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SaaS (Software as a Service)

Software sold by subscription.

SaaS (Software as a Service) is a software distribution model where the application is hosted in the cloud and accessible via internet. Customers pay a subscription (monthly or annual) rather than a perpetual license. This model generates predictable recurring revenue (MRR/ARR) and enables continuous product updates.

Concrete Example

Examples of SaaS: Salesforce, Slack, Zoom, Notion, CharliA.

Customers pay a monthly or annual subscription to access the service.

Tips

  • The SaaS model values retention over acquisition
  • Valuation multiples depend on growth and NRR
  • Annual billing improves cash flow
  • Gross margin should be >70% for good SaaS

Common Mistakes

  • Underestimating cloud infrastructure costs
  • Ignoring customer success importance
  • Not optimizing conversion journey

Related Terms

MRRARRCHURN RATELTVRECURRING REVENUEFREEMIUM

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