The SaaS business model sells access to cloud software for a recurring fee instead of a one-off license. If the customer stops paying, access ends. Revenue traditionally comes from per-user or tiered plans, but in 2026 most fast-growing software companies charge at least partly on usage or credits, especially for AI features, because AI adds a real cost every time a customer uses the product.
Key takeaways
- SaaS gives customers low upfront cost and constant upgrades, and gives you predictable recurring revenue and high margins.
- Seats are no longer the default: 18 of 33 fast-growing 2026 companies with visible pricing charge mainly on consumption.
- AI features cut gross margins: AI-native products run around 50% to 60% against 75% to 80% for classic SaaS.
- You can't set up SaaS and forget it. Customers stay for continuous improvement.
Before Salesforce, buying a CRM was a project.
Companies like SAP and Oracle sold standalone products. They'd send a team to install the software for you. When you needed an update, you got the team back in. All of it came with a massive upfront cost, so plenty of businesses limped along on antiquated systems because they couldn't justify another upgrade.
Salesforce changed that.
It put its flag in the ground early: an excellent CRM, in the cloud, for a low monthly subscription. It told anybody who'd listen. And it became the blueprint every SaaS company since has followed.
Here's the twist I didn't see coming when I wrote the book.
In 2026 the company that made "per user, per month" famous sells its AI agents three different ways at once: per action through Flex Credits ($0.10 a standard action), per conversation, and per resolution ($2 for its Help Agent, with no charge for escalations). In its Q2 fiscal 2027 results, Salesforce reported Agentforce annual recurring revenue above $1.5 billion.
The SaaS model is alive and well. The way it charges is changing fast.
What Is the SaaS Business Model?
Customers pay a recurring fee for consistent access to a piece of software. If they stop paying, access goes away.
That's the bare-bones version. The real advantages are on both sides:
For customers: no big upfront fee, access from anywhere, and constant upgrades. They spread the cost of essential software over a monthly subscription.
For you: predictable recurring revenue, high gross margins (because the next customer costs very little to serve), and a business that buyers value on revenue, not profit.
I've lived this one. After my results-guaranteed agency, my brother and I built an e-learning platform for architecture and engineering students with recurring subscription revenue, then software for architects and property developers. Subscription revenue plus a strong moat is what made that business valuable.
How Do SaaS Companies Make Money in 2026?
The pricing menu has grown. Here are the main structures, with real examples from our research (prices checked October 2026):
| Structure | How it charges | Example |
|---|---|---|
| Tiered flat fee | One price per plan, by features or business size | Xero (AU): Ignite A$37, Grow A$78, Comprehensive A$107 a month |
| Per seat | Price per user per month | Linear: Basic $10, Business $16 per user (billed yearly) |
| Seat plus AI credits | Seat price with a monthly AI allowance | Notion Business: $20 per seat with monthly AI credits included |
| Subscription plus transactions | Platform fee plus a cut of volume | Shopify Basic: $39 a month plus 2.9% + 30c on online cards |
| Pure usage | Pay per unit consumed | Twilio: from $0.0083 per US SMS |
| Outcome | Pay per result | Fin: $0.99 per resolved outcome |
The trend is clear. ICONIQ's 2026 survey of AI builders found consumption pricing rose from 35% to 42% of companies, and companies now blend an average of 1.7 pricing models. Among the 44 companies that crossed about $100 million ARR in 2026, 18 of the 33 with visible pricing charge mainly on consumption, and only four rely mainly on seats. Read more in how 2026's fastest-growing companies price.
Why Are Per-Seat SaaS Prices Under Pressure?
Because AI lets customers do more with fewer people. If you charge per head, a more productive customer pays you less.
