- Rebecca Tomasis
- 1 day ago
- 6 min read
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A SaaS business, or Software as a Service business, is a company that hosts an application and makes it available to customers over the internet, usually on a subscription basis.
This guide will walk you through what that means, how it works and why this business model has become so popular for both companies and users.
You'll get a clear definition of what a SaaS is, see its main characteristics and understand the common benefits and challenges. We'll also look at some well-known examples and cover the basic steps for starting your own SaaS venture or building your own SaaS product.
TL;DR: What is a SaaS business?
A Software as a Service (SaaS) business provides software to users through the internet, eliminating the need for physical installations or downloads. Customers typically pay a recurring subscription fee (monthly or annually) for access. This model offers flexibility, scalability and lower upfront costs for users, while businesses benefit from predictable revenue streams.
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What is a SaaS business?
At its core, a SaaS business is a software delivery model where a third-party provider hosts applications and makes them available to customers online. Instead of buying a software license and installing it on your computer, you rent it.
Think of it like streaming a movie on Netflix instead of buying the DVD. You get all the benefits of the movie without owning a physical copy or worrying about storage and maintenance.
This model shifts the responsibility of managing the software, hardware and security from the user to the provider. The global public cloud services market is projected to reach $937.49 billion by 2027, showing just how massive this shift has become. For the customer, this means less technical headache and predictable costs. For the business, it creates a steady, recurring revenue stream, which is highly attractive to investors and founders.
Characteristics of a SaaS business
SaaS businesses share a few distinct traits that set them apart from traditional software companies. Understanding these characteristics helps clarify why the model is so effective.
Subscription-based pricing: Customers pay a recurring fee, which can be monthly or annually. This provides the business with predictable revenue and makes powerful software more affordable for customers by avoiding a large, one-time purchase.
Centralized hosting: The software and its associated data are hosted on the provider's servers. Users don't need to worry about server maintenance or infrastructure costs. This also means updates can be rolled out to all users at once, ensuring everyone is on the latest version.
Accessible from anywhere: Since the software is delivered over the internet, users can access it from any device with a connection. This offers great flexibility for remote teams and people on the go.
Scalability: SaaS products are often designed to grow with the customer. Users can easily upgrade or downgrade their subscription plan based on their needs, such as adding more users or accessing more features.
Expert tip:
“Scalability is where most app builders fall short. You can build something that looks good at first, but once users start piling in, it breaks. What I appreciate about Base44 is that scalability is built into its foundation, so you’re not forced to rebuild your app from scratch once it actually takes off.” - Ilay Granot, Marketing at Base44
Common challenges of a SaaS business
While the SaaS model has many upsides, it's not without its hurdles. Building a successful SaaS company requires navigating a unique set of challenges, in much the same way building any type of product does.
One of the biggest is customer churn, the rate at which customers cancel their subscriptions. Since there's no long-term contract locking them in, you have to constantly prove your value. High churn can quickly kill a SaaS business, as acquiring new customers is often more expensive than keeping existing ones. In fact, acquiring a new customer can cost five times more than retaining an existing one.
Another significant challenge is the intense competition. The SaaS market is crowded, and standing out requires a strong product, excellent marketing and top-notch customer support. You can learn more about how to grow an SaaS business with our guide.
You must also maintain high levels of application security and reliability. Any downtime or data breach can severely damage your reputation and lead to a mass exodus of users.
Examples of SaaS businesses
You probably use several SaaS products every day without even thinking about it because they've become so integrated into both our personal and professional lives.
Some of the most recognizable examples include:
Slack: A communication platform for teams that has replaced countless internal emails.
Google Workspace: A suite of tools including Gmail, Docs, Sheets and Drive that allows for real-time collaboration.
Netflix: A prime example of a business-to-consumer (B2C) SaaS that provides on-demand video streaming.
These companies have become household names by providing easy-to-use, accessible and valuable software solutions that solve real-world problems.
How to get started with a SaaS business
Ready to build your own app? The journey from idea to launch involves several key steps.
01. Find a problem to solve
The best SaaS products solve a specific, painful problem for a defined audience. Start by researching market gaps and talking to potential customers to understand their needs.
Explore these app templates and find the perfect option for your business.
Productivity templates: Task managers, project trackers and workflow organizers to help teams stay efficient.
Educational app templates: Learning platforms, coding tutorials and interactive study tools for students and professionals.
Financial app templates: Budget trackers, investment dashboards and finance education apps.
Entertainment app templates: Media players, event organizers and interactive experiences for users.
Health and wellness app templates: Fitness trackers, nutrition planners and telehealth tools.
Business intelligence & analytics templates: Reporting dashboards, data visualization and performance tracking apps.
Creative tools templates: Design editors, AI-assisted content creation and artistic workflow apps.
Social networking app templates: Community platforms, chat apps and collaboration tools.
Ecommerce and retail app templates: Storefronts, inventory managers and order tracking systems.
02. Validate your idea
Before you write a single line of code, validate that people are willing to pay for your solution. You can do this by creating a landing page, running a "coming soon" campaign, or building a minimum viable product (MVP). The goal is to get feedback and initial traction.
03. Develop your pricing strategy
Decide on your subscription tiers. Common models include flat-rate pricing, tiered pricing based on features or usage, and per-user pricing. Research shows that 89% of SaaS companies offer a free trial, which can be a powerful way to attract users.
04. Build and launch your MVP
Focus on developing only the core features needed to solve the primary problem. This allows you to launch faster, gather user feedback and iterate.
05. Market your product and iterate
Once launched, your focus shifts to marketing, sales and continuous improvement based on user data and feedback.
Expert tip:
"The best apps are built with iteration in mind. You don’t need to launch with every feature under the sun. Start small, test with real users and refine based on feedback. Base44 makes it easy to adapt and evolve your app as you learn." - Ilay Granot, Marketing at Base44
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What is a SaaS business? FAQ
What's the difference between SaaS and cloud computing?
Think of cloud computing as the foundation and SaaS as one of the houses built on it. Cloud computing refers to the delivery of on-demand computing services, including servers, storage and databases,over the internet. SaaS is a specific type of cloud service that delivers software applications online. Other types include Infrastructure as a Service (IaaS) and Platform as a Service (PaaS).
Why is SaaS so popular?
SaaS is popular for a few key reasons. For customers, it offers lower upfront costs, predictable monthly expenses, accessibility from anywhere and no maintenance hassles. For businesses, it provides a recurring revenue stream, a direct relationship with customers and the ability to update software centrally and efficiently.