGuard automatically discovers an organization’s most common fourth-party vendors, providing continuous monitoring across the entire supply chain attack surface. 

Reviewed by

Kaushik Sen

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What Is The SaaS Business Model?

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Introduction

Welcome to the world of the Software as a Service (SaaS) business model! In today’s digital age, businesses are constantly searching for more efficient and cost-effective solutions to meet their software needs. That’s where SaaS comes into play. SaaS is a software delivery model that has gained immense popularity in recent years due to its many advantages.

In a traditional software business model, companies would purchase software licenses and install them on their own servers. This approach often required significant upfront costs, ongoing maintenance, and dedicated IT resources. However, with the rise of SaaS, businesses now have the option to access software applications over the internet, making them more accessible and hassle-free.

One of the key reasons behind the growing popularity of the SaaS business model is its subscription-based pricing structure. Instead of a large upfront investment, businesses pay a recurring fee to access the software. This not only lowers the barrier to entry but also allows for better budget predictability.

Furthermore, the SaaS model offers flexibility and scalability. As businesses grow, their software needs evolve, and SaaS allows for easy scaling up or down according to demand. This level of agility can be crucial in today’s fast-paced business environment.

SaaS also relieves companies from the burden of software maintenance and updates. With traditional software, companies had to allocate resources to handle patches, upgrades, and bug fixes. With SaaS, these responsibilities are typically taken care of by the service provider, freeing up valuable time and resources for the company.

Overall, the SaaS business model empowers businesses to focus on what they do best while leaving the software-related complexities to the experts. It offers a cost-effective and efficient way to access a wide range of software applications, from customer relationship management tools to project management platforms.

In the following sections, we will delve deeper into the concept of the SaaS business model, exploring its key components, revenue generation strategies, success stories, as well as the challenges and risks businesses may encounter along the way. So, fasten your seatbelts and get ready to dive into the exciting world of SaaS!

Definition of SaaS Business Model

Software as a Service (SaaS) is a business model that provides software applications to customers over the internet. In this model, the software is hosted in the cloud, and users can access it through a web browser or dedicated client applications.

Unlike traditional software models where users would purchase licenses and install the software on their own servers, SaaS offers a more convenient and flexible alternative. With SaaS, customers subscribe to the software on a pay-as-you-go basis, typically on a monthly or annual basis.

SaaS applications are centrally managed, maintained, and upgraded by the service provider. This eliminates the need for customers to handle time-consuming tasks such as software installations, updates, and security patches. Instead, the responsibility lies with the SaaS provider.

Some common examples of SaaS applications include customer relationship management (CRM) software, enterprise resource planning (ERP) systems, project management tools, and collaboration platforms. These applications cater to various business needs and are designed to be easily accessible and user-friendly.

The SaaS model offers several advantages over traditional software delivery models. Firstly, it leverages the power and scalability of cloud computing, allowing for seamless access to software from anywhere with an internet connection. This makes it ideal for remote workforces and businesses with multiple locations.

Additionally, the subscription-based pricing structure of SaaS eliminates the need for upfront capital investment. Instead of purchasing licenses, customers pay a recurring fee based on usage or the number of users. This makes SaaS more affordable and predictable, especially for small and medium-sized businesses.

Another key aspect of SaaS is its ability to provide regular updates and improvements to the software. Since the software is centrally hosted, service providers can roll out updates and new features seamlessly to all users. This ensures that customers always have access to the latest version of the software without any additional effort on their part.

In summary, the SaaS business model revolutionizes software delivery by offering convenient, affordable, and easily accessible solutions. It simplifies software management for businesses and enables them to focus on their core competencies. With the continuous advancements in cloud technology, the SaaS model is expected to continue its growth and reshape the software industry.

Benefits of SaaS Business Model

The Software as a Service (SaaS) business model has gained significant traction in recent years, and for good reason. It offers a multitude of benefits that make it an attractive choice for businesses of all sizes. Let’s explore some of the key advantages of the SaaS business model:

1. Cost Savings: One of the most significant benefits of SaaS is its cost-effectiveness. Traditional software models often require businesses to make a substantial upfront investment in licenses, hardware, and infrastructure. With SaaS, businesses can avoid these upfront costs and pay a predictable monthly or annual fee. This subscription-based pricing model makes it easier for businesses to budget their software expenses and allocate resources more efficiently.

2. Easy Accessibility: SaaS applications can be accessed through a web browser or dedicated client application, making them easily accessible from anywhere with an internet connection. This accessibility eliminates the need for complex installations and allows users to access their software and data on any device, including laptops, tablets, and smartphones. This flexibility is particularly beneficial for remote workers and businesses with distributed teams.

3. Scalability: The scalable nature of the SaaS model is a major advantage for businesses. As your business grows, you can easily scale up your software usage to accommodate increased demand. This eliminates the need to anticipate future software needs and invest in over-provisioned resources. On the other hand, if your needs decrease, you can scale down your usage accordingly, ensuring that you only pay for what you need.

4. Maintenance and Support: With SaaS, the burden of software maintenance, updates, and security is shifted to the service provider. This means that businesses no longer have to worry about applying patches, managing infrastructure, or ensuring data backups. The service provider takes care of all these tasks, allowing businesses to focus on their core operations. Additionally, SaaS providers often offer round-the-clock support to address any issues or questions that may arise.

5. Continuous Innovation: SaaS providers are constantly working to enhance their software offerings. This means that customers benefit from regular updates and new features without any additional effort or cost. These continuous improvements keep the software up to date with the latest technology trends and ensure that businesses have access to the most advanced capabilities, helping them stay ahead of the competition.

6. Agile and Collaborative: SaaS applications are designed to foster collaboration and enhance productivity. They often include features such as real-time document editing, project management tools, and communication channels. These capabilities allow teams to work together seamlessly, irrespective of their physical location. The ability to collaborate efficiently can significantly boost productivity and streamline workflows.

In a nutshell, the SaaS business model offers cost savings, easy accessibility, scalability, simplified maintenance, continuous innovation, and enhanced collaboration. These benefits have positioned SaaS as a preferred choice for businesses looking to optimize their software usage and maximize their efficiency.

Key Components of SaaS Business Model

The Software as a Service (SaaS) business model consists of several key components that work together to deliver reliable and efficient software solutions to customers. Understanding these components is crucial for businesses aspiring to adopt or leverage the SaaS model effectively. Let’s explore the key components of the SaaS business model:

1. Cloud Infrastructure: The foundation of the SaaS model lies in cloud computing infrastructure. SaaS providers use cloud platforms such as Amazon Web Services (AWS), Microsoft Azure, or Google Cloud to host and deliver their software applications. These cloud infrastructures provide the necessary computing power, storage, and networking capabilities to ensure reliable and scalable access to the software.

2. Multi-tenant Architecture: Another essential component of the SaaS model is multi-tenancy. With multi-tenancy, a single instance of the software application serves multiple customers. Each customer, or tenant, is logically separated, ensuring data privacy and security. Multi-tenancy allows providers to efficiently manage and maintain the software while offering cost savings and scalability to customers.

3. Data Security and Privacy: Data security and privacy are critical considerations for businesses adopting the SaaS model. SaaS providers must implement robust security measures to protect customer data from unauthorized access, breaches, or data loss. This includes encrypted data transmission, secure access controls, regular security audits, and compliance with industry regulations such as GDPR or HIPAA.

4. User Interface and User Experience: The user interface (UI) and user experience (UX) play a vital role in the success of a SaaS application . A well-designed UI ensures that users can easily navigate the software, perform tasks efficiently, and access the desired features without any confusion. A seamless and intuitive UX enhances user satisfaction, increases adoption rates, and encourages customer loyalty.

5. Subscription Management and Billing: The subscription-based pricing model is a core aspect of the SaaS business model. SaaS providers need robust subscription management and billing systems to handle customer subscriptions, manage renewals or upgrades, and process payments. These systems ensure accurate billing, automate recurring payments, and provide customers with a transparent view of their subscription status.

6. Customer Support and Service Level Agreements (SLAs): SaaS providers must offer reliable and responsive customer support to address customer inquiries, troubleshoot issues, and provide guidance. Additionally, well-defined Service Level Agreements (SLAs) outline the level of service availability, response times, and performance metrics that customers can expect. Strong customer support and SLAs build trust and confidence in the service.

7. Analytics, Reporting, and Integration: SaaS applications generate a wealth of data that can provide valuable insights for businesses. SaaS providers often offer analytics and reporting capabilities to help users analyze their data and make informed decisions. Integration with other third-party applications is also essential, allowing businesses to connect their SaaS software with existing systems, such as CRM or accounting tools, to streamline workflows.

The strength of the SaaS business model lies in the seamless integration of these key components. When combined effectively, they enable SaaS providers to deliver efficient, scalable, and user-friendly software solutions to their customers while driving business success.

Revenue Generation in SaaS Business Model

Revenue generation is a crucial aspect of the Software as a Service (SaaS) business model. SaaS providers employ different strategies to generate revenue and sustain their operations. Let’s explore some of the key revenue generation methods commonly used in the SaaS industry:

1. Subscription-Based Pricing: Subscription-based pricing is the fundamental revenue model in the SaaS business. Customers pay a recurring fee, typically on a monthly or annual basis, to access the software. The subscription fee is based on factors such as the level of service, the number of users, or the specific features included. This predictable recurring revenue model provides stability and allows SaaS providers to forecast revenue with greater accuracy.

2. Tiered Pricing: SaaS providers often offer tiered pricing plans to cater to the varying needs of customers. These plans include different levels of features, functionality, or usage limits, with each tier priced accordingly. Tiered pricing allows customers to choose a plan that aligns with their specific requirements and budgets. This strategy not only maximizes revenue potential but also provides value to customers by offering pricing options that match their needs.

3. Upselling and Cross-Selling: Upselling and cross-selling are effective techniques used by SaaS providers to increase revenue from existing customers. Upselling involves encouraging customers to upgrade to a higher-priced plan with additional features or increased usage limits. Cross-selling involves offering complementary products or services to existing customers. By identifying customer needs and demonstrating the added value, SaaS providers can successfully upsell or cross-sell, increasing the customer’s overall spending and generating more revenue.

4. Customization and Add-Ons: Many SaaS providers offer customization options and add-ons to tailor the software to specific customer requirements. These customizations typically come with additional fees or one-time charges. By offering customization and add-ons, SaaS providers can meet unique customer needs, differentiate themselves from competitors, and generate additional revenue streams.

5. Professional Services: SaaS providers may offer professional services such as implementation, training, or consulting to assist customers in maximizing the value of their software investment. These services are usually billed separately and can generate additional revenue. By providing high-quality professional services, SaaS providers can deepen customer relationships, foster loyalty, and create new revenue opportunities.

6. Partner Programs: SaaS providers often develop partner programs to expand their reach and generate revenue through partnerships with resellers, consultants, or technology integrators. Partners promote and sell the SaaS solution to their own client base and receive a commission or revenue sharing arrangement. Partner programs allow SaaS providers to tap into new markets, extend their sales channels, and drive additional revenue through indirect sales.

