SaaS delivers software via internet (cloud-based), users pay monthly/yearly subscription. No installation, automatic updates. Examples: Zoom, Slack, Salesforce. Best business model for software—predictable revenue, high margins, scalable.
SaaS revolutionized software. Traditional model: Buy software once (₹50K), install on computer, buy upgrades separately. SaaS model: Pay ₹999/month, access via browser, automatic updates, cancel anytime. Why SaaS dominates: For customers: No upfront cost (₹999/month vs ₹50K upfront), Always latest version (automatic updates), Access anywhere (cloud-based), Cancel anytime (flexibility). For companies: Predictable revenue (₹10L MRR = ₹1.2 crore ARR known), High gross margins (70-90%—hosting is cheap), Compounds over time (revenue grows as you add customers), Easy to scale (software scales infinitely). SaaS business model: Acquisition: Customer signs up, maybe free trial. Activation: Get customer to "aha moment" quickly. Retention: Keep customers paying monthly (low churn critical). Expansion: Upsell/cross-sell to increase revenue per customer. SaaS metrics that matter: MRR/ARR (predictable revenue), Churn rate (% customers leaving—must be <5% monthly), CAC (cost to acquire customer), LTV (lifetime value), LTV:CAC ratio (must be >3x), Payback period (months to recover CAC—should be <18). SaaS categories: Horizontal (everyone uses—Slack, Zoom, Google Workspace), Vertical (specific industry—Mindbody for gyms, Toast for restaurants), SMB (₹999-9,999/month—Mailchimp, FreshBooks), Mid-market (₹50K-5L/month—HubSpot, Zendesk), Enterprise (₹10L+/month—Salesforce, Workday). SaaS is best software business model—most unicorns are SaaS (Zoom, Slack, Shopify, Stripe, Notion, Canva).
SaaS Health = High MRR Growth + Low Churn + LTV > 3x CAC + <18mo Payback Period. "Rule of 40": Growth Rate % + Profit Margin % ≥ 40Freemium SaaS. Free for <40min meetings, $14.99/month for unlimited. 40M+ daily users → 500K+ paying customers. IPO at $16B, peaked at $150B+ valuation.
Indian SaaS success. Started as Freshdesk (₹999/month customer support tool). Now $10B+ company with $500M+ ARR. Bootstrapped to profitable unicorn.
Built great product, charged too little (₹99/month). CAC was ₹15K, LTV only ₹3K (LTV<CAC). Raised ₹10 crore, burned through in 18 months, shut down. Unit economics killed it.
SaaS is most lucrative software model—predictable revenue, high margins, compounds over time. Traditional software: Sell once, revenue stops. SaaS: Sell once, revenue continues. 10-year customer at ₹10K/month = ₹12L LTV. 9 of top 10 software unicorns are SaaS. If building software startup, default to SaaS model unless strong reason not to.
Tiered pricing (3 tiers): Starter (₹999/month), Professional (₹2,999/month), Enterprise (custom pricing). Middle tier should be best value—80% choose it. Offer annual discount (2 months free—reduces churn).
Check: (1) MRR growing 10%+ monthly, (2) Churn <5% monthly, (3) LTV > 3x CAC, (4) Payback period <18 months, (5) Gross margin >70%. If all 5 true → very healthy SaaS.
Yes! Many examples: Basecamp ($50M+ ARR), Mailchimp ($700M revenue before exit), Zerodha ($1B+ revenue). Takes 3-5 years longer than VC-backed but keep 100% ownership.
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