SaaS Architecture

Multiple industry studies show that organisations already spend most of their software budget on SaaS products, and that share continues to grow as customers prioritise scalability and operational efficiency. To capture this market share, traditional software companies are increasingly shifting to SaaS model, moving away from one-off sales towards recurring revenue.

This knowledge base explores the key architectural changes traditional software must undergo to become a SaaS product. But before diving into the details, let’s quickly revisit what SaaS really is. SaaS is a model where software is offered as a service rather than a one-time purchase of a perpetual licence. Users simply access the software online, while the provider handles hosting and maintenance in the background.

To succeed as a SaaS business, traditional companies must move away from a project-delivery mindset and embrace service-delivery instead. This shift means focusing on three key pillars: how you land new customers, how you monetise them, and how you keep them coming back.

From a technical perspective, building a SaaS application goes beyond traditional software development practices. Engineers need to take into account SaaS-specific capabilities like tenant identity, onboarding, and isolation. If these capabilities aren’t carefully designed, you end up with poor scalability, limited pricing models, and high operational overhead. Let’s look at how SaaS architecture directly shapes business outcomes.

One of the main reasons software companies shift to a SaaS model is the opportunity to grow faster. SaaS simplifies scaling by streamlining customer acquisition and reducing operational costs. To sustain this growth, however, the application’s architecture must be closely aligned with the target growth rate. Below are a couple of metrics software providers typically track to ensure they are ready to meet that target.

Without context, these metrics don’t mean much. The same customer onboarding time and onboarding cost can be good for one organisation and poor for another. However, they are an integral part of the business metrics that SaaS products typically track, such as time to value (TTV), customer acquisition cost (CAC), and payback period. Review your application across the following SaaS capabilities to prepare your product for the target growth rate.

Tenant onboarding is a core SaaS capability that directly influences customer acquisition. The design of this process often depends on the expected onboarding volume. For example, a company that onboards a single new customer every few years may need a very different approach compared to a business that onboards thousands of customers annually.

Tenancy model defines how tenant resources are deployed. In traditional software, applications typically run separately for each customer. When software providers shift to a SaaS model, they often move customer applications into their own environment but leave the applications almost unchanged. This approach increases operational overhead and limits growth. To scale effectively and reach new market segments, the tenancy model should be aligned with the overall growth strategy.

Tenant operations are crucial for effectively managing a growing customer base. If poorly designed, operational processes can quickly become a bottleneck for scaling. To keep pace with growth, operations teams need robust tools to manage tenant resources and access tenant-specific telemetry. Without these tools, manual or ad hoc approaches can easily collapse under the weight of customer growth.

In SaaS model, gross margin shows the percentage of revenue a software provider retains as gross profit after direct costs (COGS) are deducted. It is calculated as (Revenue − COGS) ÷ Revenue × 100. As you can see, there are two key parameters that software providers can adjust to optimise their gross margin.

Review the following SaaS capabilities to understand how application architecture influences your margin.

Tenancy model can influence your gross margin more than you might expect. Unlike traditional software, which usually serves a single tenant, SaaS should support multiple tenants within the same environment. If traditional software is simply moved into a SaaS provider's environment without rethinking its tenancy design, it can lead to inefficiencies that reduce profit.

Tenant operations can directly improve gross margin by reducing the manual work the operations team has to handle per customer. Standardised, automated processes let a smaller team manage more customers. The result is lower operational cost and better margins as your business scales.

Tenant cost allocation maps SaaS application expenses to individual tenants, providing SaaS providers with a clearer view of profitability. By tracking and assigning infrastructure and operational expenses to each tenant, you can identify which customers are profitable and which are not. These insights guide cost optimisations, improving overall profitability.

Metering and billing form the backbone of pricing model in SaaS. By tracking subscriptions and consumption data, SaaS providers can design flexible pricing models that align closely with customer value. This drives revenue growth and creates a significant competitive advantage.

Tenant decommissioning should be a core part of your data retention strategy. In a subscription-based model, customers can leave at any time, often leaving behind large volumes of data from their usage. Once they churn, that data is no longer tied to subscription revenue and quickly turns into a cost burden for the SaaS provider, that scales with every customer who exits.

One of the first challenges software providers face when moving to a SaaS model is securely hosting tenant applications on their own infrastructure. This shift transfers responsibility for operating the software to the SaaS provider. To meet these obligations, providers usually need to comply with multiple regulatory and contractual requirements. That’s why they track compliance coverage, to ensure they remain compliant.

Review the following capabilities to improve compliance across your SaaS application.

