How does SaaS make money?

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SaaS (Software-as-a-Service) companies make money by charging customers for the use of their software applications or services. The revenue model for SaaS businesses typically involves a subscription-based pricing structure, where customers pay a recurring fee for access to the software.

There are several common pricing models used by SaaS companies, including:

  1. Per-user pricing: Customers are charged a fee for each user that accesses the software.
  2. Tiered pricing: Customers are offered different levels of service or access based on their needs, with higher tiers typically costing more.
  3. Usage-based pricing: Customers are charged based on the amount of usage they generate, such as the number of transactions processed or the amount of data stored.
  4. Freemium model: Customers are offered a basic version of the software for free, but are charged for access to additional features or functionality.

In addition to these pricing models, SaaS companies may also generate revenue through other means, such as advertising or partnerships with other companies. However, the primary source of revenue for most SaaS businesses is through the sale of subscriptions to their software applications or services.

Useful Links:

  1. SaaS Business Model – Net Solutions
  2. The SaaS Business Model Explained – Empire Flippers
  3. 11 Revenue Streams For SaaS Business – Forbes

Common Questions

  • What is a subscription-based pricing model?

    A subscription-based pricing model is a way for SaaS companies to charge customers for access to their software applications or services on a recurring basis, typically monthly or annually. Customers pay a fixed fee each billing cycle for access to the software, which can be scaled up or down depending on their needs.

  • What are the advantages of a subscription-based pricing model for SaaS companies?

    Subscription-based pricing provides predictable and recurring revenue for SaaS companies, which can help them with financial planning and forecasting. It also allows companies to develop longer-term relationships with customers, as opposed to one-time purchases, and can encourage customers to stick with the software over time.

  • What is a freemium model?

    A freemium model is a pricing strategy used by some SaaS companies, where they offer a basic version of their software for free, but charge for access to additional features or functionality. This can be a way to attract new customers who are hesitant to commit to a paid subscription, while still generating revenue from those who need more advanced features.

  • What is per-user pricing?

    Per-user pricing is a pricing model where customers are charged a fee for each user that accesses the software. This model is often used for collaborative software or applications that are used by teams or organizations.

  • How do SaaS companies handle payment processing?

    SaaS companies may handle payment processing in-house or through third-party payment processors such as Stripe, PayPal, or Braintree. Payment processing fees are typically passed on to the customer or factored into the pricing model.

  • What are some common revenue metrics used by SaaS companies?

    Some common revenue metrics used by SaaS companies include monthly recurring revenue (MRR), annual recurring revenue (ARR), customer lifetime value (CLV), and churn rate. These metrics help SaaS companies track revenue growth and profitability over time.