If you are considering starting a SaaS business, this article should give you an idea about the process and cost of SaaS software development. We are happy to share our knowledge and practical tips coming from Onix’s vast experience.
Table of contents
The revenue in the global software as a service (SaaS) market, estimated at $258.6 billion in 2023, is projected to reach US$282 billion in 2024. Growing at a CAGR of 7.33%, the market volume should approach $375 billion by 2028.
This market growth is driven by organizations’ increasing inclination toward public and hybrid cloud solutions, integration with other tools, and centralized analytics. SaaS solutions are evolving as organizations integrate machine learning (ML) and artificial intelligence (AI) to improve operations proficiency and intelligence.
These numbers should seem exciting, but the development of a SaaS platform may seem like a daunting task for startupers. This article should explain everything in simple terms and provide answers to crucial questions, such as:
- What are the main components of SaaS systems?
- How to build a SaaS application?
- How much does it cost to build a SaaS product?
- How is it possible to reduce the cost of SaaS development?
The components of SaaS business architecture are often integrated with and become a core part of a SaaS application:
- Customer Relationship Management (CRM) system. You will need a central repository of customers and account management and sales functionalities, such as associating accounts with salespeople, differentiating customers’ roles, plans, available features, etc. A built-in CRM system may also be available to application customers.
- Marketing automation. This component addresses the company’s need to manage communications with leads, prospects, and customers. This component can also be the primary offer of your SaaS.
- Billing system. SaaS monetization strategy is typically subscription-based, which implies recurring billing. You will need tools for associating customers with plans, usage-based billing (e.g., storage space or time), invoicing, the actual collection of funds, and communication.
- Customer analytics. This module helps SaaS companies analyze the behavior of their customers within the application and potentially elsewhere with the goal of optimizing the user experience. The customers may also require analytical tools and a dashboard with graphics, reports, and statistics relating to their activities, such as sales or marketing.
- Support. This module, which can also be referred to as helpdesk, may include core customer support tools, traditional knowledge-base and self-learning tools, feedback forms, live chat, and other tools that can help you build a robust community of users and provide them with excellent support.
Read also: 10 chatbots trends & the latest statistics
- Platform. This is exactly the software/system/web application that you will market as SaaS and which your customers will be using.
- Infrastructure. Since SaaS applications usage may vary dramatically from month to month, the architecture should be able to scale up and down in response to the users’ behavior.
- Login and logout, including two-factor authentication.
- Ability to edit user profiles, change passwords, add and remove users, manage role-based access, etc.
- Functional tools that allow customers to perform their job and solve their problems. For example, a SaaS app for business collaboration may include document management, file sharing, search engines, communication channels like live chats, voice calls, etc.
The task of building such a system may look complex and intimidating, but it isn’t always the case. You can start small, especially if you aim at minimizing your SaaS application cost. Contact our consultant, and within a few days, we will help you formulate the requirements for each component.
1. Market research and ideation
Costs: Zero if you do everything on your own. Otherwise, you might hire a business analyst. If you do it in the US, be ready to pay $109-$154/hour, which translates into $4K-$6K for a week’s job. The total price would depend on how long the research takes.
First of all, you should identify a market opportunity and find a way to satisfy that demand. It can be a simple tool performing one or two functions, e.g., send invoices, optimize ad serving, or generate simple logos. Otherwise, you might envision a whole SaaS platform that optimizes specific business processes, e.g., medical CRM, enterprise resources planning, or hotel property management systems.
Solving a real problem is not enough. The benefits delivered by your product should be clear and appealing to a broad audience, recurring, and money-wise, likely to outweigh the implementation costs for software as a service: you need to make sure your targeted audience will pay for it through subscriptions.
Choosing a niche that is too narrow or a course too unorthodox, you risk not getting enough customers to generate revenue.
