Enterprise

How SaaS architecture impacts pricing and profitability

Comment

Calculator on white textured background , copy space
Image Credits: kolderal (opens in a new window) / Getty Images

Ratnesh Singh Parihar

Contributor

Ratnesh Singh Parihar is principal architect at Talentica Software who has expertise in architecture and design, scaling and handling large systems, solving complex engineering problems, and modernizing legacy applications.

Having worked as a solution architect and designed multiple SaaS applications, I believe many companies have struggled to choose the right SaaS architecture for their product offering. In this article, I will share my learnings to help companies that are building SaaS applications make a pragmatic decision about product architecture, while considering its impact on pricing and profits.

The pay-as-you-go pricing model has gained popularity because of the increased flexibility for customers. However, to enable pay-as-you-go, you need the right product architecture to support it, such as tracking the use of services and offering customers the flexibility of managing infrastructure as per their requirements.

A poorly designed SaaS architecture creates limitations in setting the pricing strategy for the offerings and impacts new customer acquisition. Conversely, a good architecture sets the appropriate pricing model and accommodates special architecture-design requirements, while enabling scalability and customizability.

Before setting up a SaaS architecture, it’s important to answer these questions first:

  • How would the customers pay?
  • For what services (computation and values) would the customers pay?
  • How will the usage be measured and invoices be created for the customers?

In a SaaS setup, costs incurred in managing operations impact profitability to a large extent. Operational expense optimization involved in managing the SaaS model depends on three crucial factors — infrastructure cost, IT administration cost, and licensing cost.

Image Credits: Talentica Software

However, the bigger question is: How do you ensure that these costs are well-optimized and priced correctly? Here are a few examples:

Salesforce Online: Salesforce provides a lead management system for enterprise sales and marketing teams. The online version uses the cloud to reduce the hassles of hardware and IT procurement. It also charges customers based on the size of sales and marketing teams to stop the payment of one-time high license costs.

Azure SQL: As the RDBMS (relational database management system) leader, the SQL server provides a hosted solution where customers pay a high license cost and hire a DBA (database administrator) for regulating backup, geographical replication, and disaster recovery. But Azure SQL is a cloud-based system that is accessible online and you pay only for storage and IOPS (input/output operations), with the rest taken care of by Azure.

WordPress: WordPress provides an online platform with white-labeled solutions, customization, and multiple integrations for its customers. Moreover, it collects customer usage data and charges on that bases.

Why is it important to pick the right SaaS type?

This is a common question. Let me explain why with two different examples.

Example 1

A company introduces isolated application VMs (virtual machines) for all its customers. In the majority of cases, these boxes will remain underutilized. If customers pay only for utilization, the company could end up with huge losses.

Example 2

All customers share the database servers and application servers and pay only for utilization. With this model, all of the hardware and automation are being properly utilized. However, a sudden increase in server utilization by one customer can trigger performance issues and unexpected breakdowns for others.

When a company starts building a SaaS application, it bears the hardware and automation costs. Therefore, picking the right SaaS architecture aligned with your offerings is crucial to optimize the above-mentioned costs. Damage control is still possible in the above examples, but you will still lose time and opportunities.

What are the different architecture types of SaaS applications?

Image Credits: Talentica Software

Type 4 (Doesn’t require data and runtime isolation)

This is the most basic type of SaaS application. In this type, you assume that all of your customers will grow uniformly and create customer IDs accordingly. These customer IDs are added to all of the tables/collections and all customers share the database and application hardware.

Type 3 (Requires data isolation but no runtime isolation)

This is one-step advanced as compared to type 4. Different data stores are put in place for different customers of this type. However, the application is shared by all the customers.

Type 2 (Requires data and runtime isolation on the cloud)

This type involves separate applications and separate data stores for all customers. In this case, the cost of isolation is typically passed on to the customers.

Type 1 (Requires data and runtime isolation, but not on the cloud)

This type is a version of type 2 wherein the customer wants data to be stored on their network, not on the cloud. Herein, the customer still opts for pay-as-you-go or a pricing model that’s based on users/features as per onboarding.

How to pick the right SaaS type for your product

Depending on the type of industry and nature of the data, a customer’s requirement for security and shareability will vary. A company can anticipate the needs of multiple customers and can refer to the flowchart below to help select the right SaaS architecture type.

Image Credits: Talentica Software

On a final note

In conclusion, as the product matures, molding existing architectures to accommodate demands from the growing user base becomes difficult. Therefore, it’s best to choose the right SaaS architecture at the start so that you don’t lose out on business because of rigidity.

More TechCrunch

The Twitter for Android client was “a demo app that Google had created and gave to us,” says Particle co-founder and ex-Twitter employee Sara Beykpour.

Google built some of the first social apps for Android, including Twitter and others

WhatsApp is updating its mobile apps for a fresh and more streamlined look, while also introducing a new “darker dark mode,” the company announced on Thursday. The messaging app says…

WhatsApp’s latest update streamlines navigation and adds a ‘darker dark mode’

Plinky lets you solve the problem of saving and organizing links from anywhere with a focus on simplicity and customization.

Plinky is an app for you to collect and organize links easily

The keynote kicks off at 10 a.m. PT on Tuesday and will offer glimpses into the latest versions of Android, Wear OS and Android TV.

