Business Models

SaaS (Software as a Service)

A software distribution model where applications are hosted in the cloud and provided to customers on a subscription basis.

What is SaaS?

Software as a Service (SaaS) is a delivery model where software is hosted centrally and licensed on a subscription basis. Users access it via the internet.

Key Characteristics

  • Cloud-hosted, accessible anywhere
  • Subscription pricing (monthly/annual)
  • Automatic updates
  • Multi-tenant architecture
  • No installation required

SaaS Metrics

  • MRR/ARR: Monthly/Annual Recurring Revenue
  • Churn Rate: Customer loss rate
  • Net Revenue Retention: Revenue including expansion
  • CAC Payback: Months to recover acquisition cost

SaaS Business Model

Pricing Tiers

  • Freemium: Free basic tier
  • Self-serve: Online purchase
  • Enterprise: Sales-assisted

Growth Levers

  • Land and expand
  • Upsells and cross-sells
  • Reduce churn
  • Improve pricing

B2B SaaS Benchmarks

  • LTV:CAC > 3:1
  • Net Revenue Retention > 100%
  • Gross Margins > 70%

Related Terms

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