7. Data Monetization: SaaS providers may explore data monetization opportunities by aggregating, anonymizing, and analyzing customer data to generate valuable insights. They can then offer these insights or data-driven products to customers or third-party entities for a fee. Data monetization allows SaaS providers to leverage the vast amount of data generated by their software, creating new revenue streams and enhancing the value proposition for customers.

By employing a combination of these revenue generation strategies, SaaS providers can achieve sustainable growth, maximize their revenue potential, and continuously deliver value to their customers.

Examples of Successful SaaS Companies

The success of the Software as a Service (SaaS) business model has led to the emergence of numerous thriving companies across various industries. Here are some prime examples of successful SaaS companies that have revolutionized their respective sectors:

1. Salesforce: Salesforce is widely regarded as one of the pioneers and leaders in the SaaS industry. They specialize in customer relationship management (CRM) software, providing businesses with a comprehensive suite of tools to manage their sales, marketing, and customer service activities. Salesforce has built a massive customer base and transformed the CRM landscape through its cloud-based, user-friendly platform.

2. Slack: Slack has transformed the way teams communicate and collaborate. Their SaaS communication platform provides businesses with a centralized hub for messaging, file sharing, and team collaboration. Slack’s intuitive interface and extensive integration capabilities have made it a popular choice for companies of all sizes, leading to a significant increase in productivity and efficiency.

3. Zoom: Zoom has become a household name, especially in recent times. Their video conferencing and virtual meeting platform have gained widespread popularity due to its ease of use, reliability, and robust features. Zoom’s SaaS solution has allowed businesses, educational institutions, and individuals to stay connected remotely, transforming the way meetings and events are conducted.

4. HubSpot: HubSpot has revolutionized the world of inbound marketing with its comprehensive SaaS platform. Their all-in-one marketing, sales, and customer service software enables businesses to attract, engage, and delight customers in a personalized and efficient manner. HubSpot’s user-friendly interface and extensive automation capabilities have made it a go-to solution for digital marketers worldwide.

5. Dropbox: Dropbox is a leading cloud storage and file sharing SaaS provider. Their platform allows users to store, sync, and share files securely across multiple devices. With its user-friendly interface and seamless integration capabilities, Dropbox has become a go-to solution for individuals and businesses looking to streamline their file management and collaboration processes.

6. Shopify: Shopify is a powerhouse in the e-commerce industry. Their SaaS platform provides businesses with the tools and resources to build, operate, and scale online stores. Shopify’s intuitive interface, extensive customization options, and robust support have played a significant role in empowering businesses to launch and grow their online presence successfully.

7. Adobe Creative Cloud: Adobe Creative Cloud is a suite of creative software applications delivered through a SaaS model. It includes popular tools like Photoshop, Illustrator, InDesign, and more. Adobe’s Creative Cloud has transformed the way creative professionals work, offering them a complete ecosystem to design, edit, and collaborate on digital content.

These successful SaaS companies are just a few examples of the incredible impact the SaaS model has had on various industries. Their innovative solutions, user-centric approach, and relentless focus on delivering value have propelled them to the forefront of their respective markets, inspiring countless businesses to reimagine their workflows and embrace the power of SaaS.

Challenges and Risks in SaaS Business Model

The Software as a Service (SaaS) business model offers a host of benefits, but it also comes with its fair share of challenges and risks. Understanding these challenges is crucial for businesses considering or already operating within the SaaS industry. Let’s explore some of the key challenges and risks associated with the SaaS business model:

1. Data Security and Privacy: Data security is a paramount concern in the SaaS model. SaaS providers must ensure robust security measures to protect customer data from unauthorized access, breaches, or data loss. Safeguarding customer trust and complying with data protection regulations like GDPR or HIPAA is essential. Any breach in data security can severely damage a SaaS company’s reputation and lead to legal ramifications.

2. Reliability and Service Interruption: SaaS providers need to ensure high system availability and minimal service interruptions. Downtime or service disruptions can adversely affect customer satisfaction, productivity, and ultimately revenue. Implementing redundant systems, robust infrastructure, and disaster recovery plans is necessary to minimize any potential impact on users’ operations.

3. Vendor Lock-In: Switching from one SaaS provider to another can be challenging and expensive. Businesses subscribing to a SaaS solution may face vendor lock-in, with the reliance on specific features, integrations, or proprietary data formats. Assessing the potential for vendor lock-in and ensuring the availability of data migration options are crucial considerations for businesses to maintain flexibility.

4. Integration and Compatibility: SaaS applications need to integrate seamlessly with existing systems and platforms. Incompatibility issues can arise, causing disruptions, data inconsistencies, or additional resource requirements for businesses. Ensuring compatibility and considering integration capabilities during the selection process is critical to avoid unnecessary complexities and potential roadblocks.

5. Scalability and Performance: SaaS companies must have the infrastructure and resources to support the scalability demands of their customers. As user bases and data volumes grow, SaaS providers must ensure that their systems can seamlessly handle increased usage without sacrificing performance. Failing to scale effectively can lead to slow response times, downtime, or degraded user experience.

6. Pricing and Profitability: Determining the right pricing strategy and achieving profitability can be challenging for SaaS companies. Balancing the need to remain competitive with the goal of generating sustainable revenue is crucial. Pricing models, tiers, and value-based pricing need careful consideration to ensure that they align with customer expectations and deliver profitability for the provider.

7. Customer Retention and Churn: SaaS providers face the risk of customer churn, where customers decide to discontinue their subscriptions. Ensuring customer satisfaction, providing exceptional support, and regularly introducing new features and updates are vital to maintaining customer loyalty and reducing churn rates. The fiercely competitive nature of the SaaS industry makes customer retention a top priority.

While the SaaS model provides numerous advantages, businesses need to be aware of the challenges and risks it entails. By proactively addressing these challenges, implementing robust security measures, ensuring scalability and performance, and fostering customer loyalty, SaaS providers can mitigate risks and build sustainable growth in the dynamic SaaS market.

The Software as a Service (SaaS) business model has transformed the software industry, offering businesses convenient, cost-effective, and flexible solutions for their software needs. By delivering software applications over the internet, SaaS has democratized access to technology, making it accessible to businesses of all sizes and industries.

The benefits of the SaaS model are evident. Businesses can save costs by eliminating the need for upfront investments in licenses and infrastructure. The subscription-based pricing model offers predictability and scalability, allowing businesses to scale up or down as needed. Furthermore, SaaS relieves businesses from the burden of software maintenance and updates, enabling them to focus on their core operations.

Successful SaaS companies have emerged in various sectors, revolutionizing how business is conducted. Companies like Salesforce, Slack, and Zoom have reshaped customer relationship management, collaboration, and communication. Their success is a testament to the power of the SaaS model in delivering efficient, user-friendly solutions.

However, the SaaS business model also brings challenges and risks that need to be navigated carefully. Data security and privacy, system reliability, vendor lock-in, integration complexities, and customer churn are among the challenges that SaaS providers must address. By proactively managing these risks and continuously innovating, SaaS companies can maintain a competitive edge in the market.

In conclusion, the SaaS business model has revolutionized software delivery, making it more accessible, cost-effective, and scalable. It empowers businesses with convenient and user-friendly software solutions, enabling them to focus on their core competencies. As the demand for cloud-based solutions continues to grow, businesses will increasingly embrace the SaaS model to optimize their software usage and drive growth in the digital era.

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The convenience and security risks of relying on saas platforms.

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SaaS Security

There is a SaaS for everything. Each year, businesses rely more and more on software-as-a-service platforms for different tasks – from website analytics to accounting and from payroll management to email automation. According to Statista , an average organization had used only 8 SaaS platforms in 2015, but by 2022, that number had increased to 130.

It is hard to tell the exact number, though: as VentureBeat outlines in their article, IT leaders are often not even fully aware of the whole spectrum of SaaS platforms their employees use. The actual number is likely higher.

The growing popularity of SaaS platforms is not without reason. By leveraging these services, companies can concentrate on their core vision while utilizing various third-party SaaS solutions as components of their products. These platforms also offer ready-made solutions for ancillary business functions like marketing and support, among others.

Reliance on SaaS is unavoidable. But it introduces risks and security issues.

The SaaS Attack Surface

SaaS services typically require close integration with a company's existing technology stack. This involves utilizing the APIs provided by these products and creating subdomains for specific functions like help centers, blogs, and more.

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The bigger the organization, the more SaaS providers it likely relies upon and the more subdomains and APIs it generates to maintain these integrations. According to Attaxion , an external attack surface management vendor, large organizations typically have thousands of subdomains.

The problem is that a business is as protected from cyber threats as is the weakest SaaS provider they are using – the chain is as weak as its weakest link. Altogether, these subdomains, APIs, and vulnerabilities in third-party SaaS services constitute the so-called SaaS attack surface of the company.

As companies increasingly rely on SaaS platforms, their SaaS attack surface keeps expanding every year. According to Gartner , attack surface expansion was the number one business cybersecurity trend in 2023, and in 2024, the situation is not likely to change.

The Top Security Risks of Using Third-Party SaaS Providers

1. data leaks.

B2B SaaS providers process customer data of hundreds and thousands of organizations. That makes them one of the favorite targets for malicious actors. As a result, these service providers are prone to data breaches.

Recent examples of major B2B SaaS providers that experienced data breaches, leaking tremendous amounts of data, include Twilio , a communication platform, and Okta , a single-sign-on provider. Both are widely used across many businesses and deeply embedded in their daily operations. Both companies process very sensitive data, so these data breaches affected Twilio's and Okta's clients quite severely.

In accordance with modern data protection legislation such as GDPR and CCPA, if a third-party service that a company uses is allowed to process its customers' data, this company has certain responsibilities in case that third-party service experiences a data breach. As a result, Twilio's and Okta's data breaches resulted in problems for thousands of their clients, even if their operations were not directly affected.

These two breaches are far from the only ones. According to SCMagazine , data leaks are the most common security incidents in the SaaS field.

There is no way to completely rule out such incidents for an organization that relies on third-party providers. However, an organization can – and must – conduct due diligence before bringing a new SaaS provider on board.

It is important for an organization's IT department to stay fully informed about the SaaS providers used by employees. This requires conducting regular audits, maintaining continuous monitoring, and implementing strict security policies to adopt new SaaS tools.

2. Supply Chain Attacks

If a third-party SaaS provider experiences a security breach, it sometimes allows the attackers to breach its clients as well, i.e., to conduct a supply chain attack. The possibility of this, of course, depends on how deeply the SaaS and their clients are integrated and the goals and capabilities of the attackers. But it is never zero, and it can lead to devastating results.

In the aforementioned Gartner report, digital supply chain risks occupy position number three in the list of cybersecurity trends.

Prevention techniques against supply chain attacks include careful management of access rights that apps get, as well as testing all updates in isolated environments. Unfortunately, this does not guarantee 100% supply chain attack prevention, as there is no such thing as 100% security. Still, at least it lowers the chances of such an attack being successfully executed.

3. External Attack Surface Expansion

The risks linked with using SaaS services encompass an expanded external attack surface. This includes vulnerable subdomains, APIs, and ports used to integrate third-party SaaS tools into an organization's IT infrastructure. Without proper monitoring and control, connected SaaS becomes a source of potential vulnerabilities that can result in subdomain takeovers and other attacks.