How WiseTech killed seat fees before AI could
WiseTech's CargoWise runs global logistics for freight forwarders. In December 2025 it launched "Value Packs" that remove seat or user fees and charge on a transactional basis. By February 2026 about 95% of customers were on the new model. Its explanation: "For SaaS businesses that monetize based on seats or users, AI will disrupt them... our revenue is not diluted by customers becoming more productive." Read the WiseTech pricing case study.
You don't have to abandon seats. Plenty of strong products still use them. But ask yourself what happens to your revenue if a customer's team halves. If the answer is "it halves too," look at the comparison of seat-based vs usage-based pricing and consider a value metric tied to the work your software does.
What Does AI Do to SaaS Margins?
This is the part many founders miss.
Classic SaaS runs on gross margins of about 75% to 80%. Every AI request costs you real money in model fees. SaaStr puts AI-native gross margins at about 50% to 60%. ICONIQ's survey found an average AI-product gross margin of 45% in 2025, projected to reach 53% in 2026.
So if you bolt AI onto a flat-priced plan, your heaviest users can turn a profitable customer into a loss. That's why Notion, Atlassian and Canva include monthly AI allowances, and why GitHub moved Copilot to dollar-denominated credits in June 2026. Before you add AI to your product, model it in the AI Gross Margin Calculator.
AI Gross Margin CalculatorModel token costs, heavy users and margin for an AI product.Open the free tool →Who Is the SaaS Model Right For (and Who Shouldn't Use It)?
It's right for you if:
- Your software solves a problem customers face every week, not once a year.
- You can keep improving it on a regular schedule.
- Customers will store data or workflows in it, which builds switching costs over time.
It's the wrong choice, or needs adapting, if:
- Customers need your tool once (a one-off calculation, a single conversion). Consider credits or pay-per-use.
- Your costs are mostly per use, such as heavy AI processing, and you can't cap them.
- You can't commit to ongoing development and support. You can't set up SaaS and forget about it.
A Sample SaaS Pricing Table
An illustrative three-tier offer for booking software aimed at clinics (prices are examples):
| Starter | Growth | Scale | |
|---|---|---|---|
| Price | $49/month | $149/month | $399/month |
| Value metric | Up to 300 appointments a month | Up to 1,500 appointments | Up to 5,000 appointments |
| Staff logins | Unlimited | Unlimited | Unlimited |
| SMS reminders | 300 included | 1,500 included | 5,000 included, then 4c each |
| AI receptionist | No | 200 calls a month included | 1,000 calls a month included |
| Support | Email and chat | Priority phone support | |
| Annual billing | 2 months free | 2 months free | 2 months free |
The value metric is appointments, not seats. Clinics don't get punished for adding staff, and revenue grows as they get busier. The AI feature has an included allowance so its cost stays capped.
Will AI features eat your margin?
Model token costs, heavy users and gross margin for your product with the free AI Gross Margin Calculator.
How Do You Price a SaaS Product?
Three steps, in this order:
- Pick your value metric. The unit that grows as your customer gets more value: appointments, invoices, contacts, transactions, projects. The book's test: it must grow consistently with your customers and help you communicate value. Score your options with the Value Metric Finder.
- Build good-better-best tiers around that metric, with features that matter to bigger customers in the top tier.
- Check your margin per tier, including hosting, payment fees and any AI costs.
Gross margin per tier = (Tier price − Hosting − AI usage − Payment fees − Support cost) ÷ Tier price
Worked example: the Growth tier
Growth costs $149 a month. Hosting and SMS cost about $18 per customer. If an average customer uses 120 AI receptionist calls at about 15 cents each in model and voice costs, that's $18. Payment fees about $4.50. Support about $12. Total cost of about $52.50 leaves a gross margin of about 65%. If a heavy user maxes out all 200 included calls, AI cost rises to $30 and margin falls to about 57%. That's still healthy because the allowance is capped. Uncapped, the same customer could run at a loss.
For the full method, read how to price a SaaS product and the wider guide to SaaS pricing models.
What Are the Risks of the SaaS Model?
