What is a SaaS company and how does it generate revenue?

A SaaS company, or Software-as-a-Service company, is a business that delivers software over the internet on a subscription basis rather than selling it as a one-time purchase. Instead of installing software locally, customers pay a recurring fee to access it through a browser or app. This model generates revenue through ongoing subscriptions, making it fundamentally different from traditional software businesses. Below, we unpack the key mechanics behind how SaaS companies make money and grow.

How does a SaaS company actually make money?

A SaaS company makes money by charging customers a recurring fee, typically monthly or annually, to access its software. Because the software is hosted centrally and delivered over the internet, the same product can serve thousands of customers simultaneously, making it highly scalable. Revenue grows as more customers subscribe and as existing customers upgrade or expand their usage.

Unlike a traditional software sale, where a company earns a single payment upfront, a SaaS business earns smaller amounts repeatedly over time. This means the total value of a customer increases the longer they stay. That is why customer retention is just as important as winning new business in a SaaS model. A customer who stays for three years is worth far more than one who cancels after three months, even if the monthly fee is identical.

Most SaaS companies also layer in additional revenue through professional services, onboarding fees, add-on features, or usage-based charges on top of a base subscription. These upsells and expansions can meaningfully increase the average revenue per account over time.

What are the most common SaaS pricing models?

The most common SaaS pricing models are flat-rate, per-user, tiered, and usage-based pricing. Each model suits different types of products and customer segments, and many SaaS companies combine elements of more than one approach to match how their customers actually use the software.

Flat-rate pricing: One fixed price for full access to the product. Simple to understand and easy to sell, but it does not capture extra value from heavy users.
Per-user (seat-based) pricing: Customers pay for each person using the software. Scales naturally with team size, though some customers work around it by sharing logins.
Tiered pricing: Multiple packages at different price points, each unlocking more features or capacity. This is the most widely used model because it allows companies to serve both small businesses and large enterprises from the same product.
Usage-based pricing: Customers pay based on what they actually consume, such as the number of API calls, emails sent, or gigabytes stored. This lowers the barrier to entry but can make revenue less predictable.
Freemium: A free tier with limited functionality, designed to convert users into paying customers over time. Works well for products with a strong self-serve motion.

Choosing the right pricing model is not just a finance decision. It shapes how customers perceive value, how your sales team positions the product, and how quickly you can grow. For SaaS scale-ups entering new markets, the pricing model often needs adjustment to match local buying habits and competitive norms.

What is MRR and ARR in a SaaS business?

MRR stands for Monthly Recurring Revenue, and ARR stands for Annual Recurring Revenue. These are the two core metrics SaaS companies use to measure the size and health of their subscription revenue. MRR is the total predictable revenue a company earns from active subscriptions in a single month. ARR is simply MRR multiplied by twelve.

For example, if a SaaS company has 200 customers each paying €500 per month, its MRR is €100,000 and its ARR is €1,200,000. These figures give a clear picture of the business’s current revenue run rate, independent of one-off payments or timing differences.

Investors and leadership teams track MRR and ARR closely because they reveal growth trends that a standard profit and loss statement can obscure. Alongside total MRR, companies typically break it down further:

New MRR: Revenue from customers who signed up this month
Expansion MRR: Additional revenue from existing customers who upgraded
Churned MRR: Revenue lost from cancellations or downgrades
Net New MRR: New MRR plus Expansion MRR minus Churned MRR

Tracking these components separately helps a company understand exactly where growth is coming from and where it is leaking.

What is churn and why does it threaten SaaS revenue?

Churn is the rate at which customers cancel their subscriptions or reduce their spending. It is one of the most important metrics in a SaaS business because even modest churn compounds over time and can erode revenue faster than new customer acquisition can replace it. A SaaS company with high churn is effectively filling a leaking bucket.

There are two main types of churn to monitor. Customer churn measures the percentage of customers who leave in a given period. Revenue churn measures the percentage of revenue lost, which is more useful because not all customers contribute equally.

To illustrate the impact: if a company starts the year with €500,000 ARR and has a 15% annual revenue churn rate, it loses €75,000 in revenue before winning a single new customer. To grow, it must first replace that lost revenue and then add more on top. At 5% churn, the same company only needs to replace €25,000, giving it a much stronger foundation for growth.

Common causes of churn include poor onboarding, lack of perceived value, competitive alternatives, and changes in the customer’s own business. Reducing churn is often more cost-effective than increasing new customer acquisition, which is why successful SaaS companies invest heavily in customer success.

How does a SaaS company grow revenue beyond new customers?

A SaaS company grows revenue beyond new customers through expansion revenue, which includes upsells, cross-sells, and seat additions from its existing customer base. When expansion revenue exceeds churned revenue, the company achieves what is known as negative net revenue churn, meaning the existing customer base grows on its own without adding a single new account.

This is one of the most powerful dynamics in the SaaS model. A company with strong expansion revenue can sustain healthy growth even during periods when new customer acquisition slows. Common expansion strategies include:

Offering higher-tier plans with more features or capacity
Introducing add-on modules or integrations at extra cost
Expanding usage limits as customers scale
Cross-selling complementary products within the same platform

Beyond expansion, many SaaS companies grow by entering new geographic markets. This is where the complexity increases significantly. Selling into a new country means navigating different buyer behaviour, competitive dynamics, procurement processes, and sometimes language barriers. Companies that want to expand into Europe, for example, often find that what worked in their home market needs meaningful adjustment to land effectively with European buyers. You can find more real-world examples of how this plays out in our client case studies.

How Aexus helps SaaS companies grow revenue in new markets

We work with B2B SaaS companies that have a proven product and are ready to scale into European markets. Our role is to act as your local sales team on the ground, handling everything from prospecting and pipeline development to closing deals and managing accounts. Here is what that looks like in practice:

Dedicated Business Development Manager: A native-speaking sales professional who represents your company in your target market from day one
Full sales cycle coverage: From outbound prospecting and pitch to negotiation, closing, and account management
Fast time to market: We can be up and running within a few weeks, without the overhead of hiring, office space, or HR infrastructure
Established enterprise network: Direct access to decision-makers across Europe, so you can reach your first reference customers without building a network from scratch
Market research and validation: We test your value proposition in new markets before you commit to a full expansion, reducing risk and improving your go-to-market fit

If you are a SaaS company looking to grow your MRR in Europe and want a practical, low-risk way to get started, explore our sales outsourcing services or get in touch to talk through your specific situation.

Topics: Sales Sales Outsourcing