The issue becomes more critical, considering businesses often stop using certain SaaS providers but retain the accounts and associated records. This happens either because they plan to use the tool again or forget to properly deactivate and clean up these accounts. Abandoned subdomains or unused APIs are easier for attackers to exploit because they do not receive much attention, especially if they belong to shadow IT – assets the IT team is unaware of.

Let's look at a few examples of external attack surface issues resulting from using external SaaS providers.

Penetration testers from Haqtify discovered vulnerabilities in Heroku, a cloud platform that allows users to build and operate web applications in the cloud. Heroku enables the connection of domains and subdomains to its virtual hosting service. Haqutify discovered that attackers could seize control of abandoned subdomains by creating an app with the same name as the expired subdomain. Once an attacker takes over a subdomain, they can use it for phishing or malvertising purposes. In some cases, getting control over one subdomain allows attackers to advance further into the company's systems.

Another example happened with the social network X (previously known as Twitter), which had 5.4 million user records stolen and leaked online due to a vulnerability attackers found in one of its APIs. In contrast to the Heroku example, which was not part of a penetration test, this was a real attack with severe consequences.

There are many more potential ways third-party tools can contribute to an organization's external attack surface expansion. Even using localization SaaS tools like Weglot creates numerous subdomains for different locales. If a locale is abandoned or someone decides to use a different subdomain for it, that may result in a dangling DNS record – which is the first and foremost prerequisite for conducting successful subdomain takeover attacks.

To prevent these types of incidents, Gartner recommends security leaders look beyond traditional approaches to security monitoring, detection and response to manage a wider set of risks.

To do that, organizations can use external attack surface management tools. Such tools rely on an outside-in approach, assuming the same position as potential attackers. They help organizations discover all assets associated with it, enumerate its subdomains, identify and manage vulnerable assets such as APIs or subdomains, as well as continuously monitor the external attack surface.

Third-party SaaS security issues pose a huge threat to all organizations, as each and every business relies on at least some SaaS platforms for its operations. The SaaS attack surface is hard to control, so it is important to both maintain a good inventory of the SaaS platforms an organization is using and enforce tight security rules when it comes to using third-party SaaS.

As the SaaS attack surface continues expanding, organizations – regardless of size or industry – should add tools such as external attack surface management to their information security stack. These tools will give them visibility and control over their external attack surface, helping defend against such attacks.

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Top SaaS Security Risks and How to Mitigate

Written by Hatice Ozsahan and David Worthington on March 16, 2023

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We all use SaaS tools today, from customer support software to CRM, machine learning, etc. We don’t usually think much about security risks when using SaaS tools until something hits us hard. Security risks in software as a service (SaaS) are some of the most lucrative for cybercriminals, which is why organizations must be especially vigilant when it comes to protecting their data. Per a study by BetterCloud , companies with over 1,000 employees use more than 150 SaaS applications. That’s a whole lot of potential security risks!

This article will outline the top SaaS security risks and provide actionable advice on mitigating them. So let’s dive in and make sure your data is safe and sound!

What is SaaS Security?

SaaS security is the implementation of strategies and protocols by SaaS providers to guarantee the protection, integrity, and accessibility of the data and applications stored in the cloud. It is vital for contemporary businesses that depend on cloud-based software solutions to safeguard sensitive business information and maintain critical applications. SaaS security aims to prevent data breaches, data loss, and unauthorized access to confidential information.

8 SaaS Security Risks to Watch Out For

The most common SaaS security risks are misconfigurations, shadow IT , storage, access management , compliance, retention, disaster recovery, and privacy. Organizations must implement up-to-date security controls to avoid these risks and keep up with the ever-evolving SaaS environment.

1. Misconfigurations

Ensuring the security of SaaS applications is a joint responsibility between the vendors and the organizations using them. This is because most SaaS products have layers of configurations that users must configure according to their security and privacy policies. 

Privacy settings can be a colossal vulnerability for companies if they are misconfigured. For example, over 12 million people use Slack daily, a popular organizational collaboration and communication tool. But even something as simple as:

• Not configuring MFA
• Granting overly permissive data access to users

These can quickly roll down to an avalanche of cyber-attacks and data breaches for organizations. 

2. Shadow IT

Shadow IT refers to the use of information technology systems, software, applications, or devices without IT authorization in an organization. Approximately 80% of employees admit to utilizing SaaS applications in their job without seeking authorization from their IT department. Unsanctioned apps in companies lead to various SaaS security risks and failure to meet compliance requirements, as they can be misconfigured and vulnerable to attacks.

To avoid these, you can:

• Use a SaaS Discovery tool to find out every SaaS tool your employees log in to.
• Train employees to ask for IT approval before adopting a SaaS app.

If you use SaaS tools, you consent to entrust your sensitive data to third-party vendors. Storage can be a security risk because it involves storing sensitive data on servers that are owned and managed by a third-party vendor rather than on-premises servers owned and managed by the organization itself.

This can potentially expose the organization’s data to unauthorized access, data breaches, or other security threats, particularly if the vendor does not have robust security measures in place. In addition, since data is stored in the cloud, it may be subject to data loss or corruption due to various factors such as network connectivity issues, hardware failure, or natural disasters.

Therefore, it is vital for organizations to carefully evaluate the security features and practices of any SaaS storage provider before entrusting them with their data. SaaS users can ask questions such as the following to cross-check data security and avoid this SaaS security risk.

• Does data storage rely on a trustworthy cloud service provider such as AWS, or is it stored in a privately owned data center?
• Is data encryption provided as a security solution throughout all stages of data storage?

4. Access Management

Access management can be a SaaS security risk for companies because it involves controlling and managing access to sensitive data and applications by employees, customers, partners, or other stakeholders, all with different roles, responsibilities, and privileges. If access management is not properly implemented, it can lead to the following: 

• Unauthorized access
• Data breaches and other security threats

For example, if a user’s account is compromised or if their access rights are not properly revoked when they leave the organization, attackers can gain unauthorized access to sensitive data and systems.An Identity Provider (IdP) can automate group memberships to protect against unauthorized access while increasing IT efficiency.

Additionally, if access management policies are not up to date, there may be gaps in security coverage that attackers can exploit. Look for:

• Integrated cross-OS device management
• Environment-wide multi-factor authentication (MFA)
• Conditional access policies
• Phishing-resistant Authentication

Furthermore, some SaaS providers, or a legacy solution like Active Directory, may not offer sufficient access management capabilities or may not adhere to industry standards and best practices, which could result in a higher risk of unauthorized access or data leakage.  It’s essential for companies to carefully evaluate the access management features and practices of any SaaS provider they use and ensure that they have proper controls in place to mitigate potential security risks.

5. Compliance

Regulatory compliance can be a SaaS security risk if the SaaS provider does not comply with industry-specific regulations. This can result in legal penalties, financial loss, and damage to the company’s reputation. Some SaaS providers may not offer the necessary compliance features or may not have proper controls to ensure compliance, increasing the risk of data breaches or loss.

For example, suppose a healthcare provider uses a SaaS provider that does not comply with the Health Insurance Portability and Accountability Act (HIPAA) regulations. In that case, it can result in fines, lawsuits, and loss of patient trust. Similarly, if a financial institution uses a SaaS provider that does not comply with the Payment Card Industry Data Security Standard (PCI DSS) requirements, it can result in the loss of customer data and financial loss.

Therefore, it is crucial for companies to carefully evaluate the regulatory compliance features and practices of any SaaS provider they use and ensure that they have proper controls in place to mitigate potential security risks.

6. Retention

Retention, or the practice of keeping data for a certain period, can be a SaaS security risk for companies because it involves storing and managing large amounts of data that may be sensitive or confidential. If retention policies are not properly implemented or enforced, it can lead to unauthorized access, data breaches, and other security threats.

For example, if a company retains customer data for longer than necessary, it can increase the risk of exposure to data breaches or cyber-attacks. Additionally, the company may be subject to legal and financial penalties if retention policies do not align with legal and regulatory requirements.

Furthermore, some SaaS providers may not offer sufficient retention policies or adhere to industry standards, which can increase the risk of data loss or unauthorized access.

• To mitigate security risks, companies should carefully evaluate their SaaS provider’s retention policies and practices.
• Proper controls should be in place to ensure that retention policies are properly implemented and enforced.
• Companies may need to implement data backup and recovery procedures to ensure data is not lost.
• Enforcing data deletion policies can reduce the amount of sensitive data retained unnecessarily.
• Regularly reviewing and updating retention policies can help ensure compliance with legal and regulatory requirements.

7. Disaster recovery

Disaster recovery, or the process of restoring data and systems after a disaster or outage, can be a SaaS security risk for companies because it involves storing sensitive and critical data with a third-party SaaS provider. If the SaaS provider does not have proper disaster recovery plans and controls in place, it can lead to data loss, extended downtime, and other security risks.

Here are some examples of how disaster recovery can be a SaaS security risk:

• If a natural disaster or cyber attack affects the SaaS provider’s data centers, it can result in prolonged downtime and data loss, which can have significant financial and operational consequences for the company.
• If the SaaS provider does not have proper backup and recovery procedures, data may not be fully recoverable after a disaster, which can lead to permanent data loss.
• If the SaaS provider does not have proper access controls or encryption in place, it can lead to unauthorized access to sensitive data during disaster recovery.

To mitigate these risks, companies should carefully evaluate the disaster recovery plans and controls of any SaaS provider they use and have their own disaster recovery plans in place as well.

Privacy can be a SaaS security risk for companies because SaaS providers often store and process large amounts of sensitive data, including personal information about customers, employees, and partners. If this data is not properly protected, it can lead to data breaches, unauthorized access, and other privacy violations.

Privacy can become a SaaS security risk if the SaaS provider does not:

• Have proper access controls in place, it can lead to unauthorized access to sensitive data, which can result in identity theft, fraud, and other privacy violations.
• Have proper encryption or other security measures, it can lead to data breaches, where sensitive data is stolen or compromised.
• Have proper data retention or deletion policies, it can lead to the unnecessary storage of sensitive data, increasing the risk of privacy violations.

To mitigate these risks, companies should carefully evaluate the privacy and security controls of any SaaS provider they use. This may involve ensuring that the provider has proper access controls and encryption in place, reviewing the provider’s privacy policies and practices, and evaluating the provider’s data retention and deletion policies.

Companies should also have their own privacy policies and procedures in place to ensure that they are protecting sensitive data and complying with relevant laws and regulations.

SaaS configurations, including identity and access management (IAM) controls and privacy settings, should be regularly monitored to ensure continuous compliance. A cyber asset security platform l can help you monitor your cloud and SaaS misconfigurations and vulnerabilities in real time.

How SaaS Security Can Affect Your Business

SaaS security is a critical aspect of running a successful business. Failure to adequately secure your SaaS environment can have significant consequences that can negatively impact your business in several ways:

Data Breaches

SaaS applications often store sensitive data such as customer information, financial data, and trade secrets in the cloud. If this data is not properly secured, it can be accessed by unauthorized parties through the internet. For example, a hacker may use a phishing attack to trick employees into revealing their login credentials for a SaaS application, giving them access to sensitive data stored in that application.

Malware Attacks

Malware can be introduced to SaaS applications through unsecured network connections, unpatched software vulnerabilities, or other means. For example, an employee may unknowingly download a malicious attachment from an email, which then installs malware on their device and spreads it to other devices on the network. Once the malware reaches a SaaS application, it can be used to steal data or carry out unauthorized actions.