Churn. Monthly plans can be cancelled at short notice. Your onboarding and first "aha" moment decide whether customers stay.
Price-change backlash. Canva raised some legacy Teams prices by more than 300% in 2024 (with a discounted first year), citing new AI features. Atlassian openly says its cloud costs more per user than the Data Center product it's retiring. In October 2025 the ACCC sued Microsoft, alleging it didn't clearly tell Australian Microsoft 365 subscribers about a cheaper "Classic" plan when it added Copilot and raised prices. If you raise prices, tell customers every option.
AI disruption. If AI can do the core job your software does, your moat needs to be data, workflow or distribution, not features.
The update treadmill. Customers expect the product to keep getting better. Budget for it.
How Do You Combine SaaS With Other Models?
- Usage-based pricing: a base subscription with included usage and overage. See hybrid pricing.
- Minimum commitment: annual contracts with a committed spend in exchange for a better rate.
- Insurance: premium support, guaranteed response times and backups on higher tiers.
- Bundled services: TechnologyOne's "SaaS+" bundles implementation into the subscription.
- Land and expand: start with one module and add more over time, as Employment Hero did on its way to A$300 million ARR. See land and expand.
What to Do Next
- Write down your current value metric. Ask whether it still grows if your customers use AI to become more efficient.
- Cost every AI feature per use, and decide on an allowance before you launch it.
- Build three tiers and test them with ten customers.
- Track gross margin, churn and net revenue retention monthly.
- See what those numbers could mean for the value of your business with the Subscription Business Valuation Estimator.
Here's the question for your software: when your customer gets more done, do you get paid more, or less?
Frequently asked questions
What's the difference between SaaS and a software license?
A license is a one-off purchase, often with an extra fee for support and upgrades, and the customer runs the software themselves. SaaS is a recurring subscription to software hosted by the vendor, with upgrades included. Atlassian is ending its self-hosted Data Center products in March 2029, one of the last big holdouts moving fully to subscription.
Is SaaS still a good business model with AI around?
Yes, but the economics are shifting. Software that charges per user is exposed when AI lets customers do the same work with fewer people. Software that charges on the work it processes, or that holds data and workflows customers can't easily move, is in a stronger position. Build switching costs and pick a value metric that grows as customers get more productive.
Should a SaaS product offer monthly or annual plans?
Offer both. Monthly plans lower the barrier for new customers. Annual plans cut churn, bring cash forward and are standard for business buyers. A common approach is roughly two months free for paying annually. The Subscription Playbook notes the downside of annual billing: every renewal becomes a decision point, so earn it during the year.
What gross margin should a SaaS business have?
Classic SaaS businesses have typically run gross margins of about 75% to 80%. AI-native products are lower because they pay for inference: ICONIQ's 2026 survey put the average AI-product gross margin at 45% in 2025, projected to reach 53% in 2026. Investors value high-margin recurring revenue more, so track gross margin from day one.
How is a SaaS business valued?
Usually on a multiple of recurring revenue rather than profit, adjusted for growth, net revenue retention and gross margin. That's why The Subscription Playbook compares a typical small business selling for about 0.67 times revenue with Slack, acquired for about 26 times projected revenue. Use a valuation estimator to see how retention and margin move your multiple.
Get both books free
The Subscription Playbook (ebook + audiobook) and Feed a Starving Crowd, instantly. In Australia? Claim the free hardcover.
Robert Coorey, MBA
Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.
Sources
- Salesforce Q2 FY27 results (26 August 2026)
- Salesforce: Agentforce pricing (accessed October 2026)
- SaaStr: 10 metrics from ICONIQ's 2026 State of AI report (10 July 2026)
- SaaStr: Inference is the new sales and marketing spend (9 February 2026)
- WiseTech Global 1H26 results briefing (February 2026)
- Atlassian: Data Center end of life
Facts and prices checked 27 October 2026. Spotted something out of date? Tell us.