SaaS (software as a service)

With SaaS you rent access, not a copy. The provider handles hosting, updates, security patches and backups; you log in and use it. Email services, online accounting packages, booking systems and design tools such as Figma are all delivered this way.

SaaS is often confused with cloud hosting. Cloud hosting rents you infrastructure to run your own software. SaaS rents you finished software that someone else runs, so you control far less but also maintain far less.

How it works

Most SaaS products are multi-tenant: one copy of the application serves many customers, with each customer's data kept separate inside a shared system. That is why the provider can update everyone at once and why prices can be lower than custom software. The flip side is that every customer gets the same product: you can configure settings, but you cannot usually change how the software itself behaves. The provider runs the servers, monitors uptime and releases changes continuously, often without any action from you.

Pricing is usually per user, per feature tier or by usage, billed monthly or yearly. Most products expose an API or built-in integrations so they can exchange data with other tools, for example a booking system sending new clients to an email marketing platform.

Your data lives on the provider's systems under its terms of service. Those terms decide where data is stored, how it can be exported, what happens if you stop paying and what the provider promises about availability, often in a service level agreement, and what compensation, usually service credits, applies if it misses that promise. If you handle personal data of people in the EU, the provider usually acts as a data processor and should offer a data processing agreement under GDPR.

Example

A small accounting firm uses a SaaS practice-management tool for client records and time tracking, a SaaS email service and a SaaS e-signature tool. There is no server in the office, staff work from home on the same data, and updates appear without anyone installing anything. The monthly bills add up, but the firm employs no IT staff.

When the firm considers switching practice-management tools, it discovers the current one exports client records but not the attached documents in a usable structure. Moving will take a week of manual work, and the new tool charges per user, so the firm also counts how many staff genuinely need a seat rather than giving everyone one by default. The firm adds "full data export" to its checklist for any future tool.

Why it matters for your business

SaaS lets a small business use capable software with no upfront licence cost, no hardware and no maintenance burden, and it scales by adding seats. The trade-offs are ongoing cost that never ends, price rises you cannot control, features changing or disappearing, and dependence on the provider staying in business. Over several years a subscription can cost more than a one-off build, so compare the total cost of ownership. Before committing, check three things: how you export all your data, where it is stored, and what notice the provider gives before changing prices or terms.

Common mistakes

• Signing up for several overlapping tools, so the business pays for the same feature two or three times.
• Never testing the data export until the day you want to leave.
• Sharing one login among several staff, which breaks security and usually the provider's terms.
• Keeping subscriptions for former staff or abandoned trials running for months because nobody reviews the bills.

Questions people ask

What is the difference between SaaS and traditional software?

Traditional software is bought as a licence and installed on your own computers or servers, and you handle updates. SaaS runs on the provider's servers, is accessed through a browser or app, is paid for by subscription and is updated by the provider.

Is SaaS secure?

It can be very secure, because large providers invest heavily in security and patch quickly. But you still control access: use strong unique passwords, two-factor authentication and remove former staff promptly. Also check the provider's security information and where it stores data.

Is it cheaper to use SaaS or build custom software?

For standard needs such as email, accounting or bookings, SaaS is almost always cheaper and faster. Custom software can make sense when your process is unusual, when subscription costs grow very large with many users, or when the software itself is your competitive advantage.