Phishing Attacks

Phishing attacks are often used to target SaaS applications because they rely on user credentials to access data. For example, a hacker may send a fraudulent email to an employee that appears to be from a SaaS provider, asking them to enter their login credentials. Once the hacker has these credentials, they can gain access to the SaaS application and any data stored within it.

DDoS Attacks

SaaS applications are vulnerable to DDoS attacks because they rely on the internet to function. Attackers can flood a SaaS application with traffic from multiple devices, overwhelming its servers and making it unavailable to users. This can disrupt business operations and result in lost productivity and revenue.

Insider Threats

Insider threats can occur when employees have access to sensitive data stored in SaaS applications. For example, an employee may intentionally leak sensitive information to a competitor or inadvertently download malware onto the company’s network, which then spreads to a SaaS application and compromises its security. Companies need to have proper security measures in place to prevent these types of incidents from occurring.

How to Mitigate SaaS Security Risks

SaaS (Software as a Service) security risks can be mitigated by implementing a comprehensive security strategy focusing on the following.

Choose a Reputable SaaS Provider

Make sure the SaaS provider you choose has a good reputation and strong security measures. Research the provider’s security policies, procedures, and certifications before deciding.

Leverage SaaS Discovery

Cyber security’s cornerstone is, in fact, as simple as “knowing.” To mitigate SaaS security issues, organizations should know which SaaS tools employees use and how secure their usage is. SaaS Discovery allows companies to detect employee SaaS logins and SaaS security issues without manual work on IT teams.

Implement Strong Access Controls

Implementing strong access controls is a crucial aspect of SaaS security risk mitigation. Access controls are mechanisms that limit access to resources, including SaaS applications, to authorized users only. Some ways to implement strong access controls in your SaaS environment can include:

• Multi-factor authentication (MFA)
• Phishing-resistant credentials
• Role-based access controls (RBAC)
• Password policies
• Session timeouts

Use Encryption

Using encryption is an essential component of SaaS security risk mitigation. Encryption is converting data into a format authorized parties can only read with the correct decryption key. Encryption can be used to protect sensitive data stored in a SaaS application and during transmission between the application and users. Here are some ways to use encryption to protect sensitive data in your SaaS environment:

• Data at rest encryption
• Data in transit encryption
• Secure Sockets Layer (SSL)/Transport Layer Security (TLS)
• End-to-end encryption

Regularly Monitor and Audit User Activities

Regularly monitoring and auditing user activities is critical to SaaS security risk mitigation. Monitoring and auditing user activities help detect and prevent unauthorized access attempts, suspicious behavior, or data exfiltration. 

Train Employees on Security Best Practices

Train your employees on security best practices, such as strong password management, phishing awareness, and safe browsing habits, to prevent human error and minimize security incidents.

Secure Access to Every Resource with JumpCloud 

It’seasy to see the vast array of cloud-based software as a Service (SaaS) and hear about their countless benefits. However, this convenience and flexibility are accompanied by risks that must be carefully mitigated and assessed. The best way to prevent a breach is to be aware of the risks and take steps to protect your data and your business. The more security you have, the less likely any data breaches are to happen in the first place.

JumpCloud’s open directory platform provides customers with a modern cloud-based IAM solution. It provides workflows and synchronization to thousands of applications, HRIS systems, network resources, and cloud infrastructure, regardless of where users work. Cross-OS device management is a critical component to control and protect modern IT infrastructures. JumpCloud pairs the ability to manage every endpoint with modern, phishing-resistant authentication to secure every identity and resource. This unified approach delivers strong access control while consolidating your tools for increased IT operational efficiency.

You can try JumpCloud for free to determine if it’s right for your organization. 

Our customers tell us that asset management is also important for security and IT operations. JumpCloud is enhancing its platform to unify SaaS, IT security, and asset management.

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I'm the JumpCloud Champion for Product, Security. JumpCloud and Microsoft certified, security analyst, a one-time tech journalist, and former IT director.

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Understanding The Saas Business Model: How Saas Companies Generate Revenue

Software as a Service (SaaS) is a rapidly growing industry that has transformed the way businesses operate. SaaS refers to software applications delivered over the internet, which are accessed by users through web browsers or mobile apps. The SaaS business model has gained popularity due to its scalability, cost-effectiveness and ability to provide seamless updates and maintenance. In this article, we will delve into the intricacies of the SaaS business model, focusing on how SaaS companies generate revenue.

Understanding the various revenue streams and pricing models employed by SaaS companies is crucial for investors, entrepreneurs, analysts and customers alike. In order to comprehend the revenue generation process of a typical SaaS company , one must first understand the basic structure of their business model. This article will explore subscription-based pricing, usage-based pricing and freemium pricing models used by SaaS companies. Additionally, metrics for measuring success in this industry will be discussed along with some challenges and risks associated with this sector. Lastly, case studies of successful SaaS companies will be analyzed to gain insights into what makes them stand out in an increasingly competitive market.

Page Contents

Overview of the SaaS Business Model

The SaaS business model is a software delivery model in which software applications are hosted by a third-party provider and made available to customers over the internet. In contrast to traditional software models, where customers purchase licenses and install the software on their own computers, SaaS providers offer access to the application through a web-based interface. This model has been growing rapidly in recent years, with the global SaaS market expected to reach $157 billion by 2022.

One of the key advantages of the SaaS business model is its scalability. Because all customers use the same infrastructure and application codebase, providers can add new users without significant additional costs. Additionally, because updates are applied centrally, customers always have access to the latest features and security patches without having to manage upgrades themselves.

As competition in the SaaS market has increased, companies have had to differentiate themselves not only through their product offerings but also through pricing strategies. Subscription-based pricing has emerged as a dominant approach within this space due to its predictability for both providers and customers. In our next section, we will explore how subscription-based pricing works and why it has become so popular among SaaS companies .

Subscription-Based Pricing

Subscription-based pricing, like a steady stream of water flowing into a river, provides a predictable and recurring source of income for SaaS companies . In this pricing model, customers pay a fixed fee at regular intervals in exchange for access to the software. This approach has become increasingly popular over the years due to its potential for generating stable revenue streams that enable SaaS companies to plan and forecast their finances with greater accuracy.

To make subscription-based pricing work effectively, SaaS firms must first create an attractive value proposition that convinces users to subscribe. The value proposition should clearly communicate how the software solves customer problems or meets their needs better than other alternatives in the market. Once the company establishes a compelling value proposition, it can then determine what price points will be most appealing to its target audience.

In defining pricing strategy, SaaS companies often rely on several factors such as customer acquisition costs, competition in the market, and profit margins. They may also consider segmentation models based on product usage levels or number of users per license sold. Ultimately though, successful subscription-based pricing requires ongoing monitoring and fine-tuning to ensure it remains attractive both to existing subscribers and new leads who are considering signing up.

Moving forward from subscription-based pricing is usage-based pricing where customers pay according to how much they use the software instead of paying a fixed monthly or annual fee regardless if they used it or not.

Usage-Based Pricing

Usage-based pricing is a flexible and cost-effective alternative to fixed subscription fees, allowing customers to pay only for the software they use. This pricing strategy charges customers based on their actual usage of the product or service, which can be measured in terms of time, volume, or other metrics. For instance, a SaaS company that offers cloud storage services may charge its customers based on the amount of data they store in the cloud per month.

Data analytics plays a crucial role in determining the optimal usage-based pricing strategies for SaaS companies. By analyzing customer usage data and patterns, companies can identify their most profitable customer segments and adjust their pricing models accordingly. For example, if a company finds out that certain types of customers tend to use its product more frequently than others, it may offer them customized pricing plans that reflect their specific needs and preferences.

Overall, usage-based pricing can be an effective way for SaaS companies to generate revenue while providing value to their customers. It allows businesses to align their pricing with customer demand and incentivize users to engage with their products more frequently. However, it also requires careful planning and monitoring of customer behavior data to ensure that prices are set appropriately and profitability goals are met.

Moving onto ‘freemium pricing’, this model combines both free (basic) and paid (premium) versions of software services.

Freemium Pricing

Freemium pricing is a popular strategy for software companies seeking to attract a wide customer base while still generating profits. In this model, basic features are offered for free, but customers must pay to access advanced features or additional services. Freemium pricing allows businesses to build a large user base and generate revenue through premium upgrades.

One of the main advantages of freemium pricing is its ability to attract new users who may not have been willing to pay upfront for the product. This can be especially beneficial in industries with high competition where users have many options available. Additionally, by offering a limited version of the product for free, companies can entice users to try it out without committing any money upfront and potentially convert them into paying customers later on.

However, there are also drawbacks associated with freemium pricing. One potential issue is that some users may never upgrade from the free version, leaving the company without any significant revenue stream from those users. Additionally, offering too many features for free can lead to decreased perceived value of the premium version among potential customers. Careful consideration must be taken when deciding which features should be included in each tier to ensure that both free and paid versions provide enough value.

Freemium pricing is just one example of monetization strategies used by SaaS companies. By utilizing this approach, businesses can increase their user base while still generating revenue through premium upgrades. The next section will discuss other revenue streams commonly used in SaaS business models.

Revenue Streams

The revenue streams of SaaS companies can be categorized into three main types: recurring subscription fees, one-time fees, and advertising revenue. Recurring subscription fees are the most common source of revenue for SaaS companies and involve customers paying a regularly scheduled fee to access the software. One-time fees, on the other hand, are charged for individual services or products that are not included in the regular subscription fee. Advertising revenue is generated by displaying ads within the software or through partnerships with third-party advertisers.

Recurring Subscription Fees

Recurring subscription fees are a significant source of revenue for many SaaS companies. These fees provide a predictable and steady income stream that supports ongoing development and maintenance. As such, pricing strategies play a crucial role in customer retention and company growth. To ensure customer retention, SaaS companies must set their subscription prices at fair market value or lower to appeal to customers while also covering the costs of running the business.

To determine an appropriate pricing strategy, SaaS companies must consider various factors such as industry standards, competitors’ pricing models, and target demographics. Companies may also offer different pricing tiers with varying levels of access or features to cater to customers with different needs. By offering these options, SaaS companies can attract a wide range of customers while also generating recurring revenue streams that support long-term growth. However, it is important to note that recurring subscription fees are not the only source of revenue for SaaS companies. One-time fees can also play an essential role in generating income for these businesses .

One-time Fees

One-time fees serve as a valuable revenue stream for SaaS companies and can contribute significantly to their overall financial success, highlighting the importance of strategic pricing decisions. Examples of one-time fees in SaaS include setup fees, implementation fees, customization fees, and training fees. These charges are usually incurred at the beginning of a customer’s relationship with the company and are often non-recurring.

One advantage of one-time fees is that they provide an immediate boost to cash flow and revenue. Additionally, they can help cover the costs associated with onboarding new customers or customizing software for specific clients. However, there are also potential drawbacks to relying too heavily on one-time fees. Customers may be put off by unexpected charges or feel like they are being nickel-and-dimed for additional services. This can lead to a negative perception of the company and ultimately hurt retention rates. As such, it is important for SaaS businesses to carefully consider when and how to implement one-time charges as part of their overall pricing strategy.

