SaaS
Software as a Service
A business model where customers pay a recurring subscription for access to software delivered over the internet.
What it is
SaaS (Software as a Service) is a software distribution method where the customer pays a monthly/annual subscription rather than a one-time license. The software runs in the cloud and the customer accesses it via browser or application.
Key SaaS metrics:
- →ARR (Annual Recurring Revenue)
- →Churn Rate (customer attrition rate)
- →NRR / Net Revenue Retention (retention including upsell)
- →CAC / LTV (customer acquisition cost vs. lifetime value)
Why track it
SaaS companies have attractive economics: low marginal cost per additional customer, predictable cash flow, strong switching costs. This is why they typically trade at premiums (P/S, P/FCF) vs. traditional software.
Real-world example
Microsoft 365 is the largest SaaS product in the world — 300M+ active users, monthly subscription. Azure is IaaS/PaaS, but its characteristics are similar to SaaS (recurring consumption).