What Is SaaS? Explained for Non-Technical Founders

SaaS (software as a service) is software that customers use through a browser or an app and pay for on a recurring basis, usually with a monthly or annual subscription. You own and run the software and customers rent access to it, so hosting, updates and security are your job while they simply log in. Slack, Shopify and HubSpot are all SaaS. A program you buy once and install on your own laptop is not.

I am a freelance developer based in Denmark. This explanation starts from how SaaS works in practice: users, billing and operations.

The short answer: SaaS vs other ways to deliver software

The quickest way to understand SaaS is to compare it with the two other common ways software gets sold and delivered.

Here's the rule I use. If customers pay on an ongoing basis to use a product you run, and many customers share that same product, it's SaaS. If either part is missing, it's something else.

You'll find the model all over Europe, from Zendesk, which started in Copenhagen, to Pipedrive, founded in Estonia. Both sell one product to a large number of businesses for a recurring fee. If you want the full route from idea to launch, read my step-by-step guide to building a SaaS. This post sticks to what the term means and what it means for you.

How SaaS works: a worked example

Picture a tool that lets property managers log building inspections and send reports to landlords. It's a typical SaaS idea: lots of companies have exactly the same problem, and they deal with it every week.

What your customer sees

A property manager in Rotterdam finds your tool, signs up with her work email and picks a plan. She enters a card, and from then on she's charged every month. She invites two colleagues, adds her buildings and starts logging inspections on her phone.

There's nothing to install. It all runs in the browser, on her phone and on the office computer. When you ship a new feature, say photo annotations on inspection reports, she has it the next time she logs in.

What happens behind the screen

On your side, things look different. One copy of the application runs on servers at a hosting provider, and every customer uses that same copy. Each customer's buildings, inspections and users sit in the same database but stay separated, so one customer can never see another's data. That setup is called multi-tenancy (many tenants in one building), and I explain how to build it safely in my guide to multi-tenant SaaS architecture.

Around the core feature sits a lot of other work: sign-up and password resets, roles so a junior inspector can't delete a building, billing and invoices, email, backups and monitoring that wakes someone up when things break at night. Those parts take up more of the work than most founders expect. Read more about choices and priorities in from idea to SaaS: choices and priorities.

The formal definition from the US National Institute of Standards and Technology says the same in drier terms: the customer uses the provider's application, typically through a web browser, and doesn't manage the servers, operating systems or storage underneath (NIST SP 800-145). Your customer thinks about the feature. You think about everything else.

How a SaaS business makes money

A SaaS lives on subscriptions. Instead of one big sale, you get a smaller amount from each customer every month. That figure is called monthly recurring revenue, or MRR, and it's the number most SaaS companies steer by.

A quick example makes it concrete. With 80 property management firms paying €49 a month each, your MRR is €3,920. If four of them cancel every month, your churn (the share of customers you lose) is 5%, and you need four new customers a month just to stand still.

The timeline is lopsided too. Most of the development cost lands before your first customer pays, while revenue trickles in. A customer paying €49 a month has to stay for 21 months before they've paid you more than €1,000 in total. That's why losing customers early hurts so much.

The price itself can be structured in several ways:

• Per seat, for example per inspector using the tool.
• Tiered plans, with more features in the higher tiers.
• Usage-based, for example per inspection report generated.
• A free plan or a free trial before the customer pays.

I compare the trade-offs of each in my overview of SaaS pricing models. You won't build the payment side yourself. A provider such as Stripe or Paddle handles cards, renewals and invoices, and I cover how to choose in the guide to SaaS subscription billing.

Who you sell to matters as well. Business customers (B2B) usually pay more and stay longer, but sales cycles are slower. Consumers (B2C) come in much larger numbers, but they tend to cancel more easily.

What owning a SaaS means in Europe

This is the part non-technical founders most often underestimate. Owning a SaaS isn't like buying software. You're taking on an obligation to every customer for as long as the product exists.

• Hosting and monitoring: the servers run around the clock, and someone has to notice when they don't.
• Backups: customer data must be recoverable, including when a customer deletes something by mistake.
• Updates: the framework and its dependencies need regular security updates, even in months when you ship nothing new.
• Support: customers write in when something breaks, and they expect an answer, sometimes from another time zone.
• Billing and VAT: cards expire and payments fail. Sales to businesses in other EU countries usually fall under the reverse charge. Above the EU's €10,000 cross-border threshold, consumer sales generally carry the customer's local VAT, which you can report through the EU VAT One Stop Shop. Check the details with an accountant.
• GDPR: your customers put data about their own clients and staff into your system. That usually makes you their data processor, and they'll expect a data processing agreement (DPA).

