What Is SaaS?

SaaS, or software as a service, is software that customers use over the internet by subscription instead of buying and installing it themselves.

Category: Product, growth and team · Reviewed 11 November 2026 · 2 min read

How it works

In a SaaS model, the provider hosts the software and customers access it through a browser or app. Customers typically pay a recurring fee, such as monthly or yearly, often based on the number of users, the features chosen or how much they use. The provider handles hosting, updates and maintenance, so customers do not install or manage the software themselves.

Because revenue repeats, SaaS companies commonly track measures like monthly recurring revenue, churn and customer acquisition cost. Contracts typically include terms about uptime, data handling and security, and these vary by customer and deal.

Example

For example, a company offers scheduling software for clinics at 50 dollars per month per location. A clinic signs up online, uses the tool in a browser and pays each month until it cancels. If 100 clinics each pay that amount, the company's monthly recurring revenue is 5,000 dollars. Those numbers are hypothetical.

Why founders care

SaaS can scale without shipping physical goods, and recurring payments make revenue easier to forecast. The trade-offs are that customers can cancel easily, so retention matters, and the company carries ongoing costs for hosting and support. SaaS also raises its own legal questions, such as software licensing terms and data privacy, which a lawyer can help with.

Common mistakes

Pricing without understanding costs to acquire and serve customers.
Ignoring churn while focusing only on new signups.
Using generic terms of service without checking data and privacy rules.
Building too many features before confirming customers will pay.

Frequently asked questions

What does SaaS mean?

SaaS means software as a service. The provider hosts the software and customers use it online, usually paying a recurring subscription, rather than buying and installing a copy.

SaaS vs traditional software: what is the difference?

Traditional software is typically bought once and installed on the customer's own computers. SaaS is hosted by the provider and paid for by subscription, with updates delivered automatically.

Go deeper

How to Build an MVP: A Step-by-Step Guide GuideHow to build an MVP step by step: define the one problem, cut features, pick no-code or code, set a timeline, and test with real users before you spend more.
Startup Metrics That Matter: MRR, Churn, CAC and LTV GuideStartup metrics explained in plain English: MRR, ARR, churn, CAC, LTV and more, with formulas in words, worked examples, and what investors ask for.

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General information, not legal, tax or financial advice. Reviewed 11 November 2026.