What Makes a Company a SaaS Company? 7 Key Characteristics

A company is generally considered a SaaS company when software is its core product, customers access that software remotely as an ongoing service, the provider hosts and maintains it, and customers pay for continued access — typically through a subscription, usage-based fee, or another recurring model — rather than a one-time software purchase.

That’s the short version, but it raises a practical question: how do you actually tell a genuine SaaS company apart from a traditional software business, an IT services firm, a software development agency, or just any company that happens to use cloud tools? Having a website, an app, or a subscription doesn’t automatically make a business SaaS. This guide breaks down the specific characteristics that do.

What Makes a Company a SaaS Company?

A simple starting test: a company is generally a SaaS business when software is the product being delivered to customers as an ongoing service — not when it merely uses software internally, builds software for others, or sells something else through a subscription.

The characteristics that typically define a SaaS company are:

These are typical characteristics of SaaS businesses, not a rigid legal or accounting checklist — real companies vary in how strictly each one applies, and the sections below explain each characteristic in more depth.

1. Software Is the Core Product

This is the most important characteristic, and it’s where many companies get miscategorized. A company that uses software internally is not necessarily a SaaS company.

• A cleaning company that uses scheduling software to manage its own jobs → not a SaaS company; it’s a cleaning company using software as a tool.
• An accounting firm that uses accounting software to serve its own clients → not a SaaS company; it’s an accounting firm using software internally.
• A company that builds and sells access to accounting software for other businesses to use → this is a SaaS business.

The distinction comes down to what’s actually being sold. If software is the product customers are paying for, that’s the first and most fundamental sign of a SaaS company. If software is simply a tool the business uses to deliver some other product or service, it isn’t.

2. The Software Is Delivered as a Service

The “as a Service” part of SaaS matters as much as the “software” part. In a SaaS business, customers are generally paying for:

• Access to the software
• Functionality they can use to accomplish a task
• Ongoing availability of the service
• Maintenance carried out by the provider
• Updates delivered over time
• Support when something goes wrong

This is different from simply receiving a permanent copy of software to install and manage. SaaS is fundamentally a service relationship — the company remains involved after the sale — rather than a one-time software license or transaction.

3. Customers Usually Access the Software Online

SaaS products are typically delivered through:

• Web applications, accessed via a browser
• Cloud-based applications, hosted on remote infrastructure
• Mobile apps that connect to a hosted backend service
• APIs, which allow other systems to interact with the software remotely

That said, SaaS doesn’t simply mean “software that is online.” Plenty of software has some online component without being a genuine SaaS product — for example, a desktop application with an optional cloud backup feature isn’t necessarily SaaS. What matters is the overall delivery and operating model: whether the core functionality itself is hosted and delivered as an ongoing remote service, not just whether an internet connection is involved somewhere.

4. The SaaS Provider Manages the Service

In a SaaS business, the provider typically takes on responsibilities that would otherwise fall to the customer, including:

• Hosting the application
• Infrastructure management
• Software updates
• Security
• Backups
• Availability and uptime
• Performance optimization
• Bug fixes
• General maintenance

This is a meaningful contrast with traditional software, where customers may be responsible for installing the software themselves, managing the servers it runs on, and applying updates manually. In a SaaS model, the provider absorbs most or all of that operational burden.

5. Customers Pay for Ongoing Access or Usage

SaaS companies use a range of commercial models, including:

• Monthly subscription
• Annual subscription
• Per-user pricing
• Usage-based pricing
• Tiered pricing
• Freemium plans with paid upgrades
• Hybrid pricing combining several of the above

It’s important not to oversimplify this: subscription billing is not the only possible SaaS pricing model, and not every SaaS company bills monthly. Some charge annually, some charge purely based on usage, and some combine a base fee with usage-based components. The defining concept isn’t the specific billing mechanism — it’s that customers are paying for ongoing access to software as a service, however that access happens to be priced.