None of this makes SaaS unmanageable. It means the bill doesn't stop at launch. I usually recommend setting aside a monthly budget for running costs and ongoing development from day one, rather than hoping the product will one day be "finished".

Is SaaS the right model for your idea? A five-step test

Before you spend money on development, check whether your idea fits the model. Work through the steps in order and stop at a clear no.

1. Check that the problem keeps coming back. A subscription only holds if customers get value every month. Inspections happen every week. A report someone produces once a year is a hard sell on a monthly plan.
2. Check that many companies have the exact same problem. SaaS works when one product can be sold to many customers without changes. If every customer needs their own version, you're running a consultancy.
3. Check that customers will pay on an ongoing basis. Ask potential customers what the problem costs them today, in hours, spreadsheets or another tool. If the answer is "nothing", treat it as a warning sign.
4. Run rough numbers. Multiply a realistic price by a realistic number of customers in year one. Fifty customers at €29 a month is €1,450 a month: enough to cover hosting, not a salary.
5. Be honest about running it for years. A SaaS isn't a project with an end date. Someone has to answer support over the holidays and pay for servers while sales are slow.

If you can say yes to all five, SaaS is probably the right model. If you're unsure about steps 2 and 3, investigate those first. After that, the next move is to scope a lean first version so you don't build more than customers need.

When you shouldn't build a SaaS

I build SaaS products for a living, but SaaS is far from always the right answer. These are the situations where I'll usually advise against it.

• The software is only for your own company. Then you need a custom web app or an internal tool. That needs no subscription billing and no separation of many customers' data, and it's usually cheaper.
• Every customer needs a custom version. Then you're really selling development, and you should price it as projects, not as a subscription.
• You haven't spoken to anyone who would pay. Then you don't need a developer yet, me included. Talk to potential customers first, and test interest with a simple landing page or a clickable prototype before real code gets written.
• You need to live off the product within six months. Most SaaS products grow slowly because revenue builds a little at a time. If you can't afford to wait, a service business is often a safer start.

Next steps: from concept to decision

You now know what SaaS is and how to test your idea against the model. Before you contact a developer, try to answer the points below. It saves time in the first conversation and makes any estimate far more accurate.

If you have most of that in place, take a look at how I approach SaaS development for founders and businesses. For larger builds I start with a paid, fixed-price discovery phase, so scope and price are clear before any code is written. You work directly with me, the developer writing the code, and you own the code from day one.

Frequently asked questions

What's the difference between SaaS, PaaS and IaaS?+

The difference is how much the customer controls. With SaaS, the customer uses a finished application. With PaaS (platform as a service), a developer gets a platform to run their own application on, such as Heroku or Laravel Cloud. With IaaS (infrastructure as a service), you rent raw servers, storage and networking from providers like AWS or Hetzner. You sell SaaS, and your developer typically builds it on top of PaaS or IaaS.

Is a mobile app a SaaS?+

Not necessarily. An app is a way of delivering software, while SaaS is a business and operating model. An app you pay for once and use on your phone isn't SaaS. Many SaaS products do include an app as an extra entry point, though, for example a scheduling tool where staff check shifts on their phones while managers plan in the browser.

How much does it cost to build a SaaS in Europe?+

It depends on scope, but a focused first version built by an experienced European freelance developer typically lands somewhere around €15,000-40,000 excluding VAT, as a rough guide. The price rises with the number of user types and integrations. Running costs and post-launch development can add up to a similar amount over the first few years. My pricing page explains how I price projects.

Do I have to host my SaaS in the EU?+

GDPR doesn't strictly require EU hosting, but moving personal data outside the EU or EEA needs a legal basis for the transfer, such as an adequacy decision or standard contractual clauses. Many European business buyers prefer EU hosting anyway and will ask about it before they sign. This isn't legal advice, so check your setup with a lawyer before launch.

Can a non-technical founder build a SaaS with no-code or AI tools?+

Yes, up to a point. Tools like Bubble or Lovable can get you a prototype to show potential customers. Once you're taking payments, storing personal data and asking businesses to rely on the product, you'll usually need a developer or a technical co-founder. Your most valuable contribution is knowing the customer and the problem better than anyone else.