SaaS (Software as a Service) is a cloud-based software delivery model where applications are hosted by a provider and accessed by customers via the internet, typically through a subscription. Users don't install or maintain software; they simply log in and use it.
SaaS has transformed how software is built, sold, and consumed. It replaced traditional software licensing with subscription-based access, creating recurring revenue and continuous customer relationships.
SaaS Characteristics:
- Cloud-hosted and internet-accessible
- Subscription-based pricing (monthly/annual)
- Provider handles maintenance, updates, security
- Multi-tenant architecture (shared infrastructure)
- Accessible from any device with a browser
SaaS Metrics That Matter:
- MRR/ARR: Monthly/Annual Recurring Revenue
- Churn Rate: Percentage of customers leaving
- LTV: Lifetime Value of a customer
- CAC: Customer Acquisition Cost
- Net Revenue Retention: Revenue from existing customers over time
SaaS Business Models:
- Freemium: Free tier + paid upgrades
- Tiered Pricing: Multiple plans (Basic, Pro, Enterprise)
- Usage-Based: Pay per use (API calls, storage)
- Seat-Based: Price per user
Building SaaS Products: Start with a focused problem, launch quickly, and iterate based on user feedback. Focus on retention before aggressive growth.