Moving onto the next section about ‘advertising revenue’, another way that SaaS companies generate income is through advertising partnerships with other businesses.

Advertising Revenue

Advertising partnerships are a common revenue generation method for SaaS companies. By partnering with advertisers, SaaS companies can diversify their income streams and create more opportunities for growth. A popular form of advertising in the SaaS industry is targeted ads, which allow businesses to reach specific audiences based on their interests or demographics. This type of advertising has become increasingly important as consumers have become more selective about the content they consume online.

However, the rise of ad blockers has posed a challenge to SaaS companies relying on advertising revenue. Ad blockers prevent users from seeing ads altogether and can significantly reduce a company’s potential audience. As such, many SaaS companies are exploring alternative methods of generating revenue beyond traditional advertising models. In the next section, we will explore customer acquisition methods that are commonly used by SaaS companies to drive growth and increase profitability.

Customer Acquisition Methods

Various strategies are employed by SaaS companies to acquire customers, ranging from content marketing to social media advertising. One popular method is through referral programs , which incentivize current customers to refer friends and colleagues in exchange for discounts or other rewards. Referral programs have been shown to be highly effective, with studies indicating that referred customers are more likely to make a purchase and have a higher lifetime value than non-referred customers.

Another common customer acquisition method is utilizing social media platforms such as Facebook, LinkedIn, and Twitter. By creating engaging content and targeted ad campaigns on these platforms, SaaS companies can reach a wider audience and attract potential customers who may not have been aware of their product otherwise. Social media also allows for direct engagement with potential customers, allowing companies to answer questions and provide valuable information about their product.

In addition to referral programs and social media advertising, SaaS companies also use various other strategies such as email marketing campaigns and paid search advertising. These methods aim to increase brand awareness, generate leads , and ultimately convert those leads into paying customers. However, while acquiring new customers is important for growth, it’s equally crucial for SaaS companies to retain existing ones through effective customer retention strategies such as providing excellent customer service and continuously improving the product .

Customer Retention Strategies

Effective customer retention strategies are essential for SaaS firms to sustain success and secure their customers’ loyalty. In a highly competitive market, where new entrants are emerging every day, retaining customers is crucial. Customer loyalty is the foundation of any successful business, and it is no exception in the case of SaaS companies. Retaining existing customers not only reduces churn but also increases customer lifetime value (CLTV).

SaaS firms use various retention programs to keep their customers engaged and satisfied with their services. The most common programs include onboarding processes, personalized communication channels, and timely support services. These programs are designed to create a sense of belongingness among the customers towards the brand. By providing excellent service quality and building a strong relationship with the clients, SaaS firms can increase customer satisfaction.

Churn reduction is another key factor in customer retention strategies used by SaaS companies. Churn rate refers to the percentage of customers who discontinue using a company’s services within a given period. Reducing churn rate requires identifying reasons for cancellation and addressing them proactively through regular interaction with clients or improving product quality or features that meet their needs better than competitors do. By reducing churn rate through effective customer retention strategies, SaaS firms can ensure sustainable growth while maintaining high levels of customer satisfaction.

Effective customer retention strategies are essential for successful SaaS businesses that aim to build long-term relationships with their clients while achieving sustainable growth rates over time. By investing in reliable retention programs such as personalized communication channels and proactive efforts to reduce churn rates through continuous feedback mechanisms or improving product quality/features based on client feedback will help achieve higher levels of satisfaction among users while maximizing revenue generation potential from each account they manage.

Next up: Metrics for measuring success

Metrics for Measuring Success

The success of a SaaS business is typically measured through various metrics , including Monthly Recurring Revenue (MRR), Customer Acquisition Cost (CAC), and Churn Rate. MRR refers to the revenue generated by a customer on a monthly basis, while CAC measures the costs associated with acquiring new customers. On the other hand, churn rate indicates how many customers are leaving the platform over time. Analyzing these metrics can help businesses identify areas for improvement and optimize their strategies to ensure long-term growth and profitability.

Monthly Recurring Revenue (MRR)

One fundamental metric in the SaaS business model is Monthly Recurring Revenue (MRR), which represents the predictable and stable revenue stream generated from subscription-based services. MRR is calculated by multiplying the total number of active subscribers with their monthly subscription fee. The importance of tracking MRR cannot be overstated, as it provides insight into a company’s growth trajectory and sustainability. By analyzing trends in MRR, businesses can gauge customer retention rates and predict future revenue streams.

Challenges faced while calculating MRR include accounting for discounts, cancellations, upgrades/downgrades, and churn rate. To address these challenges, companies must establish clear guidelines for pricing plans and ensure accurate billing processes. Growth strategies involve increasing both the number of subscribers and their average revenue per user (ARPU). Companies may achieve this through offering value-added services or upselling to higher-tiered plans. Ultimately, maintaining consistent MRR growth is key to building a successful SaaS business.

As we move forward in our discussion on understanding the SaaS business model, it is important to delve deeper into another crucial metric: customer acquisition cost (CAC).

Customer Acquisition Cost (CAC)

Calculating Customer Acquisition Cost (CAC) is essential for SaaS businesses to ensure profitability, despite potential objections that this metric does not account for the lifetime value of a customer. CAC measures the cost of acquiring a new customer and includes all marketing and sales expenses associated with acquiring that customer. To optimize CAC, SaaS companies need to benchmark themselves against their industry standards and competitors, which requires tracking every expense made in the acquisition process.

To further improve CAC optimization efforts, here are three items to consider:

• Tracking lead sources: By understanding which channels are most efficient in generating leads, SaaS companies can allocate marketing resources more effectively.
• Enhancing sales processes: A streamlined sales process reduces the time and resources required to convert leads into paying customers.
• Improving product-market fit: Delivering an exceptional product or service ensures high satisfaction among users, leading to positive word-of-mouth referrals and lower CAC.

SaaS companies should prioritize optimizing their CAC as it contributes significantly to their overall profitability. The next step is analyzing churn rate – a metric that measures how many customers cancel their subscription over time – which will be discussed in detail in the subsequent section.

Analyzing churn rate is a crucial metric for evaluating the sustainability of a SaaS business and can evoke concern from stakeholders if not managed effectively. Churn rate refers to the percentage of customers who cancel their subscriptions or do not renew them within a specified period. It is important to understand that it costs more to acquire new customers than retain existing ones. Therefore, reducing churn should be a top priority for SaaS companies. The key to minimizing churn involves implementing customer engagement strategies that keep users satisfied and loyal. For instance, providing excellent customer support and offering regular updates to improve functionality can enhance customer satisfaction and reduce churn.

Reducing churn also entails tracking user behavior and understanding why customers discontinue using the software. By analyzing data on usage patterns, companies can identify ways to improve their product offerings or address issues causing dissatisfaction among users. Analyzing feedback from departing clients is also essential in developing strategies for retention initiatives since this provides insight into areas where improvements are needed. Overall, managing churn requires a comprehensive approach that focuses on enhancing customer experiences through personalized interactions, product optimization, and proactive communication.

Churn management is just one aspect of mitigating risks associated with running a SaaS business model successfully . Managing risks in this type of enterprise requires being aware of different challenges that may arise when operating such models; we will explore these in the next section without delay . By understanding these challenges and implementing strategies to mitigate them, SaaS businesses can ensure their long-term success and profitability.

Challenges and Risks

The challenges and risks associated with the SaaS business model pose significant obstacles for companies seeking to generate revenue. Risk management is crucial in this context, as SaaS businesses are vulnerable to a range of external factors that can impact their operations and profitability. For instance, cybersecurity threats, data breaches, and server downtime can result in loss of customers and damage to brand reputation. In addition, the competitive landscape for SaaS providers is constantly evolving, which means that businesses must stay agile and innovative to remain relevant.

Moreover, there are other challenges that SaaS companies face when it comes to generating revenue. One key issue is customer acquisition cost (CAC), which refers to the amount of money spent on marketing and sales activities needed to attract new customers. CAC can be high because of strong competition in the market, making it difficult for smaller players or new entrants to gain traction. In addition, retention rates can also be low due to changing customer needs or dissatisfaction with service quality.

Despite these challenges and risks, some SaaS companies have managed to thrive by adopting effective strategies that enable them to generate revenue sustainably over time. These strategies involve leveraging customer data analytics and using AI-driven tools for personalized services; offering flexible pricing plans; investing in R&D initiatives aimed at delivering innovative solutions; building strategic partnerships with industry players; and fostering a culture of collaboration among employees. The next section will examine case studies of successful SaaS companies that have utilized these strategies effectively while overcoming various obstacles along the way.

Case Studies of Successful SaaS Companies

Remarkably, despite the challenges and risks associated with the SaaS business model, there are companies that have managed to achieve sustainable revenue growth by adopting innovative strategies. One of these successful companies is Zoom, a video conferencing software provider that has seen remarkable growth in recent years. The company’s success can be attributed to its focus on customer success and product differentiation.

Zoom has prioritized customer success by offering an easy-to-use platform that provides high-quality video and audio communication. Additionally, they offer free plans with limitations, as well as paid plans with more features and capabilities for larger businesses. This approach has allowed them to attract a wide range of customers while simultaneously ensuring that their existing users remain loyal to the brand.

Furthermore, Zoom’s product differentiation strategy is centered around advanced features such as virtual backgrounds and live transcription services. These unique offerings have helped Zoom stand out from other video conferencing software providers in an increasingly crowded market. By focusing on both customer success and product differentiation, Zoom has been able to generate significant revenue growth over the years.

As we look towards the future of the SaaS industry, it’s clear that companies will need to continue innovating in order to stay ahead of competitors. The success stories of companies like Zoom demonstrate how important it is for businesses to prioritize customer satisfaction while also finding ways to differentiate themselves from others in their market segment.

Future of the SaaS Industry

The SaaS industry has witnessed significant growth over the past decade, and it is expected to continue in the future. Emerging technologies such as artificial intelligence, machine learning, and blockchain are poised to revolutionize the way businesses operate. Market trends also suggest that there will be a shift towards vertical-specific SaaS solutions that cater to specific industries and niches. As a result, businesses need to stay informed about these emerging technologies and market trends to remain competitive in the dynamic SaaS landscape.

Emerging Technologies

Emerging technologies continue to play a significant role in the growth of the SaaS industry. AI-driven innovations and disruptive technologies are transforming SaaS companies’ approach to business, allowing them to become more agile and efficient. For instance, machine learning algorithms enable companies to analyze vast amounts of data efficiently, providing insights that can be leveraged for decision-making purposes. This technology has also enabled software developers to create intelligent applications that can learn from user behavior and adapt accordingly.

In addition, cloud computing has revolutionized how SaaS companies deliver their services. The scalability and flexibility offered by cloud-based solutions make it possible for companies to offer innovative services that were not possible before. Furthermore, blockchain technology is disrupting traditional models of data management by providing a secure and transparent way of storing transactional data. As these emerging technologies continue to evolve, we can expect even more transformative changes in the SaaS industry over the next few years.

As we move into the next section about market trends, it’s clear that these emerging technologies will continue to shape the future of the SaaS industry. With advancements such as AI-driven innovations and disruptive technologies becoming increasingly prevalent in business operations, businesses must keep up with these changes or risk falling behind their competitors in terms of efficiency and innovation.

