Neither of the two ‘S’ in SaaS (Software as a Service) stands for Simple, that’s for sure. And as we build our shiny-new SaaS (or DaaS, Data as a Service, if you prefer), we thought we’d jot down some of the basic tenets we’ve learned from our collective experience building successful SaaS businesses (4 collectively!). Plus, a nod to several speakers who hit on many of these points at Zuora’s Subscribed 2014 event last week.

Why are these keys so important? Well, most SaaS companies charge a relatively small amount over a (hopefully) long period of time. Not like the olden days of software licenses, with their big upfront fee + annual maintenance contracts. So, as a SaaS company you are front-loading your customer acquisition costs, support costs, software costs, development costs, people costs, etc. and it can take a while to actually hit your ‘pay back’ period and then drop some profits to the bottom line. It’s a risky business if you don’t run it right.

So here’s 4 keys to a successful SaaS business. Make sure you have them top of mind every minute of every day & night!

1. Generate & maintain high gross margins. Seriously? Has such an obvious business statement been made since ‘Buy low, sell high’? Maybe not, but it’s worth repeating that all those Costs of Goods Sold come right outta your revenue to arrive at ‘Gross Margin %’ (hosting & IT infrastructure, 3rd party web fees, support costs, onboarding costs). High GM% means you are able to to scale with customer growth, and maintaining this is difficult. For instance, Salesforce had GM% over 80% as of Q3 2010, but most recent 12 quarters have all been in the mid-70s. Still pretty good, but points to how tough it can be to control these costs. Zendesk and Marketo both have GM% in the 65% range. At Dasheroo, we’re shooting for 80%. Maybe we’re nuts, but that’s our goal & we’ve achieved it at other companies!

2. Keep customer acquisition costs low. Of course the CAC (Customer Acquisition Cost) depends on how much your SaaS offering sells for, but try to get that pay-back period in the 8-12 month range. How? Reduce friction. Make it easy to sign-up, have killer content and support docs upfront, and for us at Dasheroo, consider Freemium as a key to filling up the top of the funnel with users. Insightly, a fast-growing CRM company, is a great example of a SaaS biz that has wisely used Freemium as a way to capture a huge share of market in a competitive space.

3. Continually make your service more valuable. Two bennies here, you’ll reduce churn and increase up-sell potential. These days, it’s easier and easier for your customers to switch to a competitor. So don’t get complacent, OK? BE INNOVATIVE. Sure, great support is key; to us, that’s a given. So what else can you do to both endear yourself to your users as well as provide them additional, valuable offerings that grow over time? Certain services like Salesforce have some real leverage with AppExchange, but there’s not many SFDCs out there. Look at your pricing model. is it usage or user-based? If so, the more your customers use your product, the more value they are getting and the more money you should be able to charge. Basically the longer a customer is with you the more value you should be able to provide.

4. Gotta go viral. Make it easy for users to refer others. We love referral programs, where your users get something of value (usually more of your service) free for referring new users. We’re considering Ambassador to power our referral program. Dropbox is a great example of a SaaS biz that has driven growth this way. As discussed above, Freemium is a great way to get huge usage, awareness, & market share. But the #1 factor that drives this? An awesome customer experience, which also drives the oldest form of advertising , Word Of Mouth.