SaaS
Software as a Service — software delivered over the internet on a subscription basis, where the provider hosts and maintains the product.
SaaS (Software as a Service) is a software delivery model where applications are hosted by the provider and accessed by users over the internet, typically on a monthly or annual subscription. Instead of buying and installing software, you pay a recurring fee and use it through a browser or app.
SaaS vs traditional software: Traditional software (like Office 2003) was installed locally and owned permanently. SaaS (like Microsoft 365) is rented and always up-to-date — the provider handles infrastructure, updates, and maintenance.
Why SaaS dominates the AI tools market: Every major AI tool — Claude, ChatGPT, Grammarly, Notion, Zapier, ElevenLabs — is SaaS. The subscription model aligns well with AI because the marginal cost per user (API compute) scales with usage, and the provider needs recurring revenue to fund ongoing model improvements.
Micro-SaaS: A small, niche SaaS product built and operated by one person or a tiny team, usually targeting a specific workflow or audience. Micro-SaaS products often reach $1K–$5K MRR before requiring additional staff — a common target for indie builders.
Key SaaS metrics: MRR, churn rate, LTV (lifetime value), CAC (customer acquisition cost).
Example
You build a Chrome extension that uses Claude to summarise any web page in one click and charge $9/mo. With 200 subscribers, you have $1,800 MRR — a SaaS business with no inventory, no shipping, and no customer service beyond email.
Related terms
MRR
Monthly Recurring Revenue — the predictable income a business earns every month from active subscriptions or retainer contracts.
Churn
The rate at which customers cancel their subscriptions or stop paying — the primary measure of retention health for any recurring-revenue business.
Digital Product
A product delivered digitally — such as an ebook, template, course, or software download — with zero inventory cost and near-zero cost of distribution.
API
Application Programming Interface — a defined way for one software application to request data or actions from another, enabling tools to communicate without a human in the loop.
Retainer
A recurring payment arrangement where a client pays a fixed monthly fee for ongoing access to a service or a defined scope of work.