Software-as-a-Service (SaaS) is a business model where software is delivered over the internet on a subscription basis, rather than installed locally. Instead of a one-time licence fee, customers pay monthly or annually — which creates predictable, recurring revenue that investors value highly. SaaS companies are evaluated on a distinct set of metrics including Annual Recurring Revenue (ARR), Net Revenue Retention (NRR), gross margin, and the Rule of 40. The model is now evolving rapidly: many AI-powered products are moving toward usage-based pricing, where customers pay per query or action rather than a flat subscription — which changes the unit economics and how investors assess scalability.
Software-as-a-Service (SaaS) is a business model where software is delivered over the internet on a subscription basis, rather than installed locally. Instead of a one-time licence fee, customers pay monthly or annually — which creates predictable, recurring revenue that investors value highly. SaaS companies are evaluated on a distinct set of metrics including Annual Recurring Revenue (ARR), Net Revenue Retention (NRR), gross margin, and the Rule of 40. The model is now evolving rapidly: many AI-powered products are moving toward usage-based pricing, where customers pay per query or action rather than a flat subscription — which changes the unit economics and how investors assess scalability.