Google I/O 2024: How to watch

For cancer patients, medicines administered in clinical trials can help save or extend lives. But despite thousands of trials in the United States each year, only 3% to 5% of…

Triomics raises $15M Series A to automate cancer clinical trials matching

Welcome back to TechCrunch Mobility — your central hub for news and insights on the future of transportation. Sign up here for free — just click TechCrunch Mobility! Tap, tap.…

Tesla drives Luminar lidar sales and Motional pauses robotaxi plans

The newly announced “Public Content Policy” will now join Reddit’s existing privacy policy and content policy to guide how Reddit’s data is being accessed and used by commercial entities and…

Reddit locks down its public data in new content policy, says use now requires a contract

Eva Ho plans to step away from her position as general partner at Fika Ventures, the Los Angeles-based seed firm she co-founded in 2016. Fika told LPs of Ho’s intention…

Fika Ventures co-founder Eva Ho will step back from the firm after its current fund is deployed

In a post on Werner Vogels’ personal blog, he details Distill, an open-source app he built to transcribe and summarize conference calls.

Amazon’s CTO built a meeting-summarizing app for some reason

Paris-based Mistral AI, a startup working on open source large language models — the building block for generative AI services — has been raising money at a $6 billion valuation,…

Sources: Mistral AI raising at a $6B valuation, SoftBank ‘not in’ but DST is

You can expect plenty of AI, but probably not a lot of hardware.

Google I/O 2024: What to expect

Dating apps and other social friend-finders are being put on notice: Dating app giant Bumble is looking to make more acquisitions.

Bumble says it’s looking to M&A to drive growth

When Class founder Michael Chasen was in college, he and a buddy came up with the idea for Blackboard, an online classroom organizational tool. His original company was acquired for…

Blackboard founder transforms Zoom add-on designed for teachers into business tool

Groww, an Indian investment app, has become one of the first startups from the country to shift its domicile back home.

Groww joins the first wave of Indian startups moving domiciles back home from US

Technology giant Dell notified customers on Thursday that it experienced a data breach involving customers’ names and physical addresses. In an email seen by TechCrunch and shared by several people…

Dell discloses data breach of customers’ physical addresses

Featured Article

Fairgen ‘boosts’ survey results using synthetic data and AI-generated responses

The Israeli startup has raised $5.5M for its platform that uses “statistical AI” to generate synthetic data that it says is as good as the real thing.

5 hours ago
Fairgen ‘boosts’ survey results using synthetic data and AI-generated responses

Hydrow, the at-home rowing machine maker, announced Thursday that it has acquired a majority stake in Speede Fitness, the company behind the AI-enabled strength training machine. The rowing startup also…

Rowing startup Hydrow acquires a majority stake in Speede Fitness as their CEO steps down

Call centers are embracing automation. There’s debate as to whether that’s a good thing, but it’s happening — and quite possibly accelerating. According to research firm TechSci Research, the global…

Retell AI lets companies build ‘voice agents’ to answer phone calls

TikTok is starting to automatically label AI-generated content that was made on other platforms, the company announced on Thursday. With this change, if a creator posts content on TikTok that…

TikTok will automatically label AI-generated content created on platforms like DALL·E 3

India’s mobile payments regulator is likely to extend the deadline for imposing market share caps on the popular UPI (unified payments interface) payments rail by one to two years, sources…

India likely to delay UPI market caps in win for PhonePe-Google Pay duopoly

Line Man Wongnai, an on-demand food delivery service in Thailand, is considering an initial public offering on a Thai exchange or the U.S. in 2025.

Thai food delivery app Line Man Wongnai weighs IPO in Thailand, US in 2025

The problem is not the media, but the message.

Apple’s ‘Crush’ ad is disgusting

Ever wonder why conversational AI like ChatGPT says “Sorry, I can’t do that” or some other polite refusal? OpenAI is offering a limited look at the reasoning behind its own…

OpenAI offers a peek behind the curtain of its AI’s secret instructions

The federal government agency responsible for granting patents and trademarks is alerting thousands of filers whose private addresses were exposed following a second data spill in as many years. The…

US Patent and Trademark Office confirms another leak of filers’ address data

As part of an investigation into people involved in the pro-independence movement in Catalonia, the Spanish police obtained information from the encrypted services Wire and Proton, which helped the authorities…

Encrypted services Apple, Proton and Wire helped Spanish police identify activist

Match Group, the company that owns several dating apps, including Tinder and Hinge, released its first-quarter earnings report on Tuesday, which shows that Tinder’s paying user base has decreased for…

Match looks to Hinge as Tinder fails

Private social networking is making a comeback. Gratitude Plus, a startup that aims to shift social media in a more positive direction, is expanding its wellness-focused, personal reflections journal to…

Gratitude Plus makes social networking positive, private and personal

With venture totals slipping year-over-year in key markets like the United States, and concern that venture firms themselves are struggling to raise more capital, founders might be worried. After all,…

Can AI help founders fundraise more quickly and easily?

Google has found a way to bring a variation of its clever “Circle to Search” gesture to iPhone users. The new interaction, launched in January, allows Android users to search…

Google brings a variation on ‘Circle to Search’ to iPhone users

A new sculpture going live on Wednesday in the Flatiron South Public Plaza in New York is not your typical artwork. It combines technology, sociology, anthropology and art to let…

Always-on video portal lets people in NYC and Dublin interact in real time