24 May 2024

What is A SaaS subscription (Image by Octobits)

Octobits Blog – You see, SaaS applications handle everything from sensitive customer data to your company’s financial information. Now, we need to figure out what a SaaS subscription is.

We all know software has transformed businesses, and a cloud-based revolution called Software as a Service (SaaS) streamlines how we interact with essential tools.

Traditionally, companies would purchase software and install it directly onto their computers—a straightforward but rigid approach.

Today, the landscape is quite different, mainly due to the advent of Software as a Service (SaaS).

This model does not involve owning software outright; instead, it’s akin to renting it. Users access software that is hosted centrally and delivered over the internet.

For a more comprehensive understanding of the basics of SaaS, please refer to What is SaaS? How does SaaS reduce IT costs? Is SaaS right for you?

This shift is a technical detail and a fundamental change in how companies think about and manage their software needs.

This shift has numerous advantages, which we’ll explore throughout this article. So, let’s begin.

What is a SaaS Subscription?

SaaS subscriptions are agreements where subscribers can access software hosted on cloud servers, typically monthly or annual.

SaaS (Software as a Service) subscriptions fundamentally change how businesses interact with software.

Instead of a one-time purchase and local installation, companies pay a recurring fee to access cloud-based applications.

This shift removes the need to manage on-premise hardware and software maintenance, allowing organizations to focus on their core business functions.

Moreover, the SaaS market continues to grow, although it has experienced some fluctuations—reports about the SaaS market from Paddle and Vendr for 2023 show a nuanced picture.

While there is a general uptrend in average contract values for SaaS purchases, suggesting robust demand, there is also variability in growth rates across different periods and market segments.

This underscores the dynamic nature of the SaaS market.

How SaaS Subscriptions Differ from Traditional Software Licenses

There has been a fundamental shift in how organizations acquire and manage their software tools as they move from traditional software licenses to SaaS subscriptions. 

Let’s understand some key differences to make informed IT decisions.

Ownership and Accessibility

Traditional software licenses involve a one-time purchase. This grants the business perpetual ownership of the software, allowing indefinite use.

Conversely, with SaaS subscriptions, businesses obtain a temporary right to use the software as long as subscription payments are maintained, akin to renting rather than outright ownership.

This software is hosted remotely on the provider’s servers. This makes it accessible over the internet, allowing users to work from anywhere at any time – a feature precious in today’s remote and mobile work environments.

Cost Implications

The financial commitment with traditional software is front-loaded, often requiring significant initial investments in licenses, infrastructure, and setup.

This can be a barrier, particularly for small to mid-sized businesses. SaaS subscriptions alleviate this with lower initial costs, spreading expenses over time through recurring payments.

This model can ease budgeting and often includes updates and customer support, adding ongoing value without additional costs.​

Updates and Maintenance

A key difference lies in how updates and maintenance function.

With traditional software, updates often need to be downloaded and installed manually, and sometimes, significant upgrades come at an extra cost.

SaaS operates differently: your software provider handles updates, security fixes, and new features behind the scenes.

This ensures you always have the latest version without extra work or cost.

Scalability and Customization

SaaS excels in scalability. Suppose your business needs to add more users or expand its use of the software.

In that case, it’s usually a simple process without purchasing additional hardware or entirely new software versions.

Traditional software can be customized extensively, often requiring significant time and specialized IT resources.

SaaS tools generally offer customization options within a defined framework, allowing for faster setup and easier adjustments.

Data Security and Internet Dependency

Data security differs significantly. With traditional software, you retain full control over your data and how security protocols are implemented since everything resides within your own IT environment.

SaaS involves entrusting your data security to the provider, who should adhere to strict security standards and compliance regulations.

Keep in mind that, unlike traditional software, SaaS applications can only function when you have a reliable internet connection.

How SaaS Subscriptions Work

At the heart of the SaaS model lies the concept of remote hosting.  Instead of residing on your own computers, the software application lives on a network of servers managed by the SaaS provider.

This architecture eliminates the need for businesses to maintain their in-house IT infrastructure dedicated explicitly to running that software.

Users access the application online, typically using a standard web browser. This web-based delivery removes the need for any local software installation.

Here’s a simplified picture of key SaaS components:

  • The SaaS provider: The company develops and hosts the software application on its powerful servers.
  • You, the subscriber: You sign up for a subscription to the software.
  • The internet: This is the bridge connecting you to the software, allowing you to use it in your web browser.
  • Subscription fees: You pay the provider your recurring fee for continued access.​

Types of SaaS Subscription Models

SaaS providers understand that businesses have diverse needs, which is reflected in the variety of subscription models available. Here’s a closer look at common types.

Per-User Pricing

With this model, your subscription cost is directly tied to how many people need access to the software.

It’s a simple approach that makes it easy for businesses to predict costs as their team grows.

Tiered Pricing

Businesses have different needs. Tiered pricing addresses this by offering plans that include different sets of features, storage limits, or levels of support.

Companies can start with a smaller plan and upgrade as they need more capabilities. This flexibility helps ensure you’re only paying for what you need.

Flat-Rate Pricing

This model offers unlimited user access for one price. The main advantage is its simplicity and predictability for budgeting.

It’s particularly well-suited for collaboration tools or CRM software, where widespread organizational use is the goal.

Usage-Based Pricing

Think of this model like a utility bill—you pay based on how much of the service you use.

Standard metrics might include how much data you store or how many emails your team sends through the tool.

This approach appeals to businesses with fluctuating usage patterns, ensuring their costs align closely with their actual needs.

Managing SaaS Subscriptions

Managing SaaS subscriptions effectively becomes increasingly crucial as businesses rely on diverse cloud-based tools.

This involves carefully tracking, analyzing usage patterns, and optimizing your software subscriptions to match your organization’s needs.

A vital starting point is a centralized inventory listing all your SaaS tools, renewal dates, pricing models, and internal owners.

This comprehensive view helps you avoid unexpected renewal costs and prevents having tools that serve the same purpose.

Designating clear ownership of subscription management within your IT team is also essential.

These individuals will oversee adding new users, offboarding departing employees, and adjusting subscription levels as demand fluctuates.

Security remains paramount within the SaaS model. Enforce strong password policies throughout your organization and consider Single Sign-On (SSO) solutions to streamline access while enhancing data protection.

Finally, make it a habit to review the usage data most SaaS tools provide consistently.

This analysis can reveal barely used subscriptions or where a lower-priced subscription tier might meet your needs.

Then, remember how proactive management helps you avoid these pitfalls and ensures optimal use of your software budget.

Kindly discover practical ways to manage SaaS through proactive measures inWhat is SaaS Management? How Does It Eliminate Shadow IT and Save Money?

Gain Control of Your SaaS Landscape with Octobits

Managing a growing number of SaaS subscriptions presents challenges for businesses of all sizes.

That’s why Octobits offers a specialized solution designed to address these challenges.

We provide a centralized platform for tracking all your SaaS tools.

Our platform aggregates spending data, monitors license usage, and highlights potential areas for cost optimization.

Its automation features streamline routine administrative tasks, freeing up your valuable IT resources.

Additionally, Octobits can proactively notify you about security vulnerabilities or upcoming subscription renewals, helping you stay ahead of any issues.

Please discuss this with us by clicking on our Octobits Contact Center for your initial consideration.


SaaS subscriptions have propelled businesses into a more flexible, cost-effective, and always up-to-date software landscape.

By understanding what a SaaS subscription from traditional software is, its inner workings, pricing models, and effective management, you can leverage SaaS to its full potential.