Software as a Service (SaaS) is software delivered online through a subscription. You don’t install it, own a physical copy, or manage updates. You just log in and use it.
Key takeaways
- SaaS is cloud-delivered software accessed via subscription.
- Multi-tenancy and centralized updates make SaaS scalable and efficient.
- Growth depends on pricing strategy and core metrics like MRR, churn, CAC, and LTV.
- Clear communication wins in crowded markets, and video is one of the fastest ways to create clarity.
Table of contents
What is a SaaS product?
Think of it like switching from buying DVDs to streaming on Netflix. Instead of a one-time purchase for a single movie (traditional software), you pay a monthly fee to access a massive library. SaaS works the same way for business tools like Slack or Zoom.
This model flips the old way of buying software. There are no complicated installations or huge upfront costs. The idea is built around easy access and predictable costs. For a founder, this means the software can be used from anywhere and can grow alongside your team.
Market context: The global SaaS market is on track to hit around $390.5 billion in 2025, and it’s expected to make up 85% of all business software by then. With over 30,800 SaaS companies, it's clear the "buy-it-once" model is history.
SaaS vs. traditional software at a glance
To make the difference clear, here’s how the modern SaaS model compares to the old-school way of buying software.
| Attribute | SaaS product | Traditional software |
|---|---|---|
| Hosting | Hosted by the vendor in the cloud | Installed on-premise on local servers |
| Pricing model | Recurring subscription (monthly/annually) | One-time perpetual license fee |
| Updates and maintenance | Automatic, managed by the vendor | Manual, managed by the customer |
| Initial cost | Low subscription fee | High upfront purchase cost |
| Accessibility | Accessible from any device with internet | Limited to specific, licensed machines |
This isn't just a technical change. It’s a different way of doing business, built on long-term relationships and continuous value.
The core architecture of a SaaS product
To understand what makes a SaaS product work, you have to look past the subscription price and at the technical engine. The heart of that engine is multi-tenancy, the foundation that makes the entire model so efficient.
Simple analogy: A SaaS app is like an apartment building. The software is the building, and each customer is a tenant. Everyone shares the same core infrastructure, but their data and workspace stay private and secure.
Centralized cloud delivery
This multi-tenant structure is possible because the software is delivered from a central cloud location. Instead of every customer installing software on their own computer, the provider hosts one master version of the application on its servers.
When it’s time for an update, the provider updates the central application once. Instantly, every customer gets the improvement. No more downloading patches. Everyone is always on the latest, most secure version automatically.
How architecture fuels the business model
The technical setup and the business model are tied together. Multi-tenancy and cloud delivery make a subscription model financially sustainable.
- Predictable revenue: Subscriptions create steady income that funds maintenance and product improvement.
- Continuous improvement: One codebase lets teams invest in making the product better instead of supporting endless versions.
- Scalability: New customers can be added with low friction, making growth faster and more cost-effective.
If you want customers to understand these benefits quickly, showing the product in action helps. That’s why clear SaaS product demo videos can be a high-leverage asset.
Key business models and metrics for SaaS growth
A strong product is only half the battle. The other half is the business engine that generates revenue. Without a smart financial framework, even the best software will stall.
Common SaaS business models
- Freemium: A free basic plan with paid upgrades. Great for adoption, risky if free users never convert.
- Flat-rate pricing: One plan, one price. Simple to sell, limited flexibility across customer sizes.
- Per-user pricing: Price scales with team size. Works well, but can feel expensive at scale.
- Tiered pricing: Multiple plans with expanding features. Common because it fits both small teams and enterprises.
The metrics that define SaaS health
These are the vital signs of your business. They tell you if you're healthy, growing, or leaking revenue.
| Metric | What it measures | Why it matters |
|---|---|---|
| MRR / ARR | Predictable subscription revenue (monthly or annual) | Primary pulse of the business and growth momentum |
| Churn rate | Customers or revenue lost over a period | High churn kills growth by turning acquisition into a treadmill |
| LTV | Total revenue from a customer over their lifetime | Guides how much you can afford to invest in growth |
| CAC | Cost to acquire one new customer | Shows whether your growth engine is efficient |
Rule of thumb: LTV should be significantly higher than CAC. A commonly cited healthy target is around 3:1 or higher.
Why clearly communicating your product is crucial
Here’s a hard truth for SaaS founders: a great product is not enough.
The market is crowded. Customers will not spend time decoding a long list of features. They need the outcome you deliver, and they need it fast.
Cutting through the noise with video
The modern B2B world is buried in “SaaS sprawl.” By 2025, the average organization will use around 106 SaaS applications, and large enterprises can exceed 131.
A concise product video can do in 90 seconds what pages of text cannot. It demonstrates value, builds trust, and answers the real question: “Will this work for me?”
If you want a deeper explanation, see what is an explainer video and why it fits SaaS so well.
Your goal is to move a potential customer from confusion to clarity as quickly as possible. Video is one of the fastest paths between those two points.
For early-stage teams, traditional video production often means expensive agencies or unpredictable freelancers. A workflow like Forgeclips is built for speed and consistency, so you can get a high-quality video out without tying up your time and budget.
Real-world examples of SaaS products in action
The model is flexible, solving very different problems across industries. The common thread is subscription access, cloud delivery, and continuous updates.
Customer relationship management (CRM)
- The problem: Managing customer data, sales conversations, and leads across a team.
- The SaaS solution: Platforms like Salesforce and HubSpot provide real-time, shared customer context across devices.
Collaboration and productivity
- The problem: Distributed teams create scattered info, messy communication, and slow execution.
- The SaaS solution: Tools like Slack and Asana centralize communication and project execution.
Marketing automation
- The problem: Personalized outreach at scale is hard to do manually.
- The SaaS solution: Tools like Mailchimp automate campaigns and performance tracking. Video helps here too: boost your startup’s growth with fast and affordable AI video ads.
Vertical SaaS
- The problem: Generic tools rarely fit the workflows of specific industries.
- The SaaS solution: Specialized products like Toast go deep on one niche (restaurants) to deliver a tailored workflow.
Your next steps as a SaaS founder
Understanding SaaS goes beyond architecture. At its core, it’s a commitment to delivering continuous value, not just shipping code once. After you build the product, your job shifts heavily toward communication.
Prioritize value communication
A polished product demo video is not a “nice-to-have.” It’s a core asset for your growth engine, working 24/7 on your landing page, in ad campaigns, and in investor decks.
Focus on distribution, not just production
Your limited time and budget should be spent on getting your message in front of customers, not tied up in long production cycles. A workflow like Forgeclips helps you produce high-quality videos quickly so you can focus on distribution.
Common questions we hear about SaaS
Here are quick answers to common questions founders ask when learning the SaaS model.
What’s the difference between SaaS and PaaS?
SaaS is a finished product you use (like Gmail or Slack). PaaS is a platform developers use to build their own apps. In short: SaaS is the car, PaaS is the workshop.
Is a mobile app a SaaS product?
Sometimes, but not automatically. If the mobile app is tied to a subscription and a cloud service (like Spotify), it can be part of a SaaS offering. If it’s a one-time purchase, it’s closer to traditional software.
What are the toughest hurdles for a new SaaS product?
Most new SaaS companies face the same three challenges: customer acquisition, churn, and differentiation.
- Acquisition: Getting early customers in a crowded market.
- Churn: Keeping customers long enough for recurring revenue to compound.
- Differentiation: Explaining what makes you different in seconds, not minutes.
Ready to communicate your product clearly and quickly?
Forgeclips helps you create studio-quality product videos without agency pricing, so you can focus on growth.
Explore Forgeclips