SaaS: definition
Software as a Service: software accessed online through a subscription, no installation needed, continuously updated by the vendor.
By Isidore Mikorey-Nilsson · May 5, 2026
Definition
A SaaS (Software as a Service) is software hosted in the cloud, which the customer uses through a recurring subscription rather than a one-time license purchase. This model changes everything: revenue becomes recurring (MRR), retention becomes as important as acquisition, and the product evolves continuously. It's the subscription economy applied to software.
Why it matters
The SaaS model makes revenue predictable but fragile: any customer can leave any month. You don't win once at the sale, you win at every renewal, which shifts the center of gravity toward the value delivered over time.
When to use it
You think SaaS from the moment you design the product and the pricing model. In practice, you continuously track your MRR, your churn, and your acquisition, because the health of the business depends on the balance between these three flows, not on a one-off sale.
Example
Notion, Slack, or your online invoicing tool are SaaS: you pay every month, you install nothing.
Common mistakes
- Treating the sale as a one-shot and neglecting retention.
- Pushing acquisition before you have a product that retains.
- Tracking revenue without looking at net MRR.
Don't confuse it with
- mrr: SaaS is the product model; MRR is the recurring revenue metric that this model generates.
Related terms
Articles that use this term
Frequently asked questions
- What sets a SaaS apart from traditional software?
- The recurring subscription and cloud hosting: you don't sell a license once, you bill for usage over time.