Market Trends

As we have seen in the previous subtopic, emerging technologies are shaping the way businesses operate. These technologies range from artificial intelligence to blockchain and are changing the landscape of many industries. In this context, it is essential to understand how these trends impact SaaS companies and their revenue-generating models.

The current subtopic explores market trends that affect the SaaS business model. The emergence of new technologies has created a competitive market where businesses need to differentiate themselves by offering unique services or features. This competition has led to an increase in customer expectations, which puts pressure on SaaS companies to continuously innovate and improve their offerings. Furthermore, as more businesses adopt cloud-based solutions, traditional software providers face threats of being left behind. Understanding these market trends is crucial for SaaS companies as they adapt their strategies to stay ahead in a dynamic marketplace characterized by rapid technological change .

The SaaS business model has grown rapidly in recent years, with a range of pricing strategies available to generate revenue. Subscription-based pricing is the most common approach, offering regular payments for access to software services. Usage-based pricing charges customers based on usage levels, while freemium pricing provides basic services for free and charges for additional features. Revenue streams are generated through a combination of recurring fees and one-time sales, with metrics such as customer acquisition cost and lifetime value used to measure success.

However, challenges and risks exist within the SaaS industry, including competition from rivals and potential data breaches affecting customer trust. Case studies of successful SaaS companies such as Salesforce and Zoom demonstrate the importance of innovation in driving growth. The future of the SaaS industry appears bright with continued demand for cloud-based solutions but requires ongoing adaptation to changing market conditions.

In conclusion, understanding the complexities of the SaaS business model is crucial for anyone seeking to succeed in this industry. While there are various revenue-generating options available, it is essential to monitor key metrics closely and remain vigilant against potential risks. Investigating how successful companies operate can provide valuable insights into what works best in this highly competitive sector. Overall, continuous improvement and innovation will be necessary for long-term success in the dynamic world of SaaS.

SaaS and the Rule of 40: Keys to the critical value creation metric

The purest test of a management team and its operational discipline is arguably how well it can maintain strong shareholder returns as the business matures. That’s especially true for software as a service (SaaS). Despite the sector’s image as a bastion of hypergrowth, only a small share of SaaS companies sustains growth rates above 30 to 40 percent. In fact, of 100 public SaaS companies in the United States with revenues above $100 million that we analyzed in May 2021, the median revenue growth rate was just 22 percent.

As businesses near the top of their initial S-curve, revenue growth tends to slow and free cash flow becomes more important. However, the 100 companies we analyzed had a median last 12 months (LTM) free cash flow of just 10 percent of revenue. Spending needs to align with realistic growth forecasts, and growth from existing customers driven by customer retention, cross-sell, and upsell takes on greater significance. Knowing which levers to pull and which targets to aim for is especially important in SaaS because of the lag between bookings and revenues, the upfront expense of acquiring customers, and the constant rate of R&D spend required to keep features and products current.

How well leaders do in balancing these demands is where the “Rule of 40” comes into play. The popular metric says that a SaaS company’s growth rate when added to its free cash flow rate should equal 40 percent or higher. The rule has become a favorite of SaaS industry watchers, including boards and management teams, because it neatly distills a company’s operating performance into one number. But McKinsey research finds that barely one-third of software companies achieve the Rule of 40. Fewer still manage to sustain it. Analysis of more than 200 software companies of various sizes between 2011 and 2021 found that businesses exceeded Rule of 40 performance only 16 percent of the time.

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That’s a staggeringly small number and a major missed opportunity. Data show that investors reward companies that are at or above the Rule of 40 with consistently higher enterprise value (EV) to revenue multiples. Moreover, the higher the number, the greater the gain. Top-quartile SaaS companies generate nearly three times the multiples of those in the bottom (exhibit).

The SaaS players that operate at the Rule of 40 consistently deliver these results by instilling much greater operational rigor and performance transparency than the average company. By embracing similar practices, others can do the same.

What the top-performing SaaS companies do differently

Focus on the metrics that matter.

Of the roughly 20 operational metrics we assessed for SaaS companies, four have a high correlation with enterprise value to revenue multiples (exhibit). These are the measures that companies should track.

• Annual recurring revenue (ARR) growth: This measure reflects a company’s ability to drive topline growth, crucial for Rule of 40 performance since revenue lags behind ARR for SaaS companies (the median for top-quartile SaaS companies is 45 percent; bottom quartile is 14 percent).
• Net retention rate: An important measure of growth efficiency, this metric shows how effective the company is at driving growth in its existing customer base while keeping churn low (the median for top-quartile SaaS companies is 130 percent; bottom quartile is 104 percent).
• Last 12 months (LTM) median payback period 1 The LTM median payback period is calculated as sales and marketing spend over the prior quarter divided by the sum of net new ARR multiplied by gross margin. : This indicator reveals how successful a company is at generating returns on its sales and marketing investment and scaling them as the business grows (the median for top-quartile SaaS companies is 16 months; bottom quartile is 47 months).
• LTM free cash flow (FCF) percentage for mid-to-large SaaS companies: This indicator measures FCF 2 FCF is cash flow from operations minus capital expenditures. as a percent of revenue for the past 12 months. From a Rule of 40 standpoint, this is the metric that industry watchers use to determine the FCF percentage, especially for large companies with revenues greater than $600 million. The correlation between the LTM FCF percentage and value multiples applies to both moderate and fast-growing companies in this size range, with moderate-growth companies seeing the highest correlation. Our analysis shows that the top quartile within the moderate-growth band has a median FCF of 31 percent; bottom quartile is 15 percent. The top quartile for fast-growers (more than 30 percent revenue growth rate) is 26 percent; bottom quartile is 10 percent.

Other conventional measures that many industry leaders and watchers use include ARR per customer, ARR per employee, operational expenditures per employee, growth persistence, and the “magic number” (a measure of sales efficiency). But our analysis finds almost no correlation between these measures and value multiples.

Through our work with dozens of SaaS companies and performance analysis of 100 others, we’ve discerned a set of practices that are highly correlated with Rule of 40 success. Leading players keep the organization squarely focused on securing future growth, continually pivoting resources to core revenue drivers. And they spend based on today’s numbers, adjusting their growth and free cash flow objectives according to where they are in their life cycle to stay at or above the Rule of 40 (see sidebar, “Focus on the metrics that matter”).

Here’s how to follow their example.

Set realistic growth targets. The commonly held perception is that SaaS companies have seen soaring rates of growth in recent years. But of the 100 SaaS businesses we analyzed in May, only the top quartile had growth rates north of 40 percent. Yet many SaaS players continue to set inflated growth projections and spend based on revenues that don’t materialize quickly enough. The reality is that a company whose total addressable market is expanding at a CAGR of 8 to 10 percent cannot realistically grow revenue by 30 percent in the near term. Doing so requires a large addressable market and the ability to be one of a few leading vendors in a concentrated space, much in the way Jira is to project management, ServiceNow is to IT help desks, and Salesforce is to customer relationship management. Only a handful of companies have this opportunity at any given time. Our research found that just 1.6 percent of 200 software companies were able to sustain consistently strong revenue growth of 30 percent or higher from 2011 to 2021.

Rule of 40 leaders understand these fundamentals. They set revenue growth targets based on what is organically achievable within the existing portfolio over a three-year period and manage the entire business within that envelope. For example, when a $600 million enterprise SaaS company saw revenue growth begin to settle at 15 percent as it became a leader in its segment, management realized they could no longer spend as freely as when the business was growing at 30 to 40 percent annually. So they adjusted their cost structure, with a goal of generating a 20-percentage-point improvement in free cash flow (FCF) over a two-year period taking it to 30 percent. That rebalancing will keep them at the Rule of 40 and provide the means for them to invest in new, high-growth businesses.

Prioritize net retention. SaaS businesses that aim to achieve higher growth put as much attention into caring for existing customers as they do into acquiring new ones, investing in specific postsales constructs to increase cross-sell, upsell, and retention and sourcing the right talent, tools, and analytics. These efforts, combined with strong pricing and product support, result in median net retention rates (NRR) of 120 percent or more—which means these businesses are able to deliver 20 percent growth every year without adding a single new customer. Top performers span different end markets, including companies such as Twilio (139 percent), Crowdstrike (128 percent), and Elastic (130 percent).

Analysis of 40 public B2B SaaS companies shows that those with NRR of 120 percent or more also have higher multiples—with a median EV/revenue of 21-fold compared with ninefold for those below the 120 percent mark. This is because net retention is a core driver of growth and sales, as well as marketing efficiency.

Many slower-growing SaaS companies underinvest in customer success, customer care, and professional services because the overwhelming focus is on gaining new customers and because existing SaaS customers generally don’t pay extra for postsales support. So the additional effort in courting them seems unprofitable. But neglecting existing customers ends up adding costs in the long run, resulting in more churn, lower cross- and upsell, and more pressure on sales teams just to stay level. By looking at customer success and related efforts as an investment in growth rather than as a cost center, companies can protect their installed base and gain scale and efficiency.

Optimize go-to-market spend. Sales and marketing is one of the biggest expense areas for SaaS companies—amounting to 50 percent or more of revenue in high-growth businesses. The high ratio is partly a result of the business model, in which revenue lags behind investment. But it’s also because many companies are inefficient. Where SaaS companies with the strongest EV/revenue multiples are able to recover their customer acquisition costs in under 16 months, 1 Measured in terms of LTM median payback period. bottom-quartile players take nearly four years to do the same. Top-quartile companies also generate revenue growth 3.5 times faster than the bottom quartile.

Top-quartile companies optimize sales and marketing performance in four ways, underpinned by a data-driven growth engine.

• First, they allocate sales and marketing resources based on future customer opportunity—not current revenue—giving high-growth accounts the most coverage. And they define total opportunity using a “retain-acquire-develop-optimize” (RADO) structure, 2 RADO segmentation aligns marketing and sales efforts based on total customer opportunity. Teams “retain” accounts where the revenue growth opportunity is maxed, “develop” accounts where significant upside exists, “acquire” net new accounts that present significant opportunity, and “optimize” net new accounts with smaller opportunity. The segmentation drives the type of account activity and level of resourcing applied. which allows them to set the level of resource intensity to the total growth potential. They understand the efficiency of their spend at a granular segment level and use it to adjust spending to segments that produce the highest returns (for example, by using relative customer lifetime value over customer acquisition cost for each segment).
• Second, they pull granular operating data from across the business into integrated dashboards that make it easy for leaders to see the relationship between specific, often siloed, sales and marketing activities and overall growth outcomes (for example, marketing funnel to lead gen, sales quota attainment to win rate, and customer success to cross-sell/upsell and churn).
• Third, they innovate go-to-market propositions that scale efficiently. For example, they may focus on product-led motions for small-to-midsize customers and marketplace-enabled models for the developer segment.
• Finally, they use advanced analytics and machine learning to build a predictive view of customer health, which then helps drive proactive cross-sell/upsell, preventative churn measures, and positive feedback loops across sales, marketing, customer success, and product.
• Build new business—fast. SaaS businesses often reach the tip of their initial S-curve without a market-ready venture or offering ready to pick up the slack, so their growth dips. Rule of 40 players maintain momentum by standing up net new businesses more quickly. For example, a $400 million SaaS company built a new $50 million annual recurring revenue (ARR) business from concept in 18 months. Leading players incubate new businesses thoughtfully, selecting micro domains based on a deep understanding of customer personas. They supply them with dedicated resourcing and attend to the operational, organizational go-to-market aspects of business building with the same rigor they do product development. Given the challenge of maintaining growth over time, developing the capability to build new lines of business quickly is critical for long-term growth and value creation.

