The core model: subscriptions
Most SaaS revenue is a subscription billed monthly or annually. Pricing usually follows one of three structures: per seat (Slack, Notion), usage based (Twilio, AWS), or feature tiers (basic, pro, business). Annual plans are typically discounted 10 to 20 percent because prepaid cash and lower churn are worth more than the sticker price. The structure you pick matters less than whether the price maps to the value the customer gets.
Expansion revenue: the second engine
Healthy SaaS companies grow revenue from customers they already have. Seats get added, usage grows, and customers upgrade tiers. This shows up as net revenue retention: above 100 percent means the existing base grows on its own, and public SaaS leaders run 110 to 130 percent. Services and onboarding fees exist too, but they carry lower margins and most small SaaS companies keep them minimal.
The margin math
SaaS gross margins typically run 70 to 85 percent. Cost of goods is hosting, third party APIs, payment processing at roughly 3 percent, and support. That means a $50 per month customer leaves about $38 to $42 to spend on acquisition, development, and profit. Compare that to e-commerce at 20 to 40 percent gross margin and you see why buyers and investors pay premium multiples for software.
Where solo SaaS revenue actually comes from
Solo founders rarely run complex pricing. Most revenue comes from one or two paid tiers between $9 and $99 per month, sold self-serve with no sales calls. A typical solo SaaS at $5,000 MRR looks like 150 customers averaging $33 per month. Recurring billing is the whole point: you sell a customer once and they pay every month until they churn, which is why a 3 percent monthly churn rate matters more than any single sale.