Here’s a startling fact: while the SaaS industry is booming, 92% of SaaS startups crash and burn within their first three years. Not because they had bad products or picked the wrong market but because their business model didn’t hold up.
Think about it — even great ideas can fail without the right foundation.
The good news? There’s a proven playbook for success.
This guide will discuss how successful SaaS companies like HubSpot, Monday.com, and Slack built sustainable businesses. We will share practical strategies to help you avoid the common pitfalls that sink most SaaS ventures.
Whether you’re just starting or looking to scale, let’s explore how to build a SaaS business built to last.
What is a SaaS business model?
A SaaS business model is when companies deliver software applications over the Internet on a subscription basis rather than through one-time purchases. Think of it like Netflix for business software — instead of buying DVDs, you pay monthly to stream content.
Let’s look at HubSpot as a real-world example:
HubSpot offers marketing, sales, and CRM software through the SaaS model. Here’s how it works:
The company provides a comprehensive CRM platform that includes multiple integrated “Hubs” — Marketing, Sales, Service, Content Management System (CSM),, and Operations. Instead of selling this software as a one-time purchase, HubSpot employs a freemium subscription model that grows with its customers’ needs.
HubSpot’s free CRM is at the foundation, which serves as an entry point for many customers. As businesses grow and require more sophisticated tools, they can subscribe to additional features or upgrade to professional and enterprise tiers. This scalability is evident in their numbers: As of December 2023, HubSpot served 200,000+ customers across more than 135 countries.
The financial success of this model is clear in HubSpot’s revenue structure:
- Subscription revenue accounts for 98% of their total revenue (consistent with 2022)
- Average subscription revenue per customer increased to $11,384 in 2023 (up from $11,163 in 2022)
- Total revenue reached $2.2 billion in 2023 (up from $1.7 billion in 2022), representing a 25% year-over-year increase
What makes HubSpot’s SaaS model particularly effective is its integrated approach. All their tools work from a single database, meaning a customer’s marketing, sales, and service interactions are unified in one platform. This creates what’s known as “platform lock-in” — as customers invest more time and data into the system, they become more likely to maintain and expand their subscription rather than switch to a competitor.
The company complements its software offerings with professional services, including customer onboarding, training, and consulting, creating additional revenue streams while ensuring customer success and retention. This comprehensive approach has helped HubSpot maintain strong customer growth while increasing average revenue per customer, demonstrating the scalability and sustainability of the SaaS business model.
How has the SaaS business model evolved?
History of SaaS businesses
While SaaS dominates today’s software landscape, its roots trace back to the 1960s when computers were massive and prohibitively expensive. During this era, businesses used “time-sharing systems”, the earliest form of what we now call SaaS. This model allowed multiple users to access centralized computing resources, making technology more accessible to companies without computers.
The modern SaaS movement gained momentum in the late 1990s and early 2000s with the rise of cloud computing. The industry experienced its first significant growth wave from 2012 to 2018, when subscription businesses grew over 300% — five times faster than S&P-500 companies.
This evolution wasn’t just about technology; it represented a fundamental shift in how software was sold and consumed. Traditional software required substantial upfront costs and complex installations, while SaaS offered flexible subscription pricing and cloud-based delivery. Companies like Salesforce became pioneers of this model, proving that businesses would embrace software delivered entirely over the Internet.
How has AI changed the game for SaaS businesses?
Artificial intelligence has redefined the SaaS landscape, creating what industry experts now call “AI-powered SaaS”. This transformation is happening across several key dimensions:
Product enhancement
AI has enabled SaaS companies to offer more intelligent features such as content generation, predictive analytics, automated task completion, proposal generation, personalized user experiences, and much more. For example, HubSpot uses AI to provide smarter marketing automation and lead-scoring capabilities.
Operational efficiency
Modern SaaS platforms use AI to automate routine tasks, improve security through pattern recognition, and enhance customer service with AI-powered chatbots. This allows companies to scale their services more efficiently while maintaining high service quality.
Customer experience
AI has transformed how SaaS businesses interact with customers. From personalized onboarding experiences to predictive customer support, AI helps SaaS companies deliver more tailored solutions. For instance, many platforms now offer AI-powered recommendations that help users better utilize product features. By leveraging a customer feedback platform, SaaS companies can gain deeper insights into customer behavior and preferences, allowing them to refine their product offerings and improve overall customer satisfaction.
