SaaS business model

The Software as a Service (SaaS) business model involves providing software to customers on a subscription basis. The software is typically delivered through a website, and customers pay a recurring fee to use it.

Key characteristics

• Subscription-based revenue: SaaS businesses typically charge a monthly or yearly subscription fee. Some may also charge based on consumption (e.g., per user, per project, per gigabyte of storage).
• Freemium model: Many SaaS companies use a freemium model to acquire customers. They offer a free, limited version of their product in the hopes that users will upgrade to a paid plan.
• Low incremental cost: The cost of adding a new customer to a SaaS platform is usually very low. This makes the freemium model economically viable.
• Focus on stickiness: A key challenge for SaaS businesses is to keep customers using the product. Stickiness is a critical metric for success.

Key metrics

Some of the key metrics for a SaaS business include:

• Attention: How effectively the business attracts visitors.
• Enrollment: The percentage of visitors who sign up for a free or trial account.
• Stickiness: How much customers use the product.
• Conversion: The percentage of free or trial users who become paying customers.
• Revenue per customer: The average revenue generated per customer.
• Customer acquisition cost (CAC): The cost of acquiring a new paying customer.
• Virality: The rate at which customers invite new users.
• Upselling: The rate at which customers upgrade to higher-paying plans.
• Uptime and reliability: The availability and performance of the service.
• Churn: The percentage of customers who cancel their subscriptions.
• Lifetime Value of a Client: The total amount of revenue a customer is expected to generate over their lifetime.