Software as a Service (SaaS)
In short
Software as a Service (SaaS) is a delivery model where a vendor hosts an application and customers access it over the internet, usually for a recurring subscription fee. The vendor handles hosting, updates, and maintenance.
For GTM teams, the subscription model shapes everything: revenue arrives over time, so retention and expansion matter as much as the first sale.
How the SaaS model works
Customers rent access instead of buying a license once. They pay monthly or annually, often by number of users, usage, or plan tier. Because the customer can cancel at renewal, the vendor has to keep earning the account.
Why SaaS changes go-to-market
Revenue is recurring
A deal is not the finish line. The value of a customer depends on how long they stay and how much they grow, so teams track metrics such as MRR, ARR, churn, and net revenue retention.
Acquisition cost must be earned back
Say a team spends a given amount to win a customer and that customer pays monthly. The team needs the customer to stay long enough to repay the cost, which is why CAC payback is watched closely.
Land and expand
Many SaaS companies start with a small deal and grow it through more seats, features, or teams. Account management and customer success become revenue functions.
Key SaaS metrics to know
- MRR and ARR: Monthly and annual recurring revenue from active subscriptions.
- Churn: The share of customers or revenue lost in a period.
- CAC: What it costs to acquire a new customer.
- Net revenue retention: Revenue from existing customers after churn, downgrades, and expansion.
Common mistakes
- Chasing new logos only: Ignoring renewal and expansion leaves growth on the table.
- Discounting heavily to close: Deep discounts can anchor price expectations and shrink lifetime value.
- Measuring bookings, not usage: Customers who do not use the product tend to cancel. Track adoption early.
Software as a Service (SaaS) FAQs
What is Software as a Service (SaaS)?
SaaS is a model where a vendor hosts software and customers use it online for a recurring subscription fee. Customers do not install or maintain anything, and the vendor handles updates, hosting, and security as part of the service.
What are examples of SaaS products?
Common SaaS categories include customer relationship management, email marketing, project management, accounting, and video meeting tools. Any application you log into through a browser and pay for monthly or annually is typically delivered as SaaS.
How is SaaS different from traditional software?
Traditional software is bought once as a license and installed on the customer's own machines or servers. SaaS is rented through a subscription, runs on the vendor's infrastructure, and updates automatically, so revenue and customer relationships continue over time.
Why does SaaS depend so much on retention?
Customers pay over time and can cancel at renewal, so a sale only pays off if the customer stays. High retention lets revenue compound through renewals and expansion, while high churn forces teams to keep replacing lost revenue.
