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Beginner

What is SaaS

Full name: Software as a Service

Also known as: software as a service, cloud software, subscription software, online software

Definition

SaaS (Software as a Service) is software you rent by subscription and use in a browser or an app, with nothing to install. The vendor hosts and updates it.

Why it matters

Most of the tools a small business runs on are SaaS: email and calendars, online invoicing and bookkeeping, CRM and design tools.

Common mistakes

Assuming you can cancel at any moment, when many plans run on annual terms that renew automatically.

Related terms

Worked exampleIllustration

A SaaS order form: a five person office picks a tool

Plan

A price per user per month, billed monthly or yearly.

Users

Five seats, and every new hire adds one.

Yearly cost

Price per user × 5 × 12.

Renewal

Renews automatically on the contract date unless cancelled in time.

Your data

The export format, and how long the data is kept after you leave.

Steps

  1. Installed option: one licence payment up front, and someone in the office handles updates and backups.

  2. SaaS option: the price per user per month × 5 users × 12 months gives the yearly cost, with nothing to install.

  3. With SaaS the vendor takes over hosting, updates and platform backups.

  4. The office keeps passwords and two step login, access rights, and a regular data export.

  5. Decision: Before signing, the owner checks the renewal date, the price rise clause and the export format.

SaaS turns a purchase into rent, so ask what you can take with you when you leave.

Illustration

Who runs which layer

  1. Building and powerProvider
  2. HardwareProvider
  3. Operating systemProvider
  4. The software and its updatesProvider
  5. Your dataYou
  6. Users and passwordsYou

SaaS: the app. The provider runs 4 of the 6 layers, and you still run: Your data, Users and passwords.

Structure: NIST SP 800-145 (September 2011) and the AWS shared responsibility model.

Six layers, four ways to run software. The more you rent, the more layers the provider runs, and your data and passwords stay yours in every one.

Renting forever against buying once

By month 60 the subscription has cost 60 months of the plan, more than the licence, which costs 36. The rent never stops while you use the tool, so ask what you can export when you leave.⁨Licence, paid once⁩⁨Subscription⁩01224364860Months of use

By month 60 the subscription has cost 60 months of the plan, more than the licence, which costs 36. The rent never stops while you use the tool, so ask what you can export when you leave.

Illustrative, with no prices. An installed licence still needs someone to run updates and backups, and a new version is often paid for again.

Counted in months of the plan, not in shekels. The subscription grows every month you use it. The licence is paid once.

Definition

SaaS is a way of delivering software in which the vendor runs the application on its own cloud infrastructure and customers use it over the internet, through a browser or an app, for a recurring fee. In the NIST definition, the consumer uses the provider's applications running on a cloud infrastructure and does not manage the network, servers, operating systems or storage, only its own settings inside the application. It is the top layer of the three cloud service models, above PaaS (a platform to run your own application) and IaaS (rented servers, storage and networks). Common pricing models are per user, tiered plans, usage based pricing and freemium.

Why it matters

You pay for access, usually per user per month or per year, and the vendor handles hosting, updates, platform backups and platform security. What stays yours is your data, your users' passwords and two step login, who has access, and a way to export everything before you leave. The shared responsibility is simple: the vendor secures the platform, you secure your accounts and the data inside. Two Israeli examples of the model: Wix, founded in Tel Aviv in 2006, and monday.com, founded in Tel Aviv in 2012, which began inside Wix before it spun out.

Directly related: Cloud, Hosting, Authentication.

Improvement tips

  • Before signing, read the contract term, the renewal date and the notice period for cancelling.
  • Export your data on a schedule, and check that the export opens somewhere else.
  • Turn on two step login and give each person their own user, never a shared one.
  • Review the seat count every quarter and remove users who left.

Common mistakes

  • Finding out how to export the data only on the day you want to leave.
  • Sharing one login across the team, which hides who did what and makes it impossible to remove a leaver.
  • Forgetting that per user pricing grows with every hire.

Related terms

TechnologyBeginner

Cloud

The cloud, or cloud computing, is renting a provider's servers, storage and software over the internet instead of running your own, paid monthly or by use.

TechnologyBeginner

Hosting

Hosting is a service that rents you space on a server connected to the internet all the time, so your website is available to every visitor.

TechnologyIntermediate

Authentication

Authentication is the check that a user is who they claim to be, using something they know, something they have or something they are.

FinanceIntermediate

MRR

MRR (monthly recurring revenue) is what active subscriptions and retainers are worth per month, without one off fees. 40 members at ₪350 is ₪14,000 MRR.

ProductIntermediate

Retention

Retention is the share of customers who keep buying or using your product over a set period, counting only those you already had at the start.

FinanceIntermediate

LTV

LTV (customer lifetime value) is the gross profit one customer brings over the whole relationship. You compare it with the cost of winning that customer (CAC).

Quick check

From the buyer's side, what do you mainly get with SaaS compared with installed software?

Choose an answer

Frequently asked questions

Do I need to understand SaaS before I start my business?
Enough to buy it well. Most of your first tools, such as email, invoicing and CRM, will be SaaS, so the useful questions are what you pay per user, when the plan renews and how you get your data out.
When does SaaS first become relevant for a new business?
With the first business email account or online invoicing tool. From then on every new tool is usually another subscription, so keep a simple list of them with the owner, the price and the renewal date.
How much does SaaS cost for a small business?
It depends on the model: per user per month, tiered plans, usage based pricing or a free tier with limits. Multiply the per user price by your team size and by 12 to see the yearly cost, and remember that it grows with every hire.
Should I buy SaaS or installed software?
SaaS suits most everyday tools because there is nothing to install or update. Installed software can still fit better when the work must run offline, when data must stay on your own machines, or for a tool you use rarely. Compare the total over several years and the exit terms, not only the first price.
Why do my SaaS bills keep growing?
Usually seats and tiers: every new user adds a licence, and one feature can push you to a higher plan. Price rises at renewal add the rest. Review the list of users and plans every quarter.
What goes wrong when a SaaS vendor goes down or shuts down?
Your work stops while it is down, and if the service closes you depend on how and when you can export your data. Check the vendor's uptime commitment and export options before you rely on it for something critical.
How do I switch from one SaaS tool to another?
Export the data first and test that the new tool can import it. Run both side by side for a short period, move the team, then cancel the old plan before its renewal date.
Is it worth turning my service business into a SaaS product?
It can add recurring revenue, but it is a second and different business: building software, supporting users and selling subscriptions. Test demand with your existing clients before you invest in development.
What does SaaS actually mean in plain words?
Software you rent instead of buying it. You log in through the browser or an app, the vendor keeps it running and updated, and you pay a subscription for as long as you use it.
Is SaaS safe for my business files?
Reputable vendors invest heavily in securing their platform, often more than a small office can. Your part is the accounts: strong passwords, two step login and removing users who leave. Check what the vendor says about backups and where the data is stored.
Do I need to be technical to use SaaS?
No. Most SaaS tools are built for people who are not technical. You do need someone careful with the settings: who is an admin, which users exist and where the data export lives.
Is it hard to cancel a SaaS subscription?
It depends on the contract. Some plans end at the close of the month, others run for a year and renew automatically, sometimes with a notice period. Check the term, the renewal date and how you export your data before you sign.

Sources: Peter Mell and Timothy Grance, The NIST Definition of Cloud Computing, NIST Special Publication 800-145, September 2011, Wix.com Ltd., annual report on Form 20-F, US Securities and Exchange Commission (sec.gov), monday.com Ltd., annual report on Form 20-F filed 13 March 2026, US Securities and Exchange Commission (sec.gov)

Last reviewed: 2026-09-23

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