Multi-tenant PHP SaaS - Separate DB's for each client, or group them?

Option 3 is the most scalable. While at first it may seem more complicated, it can be completely automated and will save you headaches on the future. You can also scale more efficiently by having client databases on multiple servers for increased performance.

I agree with Ozzy - I did this for an online database product. We had one master database that basically had a glorified user table. Each customer had their own database. What was great about this is that I could move one customers database from server A to server B easily [mysql] and could do so with command line tools in a pinch. Also doing maintenance on large tables, dropping/adding indexes can really screw up your application, especially if say, adding an index locks the table [mysql]. It affects everyone. With, presumably, smaller databases you are more immune to this and have more options when you need to roll out schema level changes. I just like the flexibility.