SaaS (Software as a Service) is a software delivery model where applications are hosted by a provider and accessed by users over the internet, typically through a web browser. Instead of buying and installing software, customers pay a recurring subscription fee.
Gmail, Slack, Salesforce, Dropbox, and Notion are all SaaS products. The provider handles hosting, maintenance, updates, and security.
You’ll hear this when…
SaaS is both a product category and a business model. “We’re a SaaS company” means the company sells subscription software. “SaaS metrics” (MRR, churn rate, LTV, CAC) are the standard financial measures for subscription software businesses.
In purchasing discussions, “SaaS versus on-premise” is a common decision point. SaaS means the vendor runs the software; on-premise means you run it on your own infrastructure. SaaS is typically faster to deploy and lower in upfront cost; on-premise offers more control over data and customisation.
“B2B SaaS” (business-to-business) means the software is sold to companies rather than individual consumers. Most of the SaaS market by revenue is B2B.
The business model
SaaS companies measure success differently from traditional software. Revenue is recurring, not one-time. The metrics that matter are monthly recurring revenue (MRR), customer acquisition cost (CAC), lifetime value (LTV), and churn (the rate at which customers cancel). A healthy SaaS business has an LTV-to-CAC ratio of at least 3:1.
Source: Bessemer Venture Partners — Cloud Atlas SaaS benchmarks