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SaaS (software as a service)

Also called: software as a service

Software that customers use online and pay for with a regular subscription instead of buying and installing it once.

SaaS (software as a service) is software that customers use online, usually in a browser or an app, and pay for with a regular subscription instead of buying a license and installing it. The vendor runs the servers, ships updates to everyone at once and keeps the customers' data.

For the customer, SaaS means a low starting cost, no installation and nothing to maintain. For the business, it means recurring revenue that builds up month after month, the ability to fix bugs and release improvements for all customers at once, and direct data on how the product is used. The price is ongoing responsibility: the service must be up every day, data must be kept safe, and a customer can leave at the end of any billing period.

That last point shapes how SaaS businesses are run. Because customers can cancel any month, the key numbers are about keeping them: MRR, churn, retention and the lifetime value of a customer against the cost of winning them. SaaS is also a natural fit for bootstrapping: a small team can serve a niche from anywhere, costs grow slowly with the number of customers, and a steady subscription base is what buyers pay for if the founders ever sell.

Example

GarageDesk is a SaaS product: independent repair shops open it in a browser or on a phone at reception, pay 600 UAH a month (or 6,000 UAH a year), and never install anything. When Nina fixes a bug, all shops get the fix at once.

The subscription adds up: 5 shops at the March launch, 22 by the end of May, 58 by 1 October with an MRR of 34,000 UAH. The costs grow slower than the revenue: in year 2, tools and SMS for 240 shops cost 12,000 UAH a month against an MRR of 165,000 UAH.

Common mistakes

  • Treating the launch as the finish line. SaaS revenue has to be earned again every month.
  • Ignoring uptime and data safety. An outage or a leak costs customers who can leave at the end of the month.
  • Pricing like a one-off purchase. Price per month or year, tied to the value the customer keeps getting.
  • Counting sign-ups instead of paying customers. Only recurring payments make a SaaS business.