In addition to the four elements identified above, top performers insist on transparent data and metrics that allow them to gain an integrated view of growth and margin drivers. This visibility helps them to execute against bold growth, efficiency, and productivity targets, and to make decisions on new investments at a global integrated level.

This approach stands in contrast to the location-based resource allocation that many other businesses employ. Leaders also ensure that they unpack the software engineering black box by building world-class product-management capabilities and a data-driven engineering performance-management culture, investing in core developmental health and channeling resources into growth-oriented products and features.

The next software disruption: How vendors must adapt to a new era

Our experience with a $500 million SaaS company shows how management teams pull this together. The company was used to seeing revenue growth of 25 to 40 percent, but recently the rate had slowed to 10 percent. After analyzing their market opportunity and competitive environment, they landed on 15 to 20 percent growth as a more realistic model. They also took a hard look at their existing business. With churn averaging 15 to 20 percent and cross- and upsell levels modest, the company’s NRR was just 100 percent. Upskilling their customer success team helped put them on track to gain a ten-percentage-point improvement in NRR. They are also seeking to fast-track digitization efforts within marketing and sales—efforts that will lower costs within the function from 40 percent of revenue to 20 to 25 percent. To fund the improvements, leaders conducted cost analysis across the business, which identified $100 million in savings. Leaders plan to use 25 percent to support its transformation and reinvest in new business lines. Together, the improvements are expected to propel the company’s Rule of 40 performance from below 10 (owing to negative free cash flow) to over 40 within the next two years.

Getting ahead of the curve

Investors aren’t the only stakeholders keeping a close watch on Rule of 40 performance. Boards are increasingly engaging leaders on this point. A midsize SaaS company’s board recently created an operating committee to support the management team in building a path to the Rule of 40. And the compensation committee of another large SaaS company has devised incentive plans for top executives tied to progress achieved against the Rule of 40. The bottom line for a growing number of boards is that if the company is not doing its job with the Rule of 40, then leaders aren’t doing their job as a management team.

The best will act in enlightened self-interest. By taking a hard look at what rate of growth the business can reasonably maintain and steering the organization to maintain it in the most efficient way possible, leaders can turn the Rule of 40 into a winning proposition for the organization and all its constituents.

The authors wish to thank Daniele Di Mattia, Kushagra Gupta, Fidel Hernandez, Klaudia Kasztelaniec, Tarun Khurana, and Jigar Shah for their contributions to this article.

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SaaS Security Risks & Challenges: The 9 Most Common Issues & How to Prevent Them

The article discusses the growing popularity of SaaS applications, the common SaaS security risks and challenges they pose, and strategies to mitigate these risks, emphasising the importance of protecting sensitive data within the SaaS ecosystem.

Key Points:

• SaaS applications usage increased by 18% in 2023, with an average of 130 apps per business, but data security risks in SaaS apps are a growing concern.
• Common SaaS security risks and issues include misconfigurations, poor access control, shadow IT, insider threats, and compliance challenges.
• Mitigating SaaS security risks involves implementing strict access controls, using encryption, conducting regular audits, and leveraging data security tools like Metomic .

Software as a Service (SaaS) applications have exploded in popularity over the last few years, with net usage up 18% in 2023 on the previous year, and 130 apps used on average per business.

But with employees using them daily, the risk of sensitive data being leaked from SaaS apps can be heightened, so taking precautions to protect your data is crucial.

How are companies using SaaS apps?

SaaS has become increasingly popular with teams who are looking to enhance their productivity, and make operations much more efficient. While they offer a collaborative environment for employees to foster new ideas, SaaS software must be secured to ensure that sensitive data stored within the platforms is protected.

There are SaaS applications created for many different uses, across plenty of different industries.

Some examples of SaaS software include:

• Project management : Tools such as Trello are perfect for aligning workflows, and understanding responsibilities, and requirements.
• Customer Relationship Management (CRM): Platforms such as Salesforce are used by entire organisations to track leads, monitor customer interactions, and enhance customer insights.
• Communication: Tools such as Slack and Microsoft Teams are essential for companies all over the world, helping colleagues keep in contact and share ideas.
• Customer service: Apps like Zendesk are particularly useful for organisations who need to keep track of customer enquiries and help to solve issues quickly and efficiently.
• Note storing: Apps such as Notion can be used by teams to share thoughts and ideas, plans, as well as project management outlines.
• AI: SaaS tools such as ChatGPT are emerging as new forces that are revolutionising the way companies work.

As you can see, there are plenty of diverse ways in which companies can use SaaS software to increase productivity, and uplift business performance. The ease at which individuals can use SaaS applications means setup is usually very simple, and there’s no major software updates or infrastructure to manage.

Why is it so important that data in SaaS is protected?

Data stored in your SaaS products can be compromised if it’s not protected properly, so it’s vital that you take measures to ensure it can’t be leaked or breached. Cybercriminals can see SaaS apps as attractive targets due to the data stored within, and the reputational, legal, and financial implications of a data breach or leak can leave lasting effects.

If your data is compromised via a SaaS app, you may be putting yourself at a competitive disadvantage, as customers are more likely to choose a company that demonstrates robust data protection measures, ensuring the security and privacy of their sensitive information.

The disruption in operations due to a data breach can also be highly problematic, for a business. For instance, if you’re a healthcare organisation and you should have been complying with HIPAA , an investigation may halt businesses, leading to a loss in revenue, as well as customer dissatisfaction.

Finally, intellectual property theft may occur, jeopardising your future plans and leaking any trade secrets you were storing. This can be hugely detrimental to your business’ future success.

What are the some of most common security risks that companies face when using SaaS?

While SaaS can come in handy for any business, there are security risks posed by the use of such applications.

Here are the nine of the most common issues:

1. Misconfiguration

One wrong step during the configuration process, and companies leave themselves vulnerable to sensitive data being exposed. For example, not enabling multi-factor authentication could make it easier for bad actors to access your systems with only one layer of protection to get through.

2. Poor access control management

Without the correct access controls in place, your sensitive documents could be shared with external parties, as well as being publicly accessible to anyone on the web. Whether you operate a zero-trust strategy or prefer to keep your most sensitive documents locked down, paying close attention to your access controls is vital.

3. Shadow IT

While security teams are focused on monitoring the SaaS apps they’re aware of, employees may be using apps completely under the radar.

4. Insider threats

Insider threats may not necessarily be coming from a malicious angle, but those who have access to sensitive documents can pose a risk to your business. Whether it’s intentional or not, insider threats from employees or contractors can make you more susceptible to data leaks.

SaaS applications often store your data on their own servers, giving you limited control over what happens to it. With this type of storage, you’re effectively putting your data in someone else’s hands, so you must ensure that their security strategy is comprehensive enough to avoid data leaks and breaches.

6. Compliance

If you need to comply with regulations such as GDPR and HIPAA , you’ll need to ensure your SaaS software provider can offer this level of compliance too. Without due diligence, you may miss this requirement, and put your business at risk. If the data you store is mishandled by your SaaS provider, this can put you in breach of regulations, causing serious financial and legal repercussions.

7. Supply chain management

Similarly, ensuring your supply chain has strict security measures in place is vital. Check your suppliers are SOC 2 certified , and meet quality standards such as ISO requirements . Recent data breaches involving supply chain mismanagement such as the Manchester police data breach , have wreaked havoc on organisations from a financial and reputational perspective.

8. Data portability

If you choose to switch your SaaS provider, you may face issues around data portability and ownership. You’ll need to ensure that any data stored in your SaaS applications still belongs to you, so there’s no chance that you’ll lose data if you want to terminate your contract with your provider.

9. Customer privacy

Your customers’ privacy is paramount , and they should be your priority when choosing SaaS apps to work with, as well as the ease and usability of the apps themselves. Ensure that data is only retained for a set period of time to be in line with data regulations such as GDPR, and encryption is in place to give data an extra layer of protection.

How can companies mitigate security risks and issues?

Luckily, it’s not all doom and gloom, as there are ways you can minimise your data risks. When it comes to SaaS security best practices, you should ensure that you:

1. Implement strict access controls

Put stringent access controls in place, including multi-factor authentication, to ensure your most sensitive data is only accessed by authorised individuals. You should also review your sensitive files and revoke access for those who no longer need permissions to view that data.

2. Research your SaaS providers

Before choosing a SaaS provider to work with, be sure to read reviews and find out whether other customers are happy with the service they’ve had. You should also check their security credentials to ensure your data will be protected.

3. Use encryption methods

Encrypting your data will add another layer of protection to sensitive information, safeguarding it at rest and in transit to make it undecipherable for any unauthorised users

4. Carry out regular risk audits

Regular risk audits can help you expose any gaps or misconfigurations in your security posture when it comes to your SaaS apps . They can also be beneficial for identifying where your highest risks lie so you can address them immediately.

5. Encourage employee education & awareness

Annual training sessions with employees are no longer fruitful for creating a security-aware workforce. Instead, give employees the guidance they need to understand who they can ask questions to, and where they must go if they have any security concerns. Continuous education and training in the context of their role can be helpful - for instance, Metomic sends real-time notifications when employees commit violations.

6. Use a DSPM tool

A data security posture management tool like Metomic can be beneficial for protecting sensitive information in SaaS applications such as Slack , Jira , and ChatGPT , on autopilot. Rather than manually sifting through information to find sensitive data points, Metomic can take the guesswork out of data security.

How can Metomic help?

Metomic can automate your data security processes, to protect data within your SaaS ecosystem. Helping you recognise where your biggest risks lie, Metomic triages your risks so you can address your major issues first.

Book a personalised demo with one of our SaaS Security Specialists to uncover your most critical risks in your SaaS apps.

Ben van Enckevort

Ben van Enckevort is the co-founder and CTO of Metomic

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The Top 10 SaaS Security Risks For Businesses In 2024

Have you ever wondered how secure your company data is in the cloud? If not, it’s time to start asking that question.

As more organizations embrace the flexibility and affordability of SaaS solutions, they may be unwittingly exposing themselves to new security challenges.

Staying on top of emerging SaaS threats is key for protecting your business in the years ahead. Read on as we explore the top 10 risks you need to know about to lock down security in this new era of cloud computing. You’ll learn where the latest dangers are coming from and how to safeguard your organization.

What is the Current SaaS Environment Like?

First, let’s level-set on SaaS.

SaaS stands for “Software as a Service” , which refers to cloud-based software applications delivered over the internet. Rather than installing software locally, you access it remotely through a web browser.

This model offers tons of benefits, like lower upfront costs, scalability, and accessibility. But it also represents a fundamental shift in how technology is delivered, and data is stored compared to traditional on-premises solutions.