6. The Software Is Continuously Updated

SaaS products are generally updated on an ongoing basis rather than released as discrete, purchasable versions. This typically includes:

• Bug fixes
• Security patches
• New feature releases
• Performance improvements
• New integrations
• General product improvements

Because the provider hosts and controls the application, customers generally receive these improvements automatically, without manually installing a traditional “major version upgrade” the way they might with older, on-premises software. Continuous delivery matters to SaaS because it lets the provider keep improving the product for every customer at once, rather than supporting many different installed versions.

7. The Customer Relationship Is Ongoing

A SaaS company can’t simply make a sale and move on — the business model depends on the relationship continuing well past the initial purchase. This is why SaaS companies invest heavily in:

• Onboarding new customers effectively
• Activation — helping customers reach real value quickly
• Customer success — proactively supporting customer outcomes
• Support — resolving issues as they arise
• Retention — keeping customers subscribed over time
• Renewals — maintaining the relationship at each billing cycle
• Churn management — minimizing customer loss
• Expansion and upselling — growing revenue from existing customers

A SaaS company cannot rely only on the original sale the way a one-time-purchase business might. It has to continue delivering value, because revenue depends on customers choosing to keep paying, period after period.

SaaS Characteristics at a Glance

These represent common characteristics of SaaS businesses rather than rigid, universal requirements — real companies vary, particularly at the edges (for example, some enterprise SaaS products use annual contracts and dedicated infrastructure rather than the multi-tenant, self-service setup common among smaller SaaS products).

What Does NOT Automatically Make a Company SaaS?

This is often where confusion sets in, so it’s worth being explicit about what, by itself, doesn’t qualify a business as a SaaS company.

Having a Website A website is a presence on the internet, not a software product delivered as a service. Most businesses have websites; that alone says nothing about their business model.

Using Cloud Software A business that uses cloud-based tools internally — like project management or accounting software — is a customer of SaaS companies, not necessarily a SaaS company itself.

Having a Mobile App An app can support many different business models: e-commerce, media, on-demand services, or SaaS. Having an app doesn’t by itself indicate which one.

Charging a Subscription A subscription alone does not make a company SaaS. Plenty of subscription businesses sell things that aren’t software at all — physical products (subscription boxes), media (streaming content), memberships (gyms, clubs), or services (subscription-based consulting). The subscription is a pricing mechanism, not proof of a SaaS business model.

Being a Technology Company “Technology company” is a much broader category than SaaS, covering everything from hardware manufacturers to marketplaces to fintech platforms.

Selling Software Services A software development agency that builds custom software for clients is providing a service, but the product it delivers to each client is typically a one-off build — not a shared, hosted software product the agency itself owns and continues to operate for many customers. That distinction is significant enough to warrant its own comparison below.

SaaS Company vs Traditional Software Company

Modern software businesses increasingly combine elements of both models — some traditional software vendors now offer subscription pricing while still requiring customer-managed installations, so this comparison reflects general tendencies rather than a strict binary.

SaaS Company vs Software Development Company

These are commonly confused, but they’re structurally different businesses.

• A SaaS company builds and owns a software product that many different customers use, typically through shared or configurable infrastructure. Example: a project management platform sold to thousands of businesses, all using the same underlying product.
• A software development agency builds custom software for individual clients, usually as a paid project. Example: a development firm hired to build a bespoke project-management system for one specific company.

Importantly, a software development agency can build a SaaS product for a client without becoming the SaaS business itself — ownership, hosting responsibility, and the ongoing customer relationship stay with whoever operates the product afterward.

SaaS Company vs IT Services Company

• SaaS: the software product itself is the service being sold.
• IT services: the company provides services such as consulting, infrastructure management, technical support, implementation, or managed services — often around software the company didn’t necessarily build.

A single business can offer both SaaS products and IT services, but the two shouldn’t automatically be treated as identical business models — one centers on a proprietary software product, the other on expertise and services delivered around technology generally.

