SaaS in Plain English
SaaS stands for Software as a Service. It means software you pay for on a subscription - monthly or annually - instead of buying once. Slack, Notion, QuickBooks Online, Salesforce, Spotify. All SaaS. A SaaS company builds and sells software this way. Instead of selling a product once, you charge customers every month for access.
How SaaS Companies Make Money
The SaaS model is built around recurring revenue. A customer pays $50/month. If they stay 2 years, that is $1,200 from one sale. At 1,000 customers that is $50,000 MRR (monthly recurring revenue). The key metric investors use is MRR growth rate - a SaaS company growing MRR 15% month over month is worth significantly more than a services business with the same revenue.
Why SaaS Is Hard to Build
- You need to build before you have revenue. Unlike a services business, SaaS requires months of upfront development cost before charging anyone.
- Churn kills you. If customers cancel faster than you acquire new ones, the business shrinks. Keeping churn below 2% monthly is a full-time job.
- Competition is global. Unlike a local service business, a SaaS product competes with every similar tool on the internet.
- Infrastructure requires expertise. Multi-tenant databases, security, uptime, scaling - getting these wrong loses customers.
Should You Build a SaaS Product?
Build one if: You have identified a specific recurring problem that a defined group of people pays money to solve today. You can reach that audience efficiently. You can build an MVP for under $25,000. You are prepared for 12 to 24 months to reach product-market fit.
Do not build one if: Your idea is "like [big competitor] but better" with no specific differentiation. You are not deeply familiar with the problem. You need revenue in the next 6 months.
Vaylo Studios builds SaaS MVPs for founders with validated ideas. MVP builds starting at $10,000.
SaaS vs Other Software Models
| Model | How it's sold | Example |
|---|---|---|
| SaaS | Subscription, hosted by the vendor | Slack, Notion, Salesforce |
| On-premise software | One-time license, installed locally | Older enterprise ERP systems |
| Marketplace | Take rate on transactions, not a subscription | Etsy, Airbnb |
| Service business | Paid for labor/output, not software access | An agency or consultancy |
The distinction matters because each model has a completely different cost structure, growth ceiling, and valuation multiple. SaaS companies trade at a premium specifically because recurring revenue is predictable revenue.
Frequently Asked Questions
What is the difference between SaaS and a regular app?
A regular app is usually a one-time purchase or free with ads. SaaS is a subscription with ongoing access, ongoing updates, and ongoing vendor responsibility for uptime and security.
How much does it cost to build a SaaS company?
An initial SaaS MVP typically runs $15,000 to $80,000 depending on complexity. See the full breakdown in How Much Does It Cost to Build a SaaS App.
What is a good churn rate for a SaaS company?
Under 2% monthly churn is considered healthy for small business SaaS. Under 1% monthly is strong. Anything above 5% monthly means the business is on a treadmill, replacing lost customers just to stay flat.
Can one person run a SaaS company?
Yes, increasingly so. AI-assisted development and automation have made it realistic for a solo founder to build, ship, and support a real SaaS product without a large team.