Understanding the makeup of SaaS architecture is key to recognizing where potential security gaps can emerge:

The Players

• SaaS providers – The vendors supplying the on-demand software services. They host and manage the infrastructure and application for customers. Salesforce and DocuSign are examples.
• Customers – The businesses utilizing SaaS applications to store data and run operations in the cloud. Transferring IT resources to external providers.
• Sensitive customer data – The information stored and processed within SaaS apps. This includes proprietary information, personal data , financial records, credentials, and more.
• Network – The internet connectivity between customer endpoints (laptops, smartphones etc.) and the SaaS provider. Remote access over the public internet.

The Inherent Risks

With data now stored outside the traditional network perimeter, new vulnerabilities open up:

• Reduced visibility and control over data in the cloud
• Dependence on external providers for security management
• More potential entry points for threats across expanded networks and endpoints
• Authentication and access control challenges in the cloud
• Difficulties tracking SaaS usage, behaviors, and anomalies
• Limited oversight into how SaaS vendors handle security
• Shared SaaS infrastructure allows a single vulnerability to impact many customers

These dynamics can increase the likelihood of data breaches, malware attacks, account takeovers, and other threats in the cloud.

But with the right knowledge, preparation, and safeguards, organizations can stay secure while realizing the game-changing benefits of SaaS.

The Top 10 SaaS Security Risks Facing Organizations

Now that you understand the SaaS terrain, let’s dig into the top risks on the horizon through 2024 so you can prepare your defenses.

1. Sophisticated Emerging Threats

As cloud computing evolves, so do the tactics of cybercriminals and hackers. Emerging threats are a consequence of rapid innovation in the world of SaaS, leading to attack vectors that many organizations are still unprepared to defend against.

With new features and increasing complexity, SaaS environments often introduce potential vulnerabilities that attackers are eager to exploit:

• Side-channel attacks – Leveraging shared resources in cloud environments to infer sensitive information from other virtual machines on the same server
• Supply chain attacks – Exploiting vulnerabilities in third-party partners integrated into the SaaS provider’s infrastructure
• Ransomware-as-a-Service – Ransomware kits rented out to hackers on the dark web for easy deployment

The danger is that these novel threats often go unnoticed or misunderstood until significant damage is done. Many businesses lack the cybersecurity skills and experience to keep up with rapidly evolving cloud threats.

2. Surge in SaaS Data Breaches

While data breaches are nothing new, the rapid growth of SaaS adoption is escalating breach incidents in the cloud. Breaches within SaaS environments can be attributed to:

• Weak security practices or oversights by the SaaS provider
• Customer misconfigurations in SaaS application settings
• Increasingly sophisticated hacking techniques targeting cloud environments
• Growth in employee credentials and passwords leaked on the dark web

These breaches frequently occur when:

• Hackers penetrate vulnerabilities in the SaaS provider’s infrastructure
• Customer identity data is inadvertently exposed due to misconfigured SaaS application settings
• Compromised employee credentials grant access to SaaS accounts

The damage includes loss of sensitive customer data like financial information, personal data, credentials, trade secrets, and other proprietary information.

Many organizations lack in-house expertise needed to properly configure SaaS application settings and secure integrations between cloud apps. Meanwhile, continuous vendor security assessments are often overlooked. These gaps leave the door open to data breaches.

3. Escalation of Account Hijacking

Hijacked SaaS accounts enable cybercriminals to gain unauthorized access to sensitive systems and data for theft or destruction. This threat often arises through:

• Targeted phishing attacks deceiving users into handing over login credentials
• Poor password hygiene like reusing passwords across accounts
• Weak authentication practices such as failing to enable multi-factor authentication

Once hackers access an account, they can stealthily move laterally between integrated SaaS applications. This allows them to escalate privileges and extract more sensitive data from connected systems.

Many businesses remain vulnerable due to inadequate cybersecurity threat training for employees, weak password policies, and reliance on single-layered authentication methods like passwords alone.

4. Insider Threats

While external attacks grab headlines, insider threats pose a substantial danger to SaaS environments, with 60% of data breaches caused by insider threats . This includes employees, contractors, or partners that leverage authorized access privileges to intentionally steal data or sabotage systems.

Malicious insider attacks are severe given they originate from within the organization or SaaS provider itself, often going undetected longer than external breaches. Risk factors include:

• Inadequate vetting and access controls on internal personnel
• Too few controls and auditing around privileged user activities
• Lack of visibility into abnormal user behaviors indicating potential insider threat

The damage inflicted by malicious insider threats can be extensive given their access to proprietary data and mission-critical SaaS systems.

5. Supply Chain Attacks

The supply chain represents a growing cybersecurity blind spot for SaaS providers and their customers. SaaS supply chains contain many third-party elements:

• Software vendors
• Cloud infrastructure providers
• Managed service providers
• Development partners
• Acquired companies

Threat actors are increasingly targeting less secure elements of the supply chain as an entry point to then compromise the broader SaaS environment. For instance, a vulnerability in a third-party data storage vendor integrated into a SaaS platform can become a doorway for attackers to exploit.

Customers put full trust in SaaS providers but have little visibility or control over the security practices of their expansive supply chains. This creates ripe conditions for supply chain cyber attacks to cause downstream damage.

6. Non-Compliant SaaS Apps

Non-compliant SaaS apps that violate regulatory standards create legal risk and cyber exposure. This issue arises when SaaS providers fail to adhere fully to relevant compliance frameworks like:

• GDPR for European user data privacy
• HIPAA for protecting healthcare information
• PCI-DSS for safeguarding payment card data
• SOC 2 for managing data security, availability, processing integrity, confidentiality, and privacy.

Using SaaS apps that cut corners on compliance can lead to extensive data breaches, expensive non-compliance penalties, and reputational damage.

Yet many organizations fail to scrutinize SaaS providers on their compliance programs and certifications. This results in reliance on SaaS apps that introduce compliance violations and security risks.

7. Insecure APIs

APIs enable seamless integration between different software applications. However, vulnerabilities in SaaS APIs can be exploited to inflict significant damage. Risks include:

• Granting unauthorized access to sensitive data and functionality
• Launching denial of service attacks that disrupt SaaS availability
• Manipulating or compromising connected applications
• Enabling deeper penetration into linked cloud environments

These API vulnerabilities frequently arise from:

• Lax security practices in the API development lifecycle
• Inadequate authentication requirements for API access
• Overly broad API permissions and privileges
• Lack of input validation allowing malformed requests

Exposing unsecured APIs gives attackers an open door into networked SaaS environments. Organizations often struggle to properly assess API vulnerabilities or implement adequate controls around API access.

8. Shadow IT Sprawl

Shadow IT refers to SaaS applications used by employees without explicit IT approval or oversight. This risk emerges when personnel adopt SaaS apps independently without going through IT channels.

With shadow IT, organizations lose visibility and control over SaaS usage, creating major blind spots. Risks include:

• Adoption of unvetted, potentially insecure apps outside of IT protocols
• Introduction of apps that don’t meet security standards
• Increased costs from redundant or unused licenses
• Difficulties tracking where sensitive data resides

Shadow IT results directly from a lack of visibility, policies, and enforcement around SaaS application usage across the enterprise. These unsanctioned apps can easily introduce data breaches given they bypass security controls.

9. Data Residency Risks

Data residency refers to the physical or geographic location where SaaS providers store customer data. This introduces potential security issues and legal compliance complications:

• Customer data might reside in regions with weak data protection laws
• Storing data globally can violate data sovereignty laws in some nations
• Customers may lack visibility into where exactly their data is stored
• Moving data across borders creates privacy and cybersecurity risks

Mismatches between where customers want their data stored versus actual SaaS storage locations become a source of risk. Navigating data residency complexities across borders is challenging, especially given limited transparency from SaaS vendors.

10. Lack of Holistic SaaS Visibility

Gaining unified visibility into SaaS security, compliance, and operations is hugely difficult with dozens of distinct cloud apps in play. Key challenges include:

• Tracking user activities across different SaaS environments
• Managing configurations consistently across apps
• Monitoring data flows between integrated SaaS applications
• Correlating security events across multiple platforms

This lack of centralized visibility prevents organizations from detecting threats or anomalies. It also hinders enforcing consistent security controls across all SaaS applications.

Fragmented visibility makes it impossible to assess overall SaaS risk posture. And auditing compliance across apps becomes extremely arduous without a unified view.

Strengthening SaaS Security in the Face of Top Threats

Facing the array of SaaS risks outlined above, organizations must take a proactive and layered approach to security. Robust SaaS protection involves actions across three areas:

Solidify Security Foundations

• Develop comprehensive cloud security policies and standards
• Maintain an inventory of approved/unapproved SaaS apps
• Demand transparency from SaaS providers on their security controls
• Conduct threat modeling to identify vulnerabilities
• Implement strong identity and access management
• Appoint security personnel to oversee SaaS protections
• Build effective incident response plans

Adopt Preventative Security Controls

• Secure all endpoints and require multi-factor authentication
• Implement least-privilege access and separation of duties
• Mask sensitive data and employ data loss prevention
• Encrypt data end-to-end and implement backup/recovery
• Harden SaaS applications through input validation, patching, configuration management
• Install web application firewalls and denial of service protections
• Monitor user activities and credential use for anomalies

Leverage Advanced Security Technologies

• Deploy AI and machine learning to detect threats and accelerate response
• Incorporate user and entity behavior analytics to identify risky activities
• Implement identity and access orchestration to manage cloud user access
• Utilize natural language processing to parse SaaS terms for risks
• Architect zero trust and microsegmentation to minimize breaches
• Collect and correlate security event data across cloud apps

For example, in an eff ort to solidify security foundations, businesses must critically assess the security features of the SaaS tools they deploy, including those used for customer interaction and support.

Ensuring that these tools, such as contact center platforms , adhere to stringent security standards is vital for protecting sensitive customer information and maintaining trust. This approach underscores the importance of a thorough security review process for all SaaS solutions, reinforcing the organization’s overall security posture

Besides, ongoing security training and testing is also vital to ensure personnel understand policies and how to identify risks. Ultimately, securing the human element is central to getting ahead of emerging SaaS threats.

By taking a layered, proactive approach across people, processes and technologies, companies can confidently embrace SaaS platforms without sacrificing security or compliance.

Wrapping Up

The rapid adoption of SaaS brings immense advantages but also significant security risks that organizations must urgently address. As outlined in this article, threats like data breaches, account hijacking, shadow IT, and insider threats are growing more likely to impact businesses.

However, with vigilance, preparation, and a layered security approach, companies can realize the benefits of SaaS while safeguarding their most precious data and systems. Organizations can confidently unlock innovation in the cloud by securing the fundamentals, adopting preventative controls, and leveraging advanced technologies.

What risks resonat ed most with your organization as you consider your SaaS footprint? What steps will you take to take to protect your company? The time to strengthen defenses is now, before the threats outlined here lead to a costly breach down the road.

By Stephanie Seymour

Stephanie Seymour is a senior business analyst and one of the crucial members of the FinancesOnline research team. She is a leading expert in the field of business intelligence and data science. She specializes in visual data discovery, cloud-based BI solutions, and big data analytics. She’s fascinated by how companies dealing with big data are increasingly embracing cloud business intelligence. In her software reviews, she always focuses on the aspects that let users share analytics and enhance findings with context.

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