No. of Recommendations: 5
Software as a Service (SaaS) companies provide software based services to a large number of customers over the internet.
SaaS companies typically have exceptionally high gross margins, as they do not have the same cost structure as traditional software companies that must produce and distribute physical products.
Furthermore, as their service is delivered over the internet, they can be easily scaled to meet the demands of a growing customer base. This allows SaaS companies to expand exceptionally rapidly without incurring significant additional costs.
Some SaaS companies have high customer retention rates, though not all of them have this quality. It is important to identify the firms that can reliably retain customers willing to continue paying for its use, and to be conscious and realistic about your reasoning. Those that inherently retain customers, by the nature of the service, may enjoy a very powerful economic strength because of the other enormous advantages mentioned.
As an investor, what key competitive advantages do you look for when purchasing these SaaS companies?
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