SaaS (Software as a Service) is software that you use over the internet on a subscription basis, instead of buying a licence and installing it on your own computers or servers. The provider hosts, maintains, secures and updates the software; customers log in through a browser or app and pay per user, per month or per usage. Well-known examples are Microsoft 365, Salesforce, Shopify and Exact Online.
How does SaaS work?
- Central hosting: the software runs in the provider's cloud environment, not at the customer.
- Subscription: customers pay a recurring fee, often in tiers with different features or usage limits.
- One code base for all customers: usually built with multi-tenancy, so every customer always runs the latest version.
- Continuous updates: new features and security fixes are rolled out by the provider, without installation by customers.
- Integrations: SaaS products usually offer an API and webhooks to connect them with other systems.
SaaS vs. on-premise, PaaS and IaaS
With on-premise software, the customer installs and manages the software on their own infrastructure. The cloud models differ in how much the provider takes care of: IaaS (Infrastructure as a Service) provides servers, storage and networks; PaaS (Platform as a Service) adds a managed platform to run your own applications on; SaaS delivers the complete, ready-to-use application.
Advantages and drawbacks for users
Advantages: no upfront investment in hardware or licences, quick start, always up to date, accessible from anywhere, and costs that scale with use.
Drawbacks: dependence on the provider and an internet connection, limited options for customisation, recurring costs that add up over the years, and data stored with a third party. In the EU, a SaaS provider that processes personal data on behalf of customers must comply with the GDPR, including a data processing agreement.
Building your own SaaS product
A SaaS product needs more than the core functionality: user management and secure login (for example with OAuth), subscription billing and payments, tenant isolation, onboarding, an admin environment, monitoring, backups and support processes. Most successful SaaS products start small with an MVP for one clear customer problem and grow from there. See our SaaS platform development, MVP development and what is white-label software.
Frequently Asked Questions about SaaS
What does SaaS stand for?
Software as a Service: software delivered as an online service on a subscription basis, rather than sold as a product to install.
Is SaaS the same as cloud software?
SaaS is the most common form of cloud software, but "cloud" also covers infrastructure (IaaS) and platforms (PaaS) on which companies run their own software.
Who owns the data in a SaaS application?
Normally the customer, as laid down in the terms and the data processing agreement. Check that you can export your data in a usable format if you ever want to leave.
What are typical SaaS metrics?
Monthly recurring revenue (MRR), churn (the share of customers that cancel), customer acquisition cost (CAC) and customer lifetime value (LTV).