Market research will help you
- understand the current demand for the identified SaaS solution
- get insights into your competitors and your potential customers’ requirements
- come up with a concept and value that will set apart your SaaS app
- avoid the mistakes that led to the others’ failures
- implement value-based pricing for your product
Conduct consumer research and interview potential customers. Look for the current solutions’ disadvantages and gaps that your platform or tool could fill, e.g., through SaaS cost optimization. Learn where customers are spending time and money and figure out a better, easier, and cheaper way to do the same. Search for ways to cut the cost of SaaS implementation, win over dissatisfied customers, and attract new ones.
You also need to investigate all applicable security standards and national and international regulations to comply with, e.g., the European GDPR or HIPAA for medical software in the U.S.
Start preparing your monetization and marketing strategy well ahead of time. For example, every SaaS product needs a landing page or website with a tour, SaaS features and pricing, FAQ and legal pages, and sign-up/login.
Regarding possible SaaS pricing strategies, there are many options:
- usage-based pricing, when users pay based on the amount of usage
- pricing per feature, when you offer different sets of features
- pricing per active user, when the customer pays for their team members using your SaaS product
- “freemium,” a set of core features available for free, with the ability to upgrade to a paid “premium” subscription, e.g., allowing more data in the cloud
- flat rate, when the customer pays a monthly, quarterly, semiannual, or yearly fee for using the entire product or feature set
It takes thorough marketing research to determine the optimal service prices and conditions and create the packages and subscription plans.
2. Product discovery and planning
Costs: Product discovery typically takes from one to three weeks. By multiplying 40-120 hours by the hourly wage of at least one specialist, say, $50/hour we charge at Onix, we can estimate this phase at $2K-$6K.
Entrepreneurs that build SaaS applications for the first time often start with a minimum viable product (MVP). It basically includes the core functionalities and at least one unique tool. However limited, the feature set should deliver value and meet the customers’ needs in the simplest and fastest way.
This approach allows developers to reduce the time and cost to build a SaaS product and to test your ideas and get the customers’ feedback faster. You can start with just one tool, and based on the users’ response and demand, either pivot or make adjustments, introduce more advanced features, and maybe eventually end up running a full-fledged SaaS platform.
We recommend engaging a consultant or experienced SaaS developers at least at this point. They will help you make some of the early critical decisions, such as prioritize the features for the MVP, refine the essential ones, choose the most suitable technologies and solutions, and more. The professionals will also help you compare your solution with competitors, estimate the project budget, and plan the application development process.
Learn more: How to create a roadmap for a project
3. SaaS app design, development, testing, and debugging
Costs: If the basic design was prepared during the discovery stage, a team of two developers can roll out an MVP in three months. At an hourly rate of $25-$40 typical in Ukraine, a basic calculation leaves us with a minimum estimate of $25K-$40K. In the U.S., the same job done by equally qualified developers would start from $119K. It’s worth mentioning that Adoric took six months.
The task of UX/UI experts at this stage is to develop simple and straightforward navigation and user-centered design of the interactions. Excellent UX/UI will facilitate frequent and long use of your SaaS platform.
SaaS solutions’ complex architecture is delivered employing different frameworks, libraries, and development tools. From the implementation standpoint, SaaS components can be implemented using a third-party solution provider, using in-house development, or through a combination thereof. Most SaaS companies also use third-party providers for the hosting and maintenance of their products.
Since every provider works with a specific programming language, your software engineering team needs to work out the optimal combination for your product.
It is important to design and build a scalable SaaS architecture from the onset. It also should be able to reduce the number of servers to the required minimum almost instantly: it saves resources and money.
Before making each decision, it’s critical to estimate your SaaS product’s scalability, potential profits, and start-up costs. Your project team will help you with this, as well as prepare the necessary documentation, reach the necessary service-level agreements, and make sure that your subscription covers the backup and recovery strategies.
The app will have to use data encryption and other security features, especially if it deals with healthcare or financial services. The database providers’ standard security protocols use TLS and SSL encryption to protect the users’ data and communications. Additional technical solutions can make your SaaS even more secure.