Stages of a SaaS business model
Like any business, SaaS companies go through distinct growth phases, each with challenges and opportunities. Understanding these stages helps founders and teams prepare for what’s ahead and make informed decisions.
Early stage
At this phase, the focus is on getting the product to market and acquiring initial customers. The company typically works to validate its product-market fit and establish its first revenue streams.
For example, Monday.com’s early journey perfectly showcases this stage. In 2016, they had a fairly modest annual recurring revenue of $4 million and were primarily focusing on refining their project management tool.
They concentrated on:
- Developing core features
- Getting initial customer feedback
- Testing different pricing strategies
- Building basic marketing channels
Growth stage
During this phase, companies experience rapid expansion in customer base and revenue. The focus shifts to scaling operations, improving customer acquisition processes, and expanding product features.
For example, HubSpot’s growth phase (2018-2021) demonstrates this stage well. The company:
- Expanded from basic marketing tools to a full CRM platform
- Added new “Hubs” (Sales, Service, CMS, Operations)
- Grew customer base from 60,000 to 135,000
- Started offering professional services and training
Maturity stage
At this stage, growth rates stabilize, and the focus shifts to optimizing operations, maintaining market position, and finding new growth avenues.
For example, Salesforce represents a mature SaaS business:
- Has established market leadership in the CRM space
- Maintains steady growth through strategic acquisitions
- Focuses on expanding into new markets and verticals
- Emphasizes customer retention and upselling existing customers
- Invests in emerging technologies to stay competitive
Each stage presents unique challenges and opportunities. Successful SaaS companies adapt their strategies based on their current stage while planning for the next growth phase.
SaaS Revenue Streams and Pricing
Understanding how to monetize your SaaS product is crucial for building a sustainable business. While subscription fees form the backbone of most SaaS revenue models, successful companies have evolved to create multiple revenue streams that enhance their growth and stability.
Common sources of revenue for SaaS businesses
The primary revenue driver for SaaS businesses is subscription revenue, typically structured as monthly or annual fees. Companies often create different service tiers, with pricing based on features, user counts, or usage levels. But subscription fees aren’t the whole story.
Many SaaS companies have discovered significant revenue opportunities in additional services. For instance, HubSpot combines its core software subscriptions with professional services, including customer onboarding, training, and consulting. These services generate additional revenue, help ensure customer success, and reduce churn.
Add-on features represent another valuable revenue stream. Companies might offer their core product at a competitive price point and then generate additional revenue through premium features like advanced analytics, API access, or increased storage capacity. This approach allows customers to pay for precisely what they need while providing the company with expansion revenue opportunities.
Three main pricing models
Modern SaaS companies typically choose between three primary pricing models, each with distinct advantages and challenges:
Freemium model
The freemium model, exemplified by ClickUp, offers basic features that are free forever while reserving premium features for paid subscribers. This approach can be powerful for rapid user acquisition and product virality, as users can try the product without any initial investment.
However, companies must carefully balance providing enough value in the free tier to attract users while maintaining compelling reasons to upgrade.
Free Trial Model
Zendesk’s approach with free trials represents a different strategy. Users get full access to the product for a limited time, after which they must convert to a paid plan to continue using the service. The key to success with this model lies in demonstrating clear value during the trial period and providing smooth onboarding to help users realize that value quickly.
Sales demo only
At the enterprise end of the spectrum, companies like HubSpot Enterprise use a sales-led approach for their high-end products. This model involves no self-serve option – instead, all potential customers go through a sales process, including demonstrations and consultations. While this approach results in higher customer acquisition costs, it often leads to larger deal sizes and longer-term customer relationships. It’s particularly effective for complex products that require significant customization or have high price points.
The rise of hybrid approaches
Modern SaaS companies are increasingly adopting hybrid approaches rather than choosing strictly between product-led and sales-led growth. HubSpot provides an excellent example of this strategy. They offer free tools and self-serve options for small businesses and startups while maintaining a high-touch, sales-led approach for enterprise customers.
