What is the SaaS Advertising-Based Revenue Model?

An advertising-based model is a revenue-generating approach where SaaS companies display advertisements within their product or software to gain income. Using this tactic, SaaS businesses monetize wide user bases and offer lower-priced versions of their software to customers. 

Advertising-based revenue models can be an appropriate option for audiences that are hesitant to commit to paid subscriptions.

Here is how the advertising-based revenue model differs from the subscription and freemium models:

• The subscription model: In this revenue model, SaaS companies generate income by charging a subscription fee to offer customers access to the platform’s features. The success of this revenue model relies on how many paying users a SaaS product has. 
• The freemium model: SaaS companies offer a basic version of their software free of charge. If the customer requires access to advanced features or functionalities, they can upgrade to a paid plan.
• The ad-based revenue model: In this mode, SaaS businesses gain income through the payments made by different advertisers instead of software users. For ad-based models to be effective, the SaaS business implementing it needs to appeal to a wide audience.

Here are the three situations in which a SaaS company can transition to an advertisement-based revenue model: 

• Your product is appealing to a large and specific customer base. 
• Your focus remains on user experience and the ads you are displaying within the software do not impact it in any way. 
• You accept that advertisements might influence the user’s perception of your product.

To evaluate the performance of the ad-based revenue model, SaaS companies can monitor the following metrics: 

• Number of active users
• User engagement ( consider aspects like time spent using the software, page visited, or other relevant usage indicators to your product)
• Click-through rates (CTR) on the shared advertisements
• Cost per click (CPC) ( how much are advertisers paying per click)

SaaS businesses can employ these four strategies to optimize the results given by the ad-based revenue model: 

• Personalized advertising: Asses your customers’ interest and focus on displaying advertisements that are relevant to ensure engagement. 
• Effective ad placement: Display ads in a visible yet discreet manner. 
• Test ad formats: Experiment with different ad formats and types. 
• Offer a no-ad package: Consider providing users with a plan that removes ads to appeal to users interested only in using your software.