Table of contents

What is SaaS? 2

Capital requirements 3

Users of SaaS software 4

Types of SaaS 5

Common revenue streams & pricing 6

Key KPIs 7

Advantages of the SaaS business model 8

Disadvantages of the SaaS business model 9

SaaS Public company examples 9

fetcharts 1
What is SaaS?
SaaS, or software as a service, is a cloud-based software distribution model where software
applications are hosted on a third-party server and accessed by users over the internet.
Essentially, any company that leases its software through a central, cloud-based system can
be said to be a SaaS company.

fetcharts 2
Capital requirements
A SaaS company is responsible for
maintaining its servers, database (and the
data they contain), and other software that
allow their product to be accessed and
used.
In terms of actual tangible equipment the
capital requirements are minimal
compared to other business models, like,
for instance, manufacturing or real estate.
SaaS mainly requires computers and a
working space when it comes to tangible
assets. However, the majority of the
investment goes into intangible sources,
such as software, R&D and human capital.
fetcharts
Relatively speaking, there are significantly
lower barriers to entry for a SaaS
business. If you are a developer, or have
the capital to hire a few initial developers -
that’s pretty much all you need to get
started. Comparatively, if you were to start
an oil drilling business, first you would
need to relocate to a place with oil
reserves, purchase expensive equipment,
get legal permissions to drill and the list
goes on. While this is an extreme
comparison, it’s to illustrate the fact that a
SaaS business can be started in less than
a week from someone’s home.
3
Users of SaaS software
The two common SaaS business model
categories are B2B (business-to-business)
and B2C (business-to-consumer). As the
name implies, in the B2B model software
is sold to businesses. Well known
examples are Slack, Salesforce and
fetcharts
Adobe. In the B2C model services are
sold to individual customers. Great
examples are Spotify, Netflix and Shopify.
Note, that some of these serve both B2C
and B2B customers (i.e. Shopify, Adobe,
etc).
4
Types of SaaS

Vertical. Infrastructure (IaaS).

Target specific industries by providing
industry-specific solutions. An example
can be Veeva Systems, which focuses on
life sciences and pharmaceuticals offering
CRM and content management
specifically targeted for these industries.
Offer IT infrastructure components as a
service, such as computing power,
storage, networking and other. IaaS that’s
widely used is Amazon Web Services
(AWS), owned by Amazon, which provides
cloud computing resources such as
computing power, storage and databases.

Horizontal. Platform (PaaS).

Serve general business functions, which
are applicable to various industries. A
good example is Atlassian Corp., which
offers collaboration and project
management tools to a variety of
industries.
Provides a platform that allows developers
to build, deploy, and manage applications
without managing the underlying
infrastructure. An example company is
Twilio, which allows developers to build
communication apps using APIs for voice,
messaging or video.

fetcharts 5
Common revenue streams & pricing
Subscription. The most common
revenue stream, where users pay
regular subscription fees to access the
service, generally on a monthly or
annual basis.

Freemium. The basic version of the

software is offered for free, often with
limited features. Users can upgrade to a
paid version for advanced
functionalities. Generally used as an
acquisition source to get the client
onboarded.

Tiered pricing. Different pricing tiers

offer varying levels of features and
usage limits. Users choose the tier that
aligns with their needs and budget.

Per-user pricing. Users are charged

based on the number of individuals who
access the software. Common in team
collaboration tools.

Usage-based pricing. Charges are

based on specific usage metrics, such
as the number of API requests or the
volume of data processed.

Value-based pricing. Pricing is

determined by the value that the
software provides to the user's
business. This often involves custom
pricing negotiations.

fetcharts 6
Key KPIs
Monthly and annual recurring revenue
(MRR & ARR). The nice thing about the
SaaS model is that revenues are more
predictable, as customers generally sign
annual or longer contracts.

Customer lifetime value (LTV). Provides

insights on how valuable a customer is
to the company over its lifetime.

Customer acquisition cost (CAC). CAC

is a measure of how much it costs for a
company to acquire a user.

Churn. Shows how many customers

have unsubscribed from your services
or software. Represents ‘lost’
customers.

Retention. Reflects how many

customers remain active and engaged
with software services. Represent
‘active’ or retained customers.

Gross margin. Reflects the profitability

of the business after taking into account
cost of sales, or, in other words, costs
associated with delivering the services.

If you would like to know more on how to calculate each of these metrics or have a handy
cheat-sheet, you can do so by clicking this link.

fetcharts 7
Advantages of the SaaS
business model
Scalability. SaaS can easily scale to
accommodate more users without
significant infrastructure changes.
Subscription based pricing. Recurring
subscription fees provide a consistent
revenue stream and higher predictability.
Accessibility. Users can access SaaS
applications from anywhere with an
internet connection, promoting flexibility.
Automatic updates. Software updates
and maintenance are handled by the
provider, ensuring users always have
access to the latest features.
Lower entry barriers. SaaS eliminates
the need for significant upfront
investments in hardware and tangible
assets, making it more accessible.

Disadvantages of the
SaaS business model
Data security concerns. Storing data
on third-party servers raises security
and privacy concerns.
Subscription costs. Over time,
subscription costs may surpass the
price of a perpetual software licence.
Limited customization. SaaS
applications might offer limited
customization compared to on-premises
software.
Increased competition. Due to lower
barriers of entry, there are new players
constantly entering the market.

fetcharts 8
SaaS Public company examples

*This is not an exhaustive list. There are many more public SaaS companies.

fetcharts 9
 Want complex, yet interesting topics broken down in a simple manner with clear
charts? That also takes less than 5 minutes to read?

Subscribe to fetcharts weekly newsletter below - where you can find actionable
insights about Finance, Economy and Tech sprinkled with some terrible jokes along
the way.

https://fetcharts.substack.com/

fetcharts 10