SaaS (Software as a Service)

SaaS (Software as a Service) is a cloud delivery model in which a vendor hosts a fully managed application and customers access it through a web browser or API on a subscription basis. The vendor handles infrastructure, security patching, scaling, and uptime, while customers pay recurring fees for access.

How it works

SaaS providers run multi-tenant architectures where many customers share underlying infrastructure, with logical data isolation enforced at the application layer. Subscription billing is automated, and feature access is gated by plan tier. Updates and new features are deployed centrally and become available to all customers simultaneously.

Key facts

• Multi-tenancy: Multiple customers share infrastructure with logical data isolation, reducing per-customer costs
• Recurring revenue: SaaS businesses measure health through MRR, ARR, churn, and NRR rather than one-time sales
• Opex vs. Capex: Customers replace large upfront software licenses with predictable monthly operating expenses

For builders

Building SaaS requires designing for multi-tenancy, subscription billing, and the operational demands of 24/7 uptime from day one. The unit economics (CAC, LTV, churn) differ fundamentally from traditional software, making financial modeling essential early.

Sources

• Bessemer Venture Partners. State of the Cloud annual report. bvp.com
• SaaStr. SaaS benchmarks and metrics archive. saastr.com
• Bain & Company. The Net Promoter System. bain.com
• KPMG. Private SaaS Company Survey. kpmg.com
• ChartMogul. SaaS metrics benchmarks and definitions. chartmogul.com