SaaS Terminology: What You Need to Know

Software as a service, usually indicated by the acronym SaaS, has become an increasingly popular way for businesses to add software functionality to their operations, and of course, SaaS terminology has taken on a life of its own. Like any industry, SaaS has developed its own jargon. You may hear terms used when discussing SaaS that are foreign to you. Don’t let these words slip past you. Some of them are vital to understanding SaaS and can mean the difference between running smoothly and hitting roadblocks. Our quick guide to SaaS terminology will help you understand some of the most important words and phrases that SaaS vendors and customers use.

SaaS Terminology

Software as a Service (SaaS)

The first SaaS terminology word you need to understand is “Software as a Service” itself. This is a way to get software for your company without buying it. Instead, you subscribe to a software service. The company you subscribe to hosts all the software and you simply access it through the Internet. All of your functions are performed on the vendor’s software, and it is stored for you. You do not have to download any software because you are renting or leasing access to a vendor’s software.

Cloud Computing

In SaaS terminology, you may hear mention of “cloud computing” when you shop for SaaS vendors. This is a broad term for any kind of computer work that is done in the cloud. SaaS is simply a subset of cloud computing that offers the use of software over the internet.

The cloud is several computers and servers, even databases, that are working together. SaaS is software applications.

Cloud computing has its own jargon as well. Kemplittle.com provides a guide to terms used in talking about cloud computing.

RELATED: Cloud vs. SaaS: What’s the Difference?

Application Integration

You will hear a lot about “integrations” or “application integration” when you are considering using SaaS. In SaaS terminology, an integration is a connection with other software that allows you to bring data and functions into your SaaS software from another application. For example, if you have an accounting SaaS application, it may integrate with other applications like QuickBooks. This will allow you to import your QuickBooks data into your SaaS accounting software. To give another example, your SaaS application for keeping track of new customers might integrate with another application like Survey Monkey, where people give you their contact information while taking surveys.

Churn

This term describes how SaaS businesses measure the number of customers who cancel their recurring subscriptions. It is given as a percentage. If a company has a 20% churn rate, for example, 20 out of every 100 customers cancel subscriptions. Anticipating how many customers they will lose helps SaaS companies forecast how much revenue they can expect from subscriptions.

Lifetime Value

This term refers to an average. It is the average revenue a company will receive from a customer until he or she leaves the service. This figure allows SaaS companies to forecast the amount of money they will take in based on how many customers they have.

Bookings

This term is most often used as a plural. “Bookings” are the total worth of contracts with customers. It is a simple way to check on business health. For example, a company might find that in the last quarter, it had $2,000 worth of bookings. That means new customers signed contracts and they are worth $2,000. A company might want this figure if it is using an SaaS application that generates leads. The company would have an idea how well the service is working.

If you offer SaaS, your bookings number would measure how many customers you are signing up during any given period of time.

Service Level Agreement (SLA)

Be sure to read the service level agreement in your contract with any SaaS vendor. The SLA is the part of the contract that describes all the services that the SaaS provider maintains for you. It will also clarify the vendor’s responsibility. While “SLA” is not exclusively SaaS terminology, it is a vital term to understand when using SaaS.

RELATED: How SaaS Works

Multi-Tenancy

Watch for this term when you are ready to subscribe to any software service. Some SaaS companies put several companies on a single database. This makes the service cheaper. But it also means if someone hacks one of the companies that shares your database, your data could be at risk too. Ask about multi-tenancy when considering a vendor. Check your service level agreement to see if it says you will have a multi-tenancy arrangement. Knowing this SaaS terminology can help you avoid risking your data.

Consumption-Based Pricing Model

You may hear that you can subscribe based on consumption. In SaaS terminology, this is a pricing strategy some SaaS vendors use to allow customers to pay only for the services they need. You might start with a basic version, then add services and features as your company grows, or as you want to utilize more of the vendor’s offerings.

Sometimes, a SaaS vendor may charge according to the number of users you will have, or you may be charged based on the amount of data storage you will need.

Onboarding

You may think of onboarding as the process of acclimating new employees to your business. In SaaS terminology, it means something different. Onboarding is the process you will have to go through to get up and running on a SaaS application. Always ask about support for the onboarding process, because some applications have a steep learning curve.

 

The Bottom Line

Make sure you understand the terms being used when you are getting into an SaaS arrangement. Our list of words used in SaaS terminology will get you started, and if you hear other terms, insist on having them explained to you before you sign up for a service.

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