Software as a Service Business Model (SaaS)

The business environment is changing. With technology and the internet becoming the basic needs, businesses are moving from the usual operational approaches. The changes are not only occurring on how they handle customers but also on how they store and manage information. The new technological innovations such as cloud computing are enabling businesses to become efficient and effective in their day-to-day operations.

As the desire for efficiency and business solutions surge, a new business model came up – Saas. Software as a Service or SaaS business model is becoming the new language in the enterprise sphere. As a solution provider, you can subscribe to this model. But what does it entail?

This article will help you understand the SaaS model, how it works, and its benefit as well as shortcomings. So let’s continue reading this article to learn more about this model.

What is Software as a Service?

Software as a Service (SaaS) is software hosted on the cloud where businesses or individuals pay a monthly or annual fee to access it. You can operate it through an app or web browser.

What happens is that instead of purchasing and paying a license fee to acquire software, you pay a subscription to use it virtually. This aspect means that you do not need to install the software on your computing system. Also, you only use it for the time you need it.

In other words, the SaaS model uses the notion of offering software as a utility just like water, electricity, or the internet. The aim is to create a plug-and-play aspect of business solutions and software. So, your business does not need to set up and maintain IT infrastructure and systems.

Related:  Patreon Business Model: How Does Patreon Work and Make Money?

As a business owner using the SaaS model, you design your software-based business solution and host it on a cloud source. Then you can charge your users a monthly/annual fee to access and use the service. Many businesses that want to lower their IT infrastructure budget are the main customers of SaaS companies. Since this is the objective of many modern businesses, SaaS solutions are in high demand.

How Does Software as a Service Work?

As mentioned, the SaaS model involves renting out software to clients and receiving monthly fees instead of selling it to them. As the software or business solution owner, you develop the product and host it in a cloud source. The work of the owner is to program and develop the solution to ensure it is user-friendly and meets their needs. Next, you host it on cloud storage where the users can access it through a web browser or app.

Instead of the businesses and users purchasing the software, they visit your website or cloud source. Then, they create an account and pay the membership fee to access the services. This membership fee is recurring and the primary source of the SaaS companies’ revenue.  

The solution owner has the responsibility of maintaining and updating the software and its services. So, the only role of the business or user is to pay their monthly membership fee and use the software to work on a given task. No installation or license needed to use SaaS services.

Examples of SaaS Businesses

As businesses focus on reducing their operational costs, SaaS solutions demand is surging. For this reason, many solution providers are shifting to the SaaS business model. Google Apps is one of the examples in this category. Google offers an array of services such as Google Docs, Spreadsheet, Google photos, drive, and others on the cloud.

Related:  Audible Business Model: How Does Audible Work and Make Money

You do not need to download them on your computer rather you access them through their browser. Microsoft also offers a SaaS product dubbed Office 365 which hosts all the Microsoft office programs.

Zendesk is another SaaS company thriving in this model. This platform is a customer service ticketing solution. Shopify is an e-commerce platform using the SaaS concept to help businesses get online.  

Pros and Cons of the SaaS Business Model

As you know, no business model is perfect. Each of them has its benefits and drawbacks. The SaaS model is no different. It has its share of pros and cons which you need to know before subscribing to your business. Here they are:


Easy scalability

No doubt cloud computing is a 21st-century gem. Every company is looking for ways to run its business virtually. As businesses migrate from brick and mortar IT departments, SaaS solutions are becoming an on-demand product.

You can easily scale your business within a short duration when you venture into this model. The case can be so if you are offering a solution that businesses need to enhance their service delivery.  

Cuts across the customer spectrum

The benefit of the SaaS model is that it cuts across the customer spectrum. Small, medium, and enterprise businesses are in search of SaaS solutions. This aspect allows you to price your services according to each group’s needs and budget. Hence, you do not sell to a particular sub-niche in your target audiences. 

Easy to predict revenue

The businesses and individuals using SaaS solutions subscribe to a membership plan. They will always renew their plan at the end of the set duration. For this reason, you can easily predict the possible income you will generate in your business in a particular period. Having certain predictions makes it easy for you to plan your business future effectively.

Related:  DuckDuckGo Business Model: How Does DuckDuckGo Make Money?


High competition

As the demand for SaaS surges, it is attracting many players. Both small and enterprise solution providers are shifting to this model. As a result, the provision of software is becoming a competitive business. Due to this competition, you can have challenges in thriving on the field unless you have strong brand and marketing resources.

Acquiring customers can be a hard tackle

While the demand for SaaS is high, winning your first customers can be a big challenge. You compete with established brands such as Microsoft and Google. Some of these brands offer their services free. If you are offering the same services, you will find a difficult time convincing customers to pay for them.


As you can see, SaaS solutions are the new norm in this era. With everything moving to the cloud, running a SaaS company can be a good idea. However, you need to pay attention to the benefits and drawbacks of this model before shifting to it. This step will help you avoid making losses or failing in your startup stage.

Scroll to Top