How does the SaaS Business Model Work?

How does the SaaS Business Model Work

Software as a Service aka SaaS is a delivery business model for software where a centralized, cloud-based programming software is authorized to its users through a membership or subscription model. 

This maybe per customer, yearly, month to month, or by package level. An organization can be considered a SaaS organization in case they are hosting their software product on the cloud and licensing it out.

SaaS organizations support servers, databases, and software that empowers the product to be utilized over the web. Customers can likewise access and utilize the software from any device. By and large, the customers pay a subscription fee monthly, bi-monthly, or yearly to have admittance to the software. The famous SaaS Development plan or model includes:

  • Enterprise Resource Planning (ERP)
  • Customer Resource Management (CRM)
  • Project Management
  • Human Resources
  • Web Hosting and eCommerce

The SaaS business model entails promoting cloud-based software programs at a month-to-month or annual subscription price, which customers normally access through a mobile app or web app, however probably via desktop. SaaS is used by almost every organization.

Many popular B2B software businesses offer SaaS, together with those centered on communications along with mailchimp, slack, and zoom, and CRM structures platforms such as Salesforce. Consumer SaaS products encompass the adobe creative cloud and budgeting apps like EveryDollar, and few individual customers like B2B systems.

It’s easy to have a successful B2C SaaS, but it’s difficult to produce a sustainable value in this space. This is so because almost all consumers expect apps to be low cost, if it’s not for free.

When it comes to the popularity, then we can see how popular SaaS model is through these statistics:

  • As per some reports, almost 71% of businesses are deploying cloud-based SaaS to enhance their IT service delivery speed.
  • According to the latest forecasts by, “Global Corporate Mobile SaaS Forecast 2016-2022”, and “Global SMB Mobile SaaS Forecast 2016-2022”, it is observed that the Strategy Analytics estimates that revenue from corporate mobile SaaS will increase from a $4.4 billion market (2016) to $7.4 billion by 2021, at a CAGR of 11% (during the forecast period).
  • As per Gartner, the SaaS market revenue is expected to reach around $113.1 billion in 2021.
  • Almost 40% of SaaS companies take a value-based approach to set pricing, as per openview partners.

SaaS Models

To understand how SaaS works and its benefits for your organization, you should know two models that make use of distributed cloud computing:


Platform as a Service (PaaS) empowers programming solutions to build on a cloud. This implies that one can lease a platform with a particular working framework, IDE, database and all you require to construct an application.


Infrastructure as a Service (IaaS) provides all that is required to host a product application. This incorporates servers, IP addresses, organizations, firewalls, and so forth. Fundamentally, this is a digital swap for a hardware structure where one would have to introduce and run robust software programming.

Examples are Windows Azure and Amazon Elastic Compute Cloud (web services) that utilize this plan of action.

Now let’s move on to the stages of SaaS business to understand its working.

Stages Of The SaaS Business Model

1. Startup phase

The beginning stage of the business is the point when you’ll utilize the SaaS income model. With no genuine clients yet, the makers should distinguish potential clients’ pain spots, construct a strategy o a business plan, set up a demo or an application prototype, and show how the solution will tackle existing issues.

To bootstrap your SaaS business, prior to executing your own business dependent on SaaS, you should ensure that the market is wide for another IT solution.

You’ll likewise have to exhibit the basic contrast of your product from other existing solutions. Then, comes the point where you’ll need to test the application completely and address potential issues when they show up.

Also, try to pursue the accepted procedures and trends in SaaS application development. This may provide you with some significant insights.

2. Engaging your first customers

During this phase, you’ll need to draw in your first clients, use a promoting technique and begin to make a benefit. Here are a few things that matter to bootstrap your SaaS startup:

  • Testing

    As the name suggests, this is a trial where you can use various plans and track down the reason on how they impact your intended target group.

For instance, half of the visitors notice the landing page with one design that is yellow and the other half see an alternate design that is green. An advertising expert estimates which configuration appeals to clients more and boosts conversion rates and sales.

  • Identifying target audience

    You can utilize tests and measurements to distinguish your intended target group and create a client persona. This will help you address your users’ requirements in a superior manner and reinforce your market position.
  • Lead generation

    Utilizing list building, pamphlets, or other techniques, you can gain your first client leads and fabricate a client database.

    During this stage, it is vital to measure target retention, client satisfaction, and rough recurring revenue.

3. Growing a SaaS-based company

Your development should be natural. You should reinforce your data sets and functionality, consistently develop the services you give, and broaden the user assistance team.

One explanation that clients select SaaS development solutions is to limit effort. Many simply pay for the permit and license and adore its functionality.

On the off chance that you intend to begin your SaaS business, you should remember that comfort and stability are the things you require to serve your users. You can also read and understand more about SaaS product development through a guide. What’s more, the more popular your solution is, the more users will be happy with your application. Be prepared to give them the best comfort.

4. Stable success

The individuals who defeat the troubles of the past stages have made a steady and productive business. Here, target maintenance and user development keep on expanding. Your team will develop naturally and add to solution improvement. Revenue will expand, setting out much more open doors for business expansion.

Yet at the same time, it isn’t an ideal opportunity to rest. Persistent improvement and upgrades are needed to keep your head over the water and stay ahead of the opposition.

Benefits of SaaS Business Model

The benefits of the SaaS business model for organizations include:

No Sales Friction 

Maximum SaaS solutions are priced as per the number of users or on a monthly basis. This fee allows the end-users to calculate software prices without difficulty. It removes the sales strife which can arrive as IT budget approval.

Recurring Revenue

The biggest advantages of the SaaS business model is that it permits a continuous source of income that helps to control the outflow.

Pivoting & Improvements

SaaS allows you to keep your products up to date. This will help improve your product so you can increase retention while attracting new customers.

Easy Free Trial Support

On-premise software programs may be lengthy and tedious. With SaaS, you could provide help to customers straight away with a free trial. Thereupon, the user can then continue the free trial or upgrade to a paid tier if they want.

Update and Maintenance

As a SaaS business owner, you need to recognize how to value a SaaS, and that consists of controlling the system and the surroundings that the product is being developed on.

Phases of SaaS company

It is not uncommon for SaaS companies to follow a set “pattern” depending on their scale and timeline of growth. That said, there are four phases that are an essential part of the SaaS business model.

Below is a breakdown of the various categories of SaaS companies.


If you have your SaaS Company, then this could be the same category you are in right now! In short, you evaluate the performance of your product, talk to consultants, and explore opportunities in your industry.

Maybe you examine your market demand and find out if your solution fits or not. This is where you will ultimately design your business plan.


At this point, you have introduced your business and are in the process of paying customers. Resources will be tight, but this is the point where you will start hiring and put yourself there.

Your product and brand can continue to emerge as you learn more about your market and customer needs.


The growth phase represents the stage at which customers enter and your business shows signs of stability.

Here you are still married to metrics, all the while getting more customers and experimenting with new techniques. By this time, you will have cleared your sales process and can measure it.


This is where you will start exploring your exit strategy, which means an IPO or acquisition by another company.

You’re constantly growing with the time, but you can ultimately prove the effectiveness of your product and processes without fail. You may also assess new services, products, or features to test.

Concluding Thoughts

The SaaS business model provides you numerous business prospects. It’s mostly acknowledged widely with its rising adoption and vast benefits. With the upsurging market demand and competition, you are required to focus on the SaaS business dynamics and provide solutions to the users.

The SaaS business is a growing industry, and there is often room for improvement. Once a business has reached the stage of maturity, a product development team may consider adding new services as add-ons or creating a completely new product. In some cases, customers may have special needs. All of this falls into a common category, projects.