SaaS Company vs Tech Company

“Tech company” is a broad umbrella term that includes many different business models, such as:

• SaaS companies
• Hardware manufacturers
• Fintech platforms
• Marketplaces
• Cloud infrastructure providers
• Semiconductor companies
• Consumer apps
• Cybersecurity product companies

SaaS is one specific type of technology business model — not a synonym for “tech company.” Some large technology companies operate multiple business models simultaneously, including SaaS products alongside hardware or other offerings.

SaaS Company vs Cloud Company

SaaS is often discussed alongside broader cloud computing terms, but the distinction matters:

A SaaS company delivers a complete, usable software product to end users. Cloud infrastructure or platform providers, by contrast, typically serve developers or businesses that are building their own applications on top of that infrastructure. Many SaaS companies are themselves customers of IaaS or PaaS providers, running their software on infrastructure they rent rather than own.

Examples of Companies That Fit the SaaS Model

Some companies in adjacent spaces operate broader business models that extend beyond a narrow SaaS definition — for instance, a company that combines software with payment processing or physical logistics may have SaaS as its core offering while also generating revenue from non-SaaS activities. In those cases, it’s more accurate to describe the software product as SaaS rather than labeling the entire company as purely SaaS.

Types of SaaS Businesses

• B2B SaaS — sold to other businesses
• B2C SaaS — sold to individual consumers
• Horizontal SaaS — general-purpose software used across many industries
• Vertical SaaS — built for the specific needs of one industry
• Enterprise SaaS — designed for large organizations with more complex requirements
• Micro-SaaS — small, narrowly focused SaaS products, often run by individuals or small teams

These categories all still meet the core SaaS characteristics described above — they differ in audience and scale, not in the underlying model. For a deeper breakdown, see our dedicated guide to the types of SaaS companies.

How to Tell If a Company Is Really a SaaS Company

Use this practical checklist as an educational framework — not a formal legal or accounting test:

1. Is software the core product? If the company’s main offering isn’t software, it’s likely not a SaaS company.
2. Do customers access the software as an ongoing service? If access is continuous rather than a one-time delivery, that points toward SaaS.
3. Does the provider operate and maintain the service? If the provider handles hosting, security, and infrastructure, that’s a strong SaaS indicator.
4. Does the company continuously update the product? Ongoing updates, rather than discrete purchasable versions, are typical of SaaS.
5. Does the company maintain an ongoing customer relationship? If retention, onboarding, and renewals matter to the business, that reflects a SaaS dynamic.
6. Is the commercial model based on ongoing access, usage, or subscriptions? If customers pay for continued access rather than a one-time purchase, that supports a SaaS classification.

If most of the answers are yes, the company likely operates a SaaS model. If several answers are no — for example, if the company sells custom one-off software builds, or if software is just an internal tool rather than the product itself — it’s probably not a SaaS business, even if it uses cloud technology somewhere in its operations.

How SaaS Companies Make Money

SaaS companies generate revenue primarily through recurring or usage-based models, including:

• Subscriptions — flat recurring fees
• Usage-based pricing — charges tied to consumption
• Per-seat pricing — cost scaling with the number of users
• Tier upgrades — customers moving to higher-value plans
• Add-ons — optional extra features or modules
• Enterprise agreements — custom contracts for larger organizations
• Expansion revenue — additional revenue from existing customers over time

Common metrics used to track this revenue include MRR (Monthly Recurring Revenue), ARR (Annual Recurring Revenue), churn (the rate of customer or revenue loss), and NRR (Net Revenue Retention). These concepts are covered in more depth in our dedicated guide to the SaaS business model.

Why the SaaS Model Is Attractive to Businesses

From both a customer and provider perspective, the SaaS model offers some notable advantages:

• Lower upfront cost for customers compared to large one-time software purchases
• Continuous updates that keep the product current without manual installation
• Easier remote access from any location with an internet connection
• Predictable access to a working product
• Centralized maintenance, reducing the customer’s technical burden
• Scalable distribution for the provider, serving many customers from one product
• Recurring revenue potential for the provider, supporting more predictable business planning

That said, SaaS isn’t automatically superior to every other software model — traditional or on-premises software can still be the right choice in situations requiring extensive customization, offline access, or specific data residency and control requirements.