This hybrid approach allows companies to capture the benefits of both models: the efficiency and scalability of product-led growth combined with the higher contract values and relationship-building advantages of sales-led growth. The key is aligning your approach with your target market’s needs and preferences at different journey stages.
The most successful SaaS companies today recognize that revenue optimization isn’t just about choosing the right pricing model – it’s about creating a comprehensive monetization strategy that evolves with both the company’s growth and its customers’ needs. They continuously experiment with their pricing and revenue models while staying focused on delivering value to their customers.
3 SaaS business model examples and breakdowns
Here are three SaaS business model examples to take inspiration from:
Monday.com
Monday.com transformed from a basic team management tool into a comprehensive “Work OS” platform. Their success rests on platform flexibility, hybrid marketing, and strategic pricing. Rather than offering rigid solutions, they let organizations build custom workflows through modular blocks, making software creation accessible to non-technical users.
Their pricing model includes five tiers (Free, Basic at $9/user/month, Standard at $12/user/month, Pro at $19/user/month, and Enterprise), allowing customers to start small and upgrade as needed.
Shopify
Shopify’s success comes from its dual revenue approach: subscription solutions and merchant services. Their subscription tiers range from $5 (Lite) to $2,000+ (Shopify Plus), while merchant services include payment processing (approximately 2% per transaction), business loans, and various tools for shipping and marketing.
Their ecosystem approach sets them apart – they’re not just a storefront but a complete e-commerce operating system.
Slack
Slack evolved from an internal gaming company tool to a leading communication platform through an intelligent freemium model. They offer a generous free tier that hooks teams on basic features and then drives upgrades through advanced features like unlimited message history and integration capabilities.
Their success stems from deep platform integration (1,500+ app integrations) and tiered pricing (Free, Pro, Business+, and Enterprise Grid). This strategy creates high switching costs and drives retention.
How to Grow Your SaaS Business Model Sustainably?
Growing a SaaS business isn’t just about rapid scaling – it’s about building a foundation to support long-term success. While quick growth can be tempting, sustainable growth requires a strategic approach focused on customer value and operational efficiency.
Focus on quality of leads over quantity
Don’t chase every potential customer. Research shows the traditional approach to lead generation is becoming more expensive and less effective – Google Ads costs rose 20% in 2021 and another 19% in 2022, while conversion rates fell 14%. Instead, focus on identifying and pursuing leads that align with your ideal customer profile. High-quality leads are more likely to convert, stay longer, and generate higher lifetime value.
Opt for strategic automation
While automation can streamline operations, it shouldn’t replace human interaction entirely. Focus on automating repetitive tasks while maintaining personal touch points for critical customer interactions. For example, automate onboarding emails and feature announcements while personalizing customer success check-ins and strategy sessions. This balanced approach ensures efficiency without sacrificing relationship building.
Customer success over customer service
Transform your support team into a successful team. Instead of resolving issues, focus on helping customers achieve their goals with your product. When customers succeed, churn rates decrease, and expansion revenue increases. As noted in the research, increasing customer retention by just one or two months can disproportionately impact lifetime value in a subscription model.
Find the product-market fit
Product-market fit isn’t a one-time achievement but an ongoing process. Continuously gather customer feedback and usage data to refine your offering. Focus on identifying your best customers’ commonalities and lean into those segments.
Know your impact metrics and act on them
Move beyond vanity metrics and focus on actionable data that directly impacts growth. Key metrics should include:
- Net Revenue Retention (NRR)
- Customer Acquisition Cost (CAC)
- Lifetime Value (LTV)
- Churn Rate
- Month-over-Month Growth Monitor
I regularly use these metrics to guide strategic decisions about product development, marketing, and customer success initiatives.
Conclusion
Building a sustainable SaaS business requires a delicate balance of growth and stability. While the path to success varies, certain principles remain constant: focus on quality over quantity, prioritize customer success, and maintain a data-driven approach to decision-making.
For growing SaaS companies, marketing automation tools like Encharge can help scale these efforts efficiently. As demonstrated by companies like Landbot, which automated onboarding for 80,000+ users while saving 320 hours monthly, the right automation strategy can significantly impact growth without sacrificing the personal touch that customers value.
The key is to build for the long term, keeping customer value at the center of every decision.
