SaaS Subscription Model Explained: Growth, Types, and Key Benefits

SaaS subscription model

Octobits Blog – The SaaS subscription model is built on regular payments, which lets companies keep providing value to their customers while keeping their revenue steady.

This approach has changed how software is sold, turning one-off purchases into a scalable and predictable service.

This model has let software companies offer more flexibility and price their products based on what their customers get out of them. This has made SaaS a big part of the subscription economy’s growth.

What is the SaaS Subscription Model?

The SaaS subscription model is where software apps are delivered over the internet, and users pay a recurring fee—often monthly or annually—to access the services.

With these Software as a Service benefits, you don’t have to spend a tonne upfront to get started. It operates on recurring revenue models, which makes it easier on the budget.

KPMG’s 2016 report, “Transforming Your SaaS Business,” says recurring revenue is great for SaaS companies because it keeps cash flowing and helps them build stronger, longer-term customer relationships.

This shift has also meant many SaaS providers like Salesforce and Adobe can innovate faster, as they no longer need to rely on physical product releases but can instead continuously update their software.

The Growth of the Subscription Economy

The subscription economy, which is mostly made up of SaaS, has seen huge growth over the last decade.

People are getting more and more used to paying for things by subscription, from entertainment to groceries.

This familiarity has made it easier for SaaS to be adopted in the business world.

Grand View Research reckons the global software as a service (SaaS) market was worth USD 261.15 billion in 2022 and is set to grow at a compound annual growth rate (CAGR) of 13.7% from 2023 to 2030.

As In Lee points out in “Pricing and Profit Management Models for SaaS Providers and IaaS Providers,” SaaS is one of the biggest money spinners in cloud computing, which goes to show how much it’s grown and how much of a market it’s captured.

This subscription economy trends down to two things: the flexibility of subscription services and their ability to lower upfront costs for businesses.

This makes advanced software accessible even to small and medium enterprises.

KPMG’s report showed how using cloud-based services has made it easier for SaaS providers to grow and plan ahead, which has helped them stay in business over the long term.

For reference on SaaS subscription platforms, please refer to “5 Best Subscription Management SaaS for 2025: Features, Pros, & Cons.”

Types of SaaS Subscription

SaaS providers have a range of subscription models to suit different needs and budgets. Let’s look at a few different types of SaaS subscription models.

Tiered Subscriptions

They’re based on how they’re used, what they can do, or how many people use them.

For instance, a basic package might have a few limited features for a small number of users, while a premium package provides full functionality for a larger team.

This means businesses can pick the plan that’s right for them and avoid paying for features they don’t need.

Usage-Based Subscriptions

The price depends on how much of the software you actually use.

This could be a great option for businesses with changing usage patterns, as they only pay for what they use.

For instance, a SaaS provider might charge based on things like the number of emails sent, the amount of storage used, or the number of API calls made.

This can help businesses to make their money go further and avoid paying for unused capacity. 

Per-User Subscriptions

The price depends on how many people are using the software.

This is a pretty standard pricing model for collaborative tools and team software.

If you use this model, SaaS providers might need to set up user authentication and authorisation to make sure only the right people can access the software.

Feature-Based Subscriptions

The price depends on what features or modules you need.

This could be a great option for businesses that only need certain features.

For instance, a company only needing email marketing features could get a subscription to a SaaS email marketing platform without paying for other features they don’t need.

Bundle Subscriptions

These offer a range of products or services at a discounted price. This can be a great way to get customers to buy more products and bring in more revenue.

By bundling these products together, the SaaS provider can offer customers a better deal and increase their average revenue per user (ARPU).

Additionally, bundle subscriptions can help to keep customers on board by giving them a more complete solution to their needs.

In “The Anatomy of SaaS Pricing Strategy” (2021), it’s noted how many SaaS companies like StatusPage.io have tweaked their pricing strategies by introducing different price points to better match their offerings with customer demands.

At first, they only had two pricing options, which meant they couldn’t reach as many customers. Then, they switch up their SaaS pricing strategies.

After moving to four distinct tiers, they saw a big jump in their annual recurring revenue (ARR).

This proving to have a range of pricing options can better suit different customer types and help them get the most value out of their customers.

For further insight into the SaaS subscription platform, please refer to “SaaS Subscription Software Reviewed: 6 Top Tools for Your Business.”

Benefits of the SaaS Subscription Model

There are lots of great reasons why the SaaS subscription model is a win-win for both providers and customers.

For providers, recurring revenue streams mean you can plan your cash flow and spend less on acquiring customers over time.

The data in “The Anatomy of SaaS Pricing Strategy” (2021) shows how companies that tweaked their pricing saw their LTV/CAC ratio improve to 11:1, which goes to show how pricing changes can boost profits.

Furthermore, SaaS companies can build stronger customer relationships thanks to the regular contact they have with their customers, which helps to keep them loyal and make them happier.

For customers, the SaaS model is great because it has low entry costs, you can scale up easily, and you get new features without having to pay more.

Plus, you can build stronger customer relationships thanks to regular contact, which helps to keep customers loyal, boosts satisfaction, and improves customer retention in the SaaS industry.

Meanwhile, from the customer’s point of view, the SaaS model is great because it’s easy to get started, you can scale up easily, and you always have access to the latest features without having to spend more.

With SaaS, customers can save on operational costs compared to traditional on-premises solutions.

The pay-as-you-go model also means that companies can scale up or down according to what they need, which is great for flexibility and cost efficiency.

This flexibility makes SaaS the perfect solution for today’s fast-changing business world.

How Octobits Helps You in the SaaS Subscription Model?

As you probably know, the SaaS world involves lots of subscriptions, numerous passwords and a plethora of invoices.

And it’s enough to make your head spin.

That’s where Octobits come in. It’s your one-stop support system for all your billing, reporting, and security metrics.

As a SaaS management platform, Octobits makes it easy to manage all your vendors, platforms, and services in one place.

Octobits works great with the big names like AWS, Microsoft 365, and Azure. It’s a one-stop shop for IT departments and Managed Service Providers (MSPs), with a single login and a consolidated dashboard.

And here’s the cool part: Octobits is free until December 2024.

In Closing

If you get to grips with how the SaaS model works, the different types of subscriptions, and all the benefits it offers, you can make sure your company is set up for long-term success.

Tools like Octobits make it even easier to manage these services, giving you a single, easy-to-use view and more control over your IT resources.

As the digital landscape keeps changing, the flexibility and predictability of the SaaS subscription model will stay key to business innovation and growth.

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