Tenant identity management is a bedrock of compliance in SaaS model. It governs how users are authenticated and authorised, ensuring that only the right users can access tenant resources. Strong identity management fuels tenant isolation and makes user actions auditable and secure.

Tenant isolation works closely with tenant identity management to ensure that every tenant can only access their own data and resources. This separation is essential for maintaining trust, as it prevents cross-tenant data leaks and safeguards sensitive information. It’s also a key factor in meeting regulatory requirements, which is especially important consideration for SaaS providers serving customers across different industries.

Tenancy model also plays a significant role in compliance. By choosing where each tenant’s resources reside, SaaS providers can better address challenges like data sovereignty and data-segregation requirements. This is crucial for industries handling sensitive information, as it provides the controls needed to meet legal and contractual obligations.

Tenant decommissioning ensures customer data is handled responsibly at the end of a contract. It involves securely deleting or archiving all tenant-related information, reducing security risks while demonstrating compliance with legal and contractual requirements.

Shifting to a SaaS model accelerates both time to market and innovation. Shorter development cycles and unified feature rollouts make it easier to respond quickly to customer and market needs. However, to fully realise these benefits, the application’s architecture must be aligned with the SaaS business model. The following metrics help software providers track their agility.

These metrics show how quickly your business responds to customer and market needs, and how effectively you prioritise the most important features. Review the following SaaS capabilities to improve your agility.

Tenant operations shape how quickly new features reach your customers. With automated releases, you can roll out improvements across tenants faster and respond to market demand with short release cycles. That speed directly supports revenue growth by shortening the path from idea to production.

Tenancy model significantly influences business agility. When you standardise the setup, managing resources becomes much easier. By sharing infrastructure where it makes sense, you can scale faster and onboard new tenants without spinning up new environments every time.

Tenant consumption analytics improves agility by making real usage visible across tenants. It helps you validate ideas quickly, prioritise high-impact changes, and avoid wasting time on features that don’t deliver meaningful value.

SaaS businesses typically grow in two ways: by acquiring new customers and by expanding existing services. Service expansion focuses on generating more revenue from current customers, either through increased usage or by introducing complementary services. The following metrics help you track your expansion rate.

These two metrics are commonly tracked by businesses running SaaS applications. They directly reflect service expansion performance. Below are several capabilities to consider when designing a service expansion strategy.

Tenant consumption analytics enable you to track how different customers interact with your product, helping you understand which features deliver the most value and which are underutilised. These insights help identify upsell and cross-sell opportunities, and support smarter business decisions by prioritising high-impact changes while minimising wasted effort on low-impact areas.

Metering and billing sit at the core of SaaS revenue expansion because they align payments with real customer value. With accurate usage tracking, you can introduce new tiers, add-ons, or consumption-based pricing without reworking your application architecture. This makes it easier to test and scale new revenue streams as your product evolves.

Tenant cost allocation shows how much it costs you to serve each individual tenant. This visibility makes pricing decisions far more data-driven, helping you identify underpriced customers, features, and usage plans. With a clear view of tenant-level costs, you can confidently adjust pricing to scale revenue sustainably.

SaaS generates predictable revenue by shifting from one-time licence fees to recurring subscriptions. To make this model sustainable, software providers must focus on customer retention and lifetime value, both of which are closely tied to customer satisfaction. There are a couple of metrics that SaaS businesses track to measure customer satisfaction.

NPS indirectly impacts customer acquisition cost (CAC) through referrals, while customer retention is a core driver of one of the most important SaaS metrics: lifetime value (LTV). The following capabilities play a key role in maintaining high customer satisfaction.

Tenant onboarding is the moment when customers first interact with your product, and it often determines how quickly they get value. A smooth and well-structured onboarding experience builds confidence and reduces friction. When done right, it accelerates adoption and builds foundation for long-term relationships.

Tenant operations give support and operations teams the tools to identify and resolve issues effectively, sometimes even before they affect customers. Early detection enables teams to act quickly and prevent problems from escalating. This proactive approach plays a significant role in driving customer satisfaction.

Tenant consumption analytics gives you ongoing visibility into customer usage patterns, making it easier to spot potential issues early. By tracking tenant consumption, you can uncover insights into what drives customer satisfaction. This creates a solid foundation for proactive engagement and stronger customer retention.

Even SaaS-native applications can suffer from architectural constraints that limit their potential, while legacy systems often face even greater challenges. Aligning the architecture with the business model is essential to overcome these issues and improve business performance. A strong SaaS architecture acts as a growth engine, driving efficiency and supporting long-term success.

Valentine Nikonovich