Common Characteristics of Successful SaaS Companies

Beyond simply qualifying as SaaS, companies that do well in this model tend to share certain traits:

• A clear customer problem the product genuinely solves
• Strong product-market fit
• A reliable product customers can depend on
• Effective onboarding that helps new customers reach value quickly
• Strong customer retention
• Sustainable customer acquisition, where the cost of gaining customers is reasonable relative to their value
• Solid unit economics
• Robust security practices
• Continuous product improvement
• Scalable operations that can support growth without proportional cost increases

There’s no single numerical benchmark that applies universally across all SaaS businesses — what counts as healthy retention or acquisition cost varies significantly by market, price point, and customer type.

Frequently Asked Questions

What makes a company a SaaS company? A company is generally a SaaS company when software is its core product, customers access it remotely as an ongoing service, the provider hosts and maintains it, and customers pay for continued access rather than a one-time purchase.

What are the main characteristics of SaaS? Key characteristics include software as the core product, hosted/managed delivery, remote access, continuous updates, recurring or usage-based pricing, and an ongoing customer relationship.

What does SaaS company mean? It refers to a business whose core offering is software delivered and maintained as an ongoing, hosted service, rather than sold as a one-time product.

Is every cloud software company SaaS? Not necessarily. A company might use cloud infrastructure without selling software as its core customer-facing product — using cloud tools internally doesn’t automatically make a business a SaaS company.

Does a SaaS company have to charge monthly? No. SaaS companies can charge monthly, annually, per user, based on usage, or through hybrid pricing. The defining factor is ongoing access to software as a service, not a specific billing frequency.

Does having a subscription make a company SaaS? No. Many non-software businesses use subscriptions too, including physical product, media, and membership businesses. A subscription alone doesn’t indicate a SaaS model.

Is a software development company a SaaS company? Not typically. A software development agency usually builds custom software for individual clients as one-off projects, rather than owning and operating a shared software product for many customers.

What is the difference between SaaS and traditional software? SaaS is hosted and managed by the provider and accessed online on an ongoing basis, while traditional software is often installed and managed by the customer, sometimes as a one-time purchase.

What is the difference between SaaS and a tech company? “Tech company” is a broad category that can include SaaS, hardware, fintech, and other models. SaaS is one specific type of technology business focused on delivering software as an ongoing service.

What is the difference between SaaS and IT services? In SaaS, the software product itself is the service being sold. IT services typically involve consulting, support, or infrastructure management, often around technology the company didn’t necessarily build.

What are examples of SaaS companies? Companies like Salesforce, HubSpot, Xero, Canva, Slack, and Zoom operate SaaS products, hosting software that customers access online through a subscription.

How do SaaS companies make money? Mainly through recurring or usage-based revenue models, including subscriptions, per-seat pricing, tiered plans, usage-based fees, and enterprise contracts.

What makes SaaS different from cloud computing? Cloud computing is a broader category that includes SaaS, PaaS, and IaaS. SaaS specifically refers to finished software delivered as a service, while PaaS and IaaS provide platforms or infrastructure for building software.

What are the key SaaS business characteristics? Software as the core product, hosted delivery, remote access, provider-managed maintenance, continuous updates, recurring or usage-based pricing, and an ongoing customer relationship focused on retention.

Can a small business be a SaaS company? Yes. Many SaaS companies, including micro-SaaS businesses, start small and still meet the core SaaS characteristics — what matters is the business model, not the company’s size.

Conclusion

What makes a company a SaaS company isn’t any single feature like a website, an app, or a subscription — it’s the combination of software as the core product, hosted and provider-managed delivery, ongoing remote access, continuous updates, and a commercial model built around a lasting customer relationship rather than a one-time sale. Using this framework, you can more reliably tell a genuine SaaS business apart from a traditional software vendor, an IT services firm, or a company that simply uses cloud tools internally.

To go deeper into how these businesses actually operate and generate revenue day to day, see our related guides on how a SaaS company works and what a SaaS company does.