SaaS stands for Software as a Service and refers to a business and distribution model in which software is provided as a service via the internet.
Users do not usually purchase a permanent software licence. Instead, they access the application via a browser or an app and often pay a monthly or annual fee.
The software usually runs on the providers’ technical infrastructure. Among other things, they are responsible for:
- Operation and hosting of the application
- Maintenance and technical support
- regular updates
- Bug fixes
- Data backup
- Safety measures
Typical SaaS applications include:
- Project management tools
- CRM systems
- Accounting software
- Communication platforms
- Cloud storage
- Marketing and analytics tools
- Human resources management software
A typical SaaS model works as follows:
| component | Meaning |
| Cloud-based use | The software is used via the internet. |
| Subscription model | Customers pay a regular fee for access. |
| Central administration | Updates and maintenance are carried out by the providers. |
| Flexible rates | Prices are often based on features, the number of users or usage. |
| Scalability | Companies can tailor their tariffs and capacity to their needs. |
SaaS offers customers a number of benefits:
- low entry costs
- no complicated installation
- Access from different devices and locations
- regular updates
- easy teamwork
- flexible expansion or reduction of usage
A SaaS business model can also be attractive for start-ups. Regular subscription payments generate recurring revenue and can make financial planning easier.
Key performance indicators for SaaS start-ups include, amongst others:
- Monthly Recurring Revenue
- Annual Recurring Revenue
- Customer acquisition costs
- Customer Lifetime Value
- Retention rate
- Churn rate
- Conversion rate
Alongside the advantages, there are also challenges:
- Ongoing costs for operations and customer service
- strict requirements regarding data protection and IT security
- Reliance on a stable technical infrastructure
- regular options for customers to cancel their contracts
- a constant need for product improvements
- intense competitive pressure in many software markets
A common mistake is to automatically regard any software made available online as a scalable SaaS business model. Other key factors include a repeatable sales process, high customer retention, cost-effective subscription prices and services that are as standardised as possible.
innoWerft helps founders to structure SaaS business models, review pricing and revenue models, interpret relevant key performance indicators and lay the foundations for scalable growth.