Throughout the SaaS application development, tests should be conducted continuously, at each iteration, including:
- functionality testing
- user experience testing
- compatibility testing
- security testing
It’s considered risky to release a SaaS product without A/B testing. If you worked with any potential customers at the early stages of your project, now they may help you test out the technical integrations, business logic, and design. Try to gather all possible feedback and quickly improve the product before it is on the market.
4. Launch, maintenance, and improvements
Costs: The cost of maintenance and data-driven improvements by a couple of developers, design, and QA specialists will start from $10K per month. Additionally, hosting services may cost anywhere from $1K to $10K. For example, Adoric’s expenses amount to $7K monthly.
All the operations being deployed should correspond to the specifications, service-level agreements, security and other regulations, and the cloud services’ shared infrastructure. It’s vital to accompany the launch of your SaaS product with active marketing and sales activities.
In the first few months, you will need to run user testing, fix issues continuously, track relevant metrics and benchmarks, collect customer feedback, and rapidly implement changes and test new business hypotheses. Monitoring of the customers’ behavior and revenue will also help you adjust the chosen SaaS model to achieve profitability.
You need to stay responsive to the customer feedback and market trends, and iteratively modify, update, and optimize your SaaS app to meet the customers’ evolving needs. Developers have to implement updates through no-downtime deployment to ensure uninterrupted availability and prevent situations where a part of the user base uses an outdated version.
Any online calculator basically uses the following equation:
Total cost to build SaaS product = Hours spent to build product x Cost per hour
Multiple factors impact the two variables.
1. Type, complexity, and scope of the SaaS product
Every additional functionality, requirement, and third-party integration requires research and coding effort and needs to be covered with tests, adding hours to your project timeline and dollars to your software as a service costs. A mobile version will entail new expenses.
The SaaS app‘s complexity, deadlines, and other factors also determine the number of project team members. At different points of the development process, your checklist may include, but not be limited to:
- business analyst
- product manager (best performed by the startup founder)
- project manager (PM)
- cloud solutions architect
- user experience and user interface designer
- front-end web developer
- back-end developer
- mobile developer
- QA engineer
- DevOps specialist
… as well as possibly machine learning, marketing, legal, financial, and other experts.
2. Size, qualification, and location of the SaaS development team
The number and skill level of the people working on your project also impact both components of SaaS budget calculation. Three programmers can normally do more work than two people during the same period. The more qualified a programmer is, the faster they work and deliver the required features. The devs’ experience in building SaaS apps for a particular industry will also accelerate the process.
On the other hand, senior developers’ hourly rates are higher than junior developers, and the more people on the team, the bigger your payroll.
The team’s geographical location may have the greatest impact on the cost of your SaaS software development. For example, the wages of programmers in Southeast Asia may be three times lower than in the U.S. or Canada.
3. Post-release expenses
Your product development expenses do not end after your SaaS platform has been deployed. New expenses on improving the SaaS product, hosting services, maintenance servers, databases, and integrations will apply.
The total cost of ownership (TCO) is calculated based on updates, licensing, technical support, subscription costs, and more. You need to be prepared for the long-term management of the TCO.
Additionally, startups are prone to making mistakes that can make SaaS costs skyrocket. If you can avoid the most common mistakes, you can avoid scope creep, wasting the budget, and eventual money loss due to failures. Let us warn you about a couple of them.
Automation. QA typically takes up to one-third of the time the programmers have spent coding your app. If your team tests manually, you will be paying for the QA staff’s every working hour. If the testing process is automated, errors are easier to find. Spending some time upfront to build automated tests will save you money in the long run. These tests will still be useful after your SaaS product is launched.
Third-party service integrations. For instance, if there are no unique requirements for payments, it is easier, faster, and cheaper to integrate with Braintree, PayPal, Stripe, or other payment systems that provide their APIs (application programming interfaces).
Flexibility with hosting plans. After defining your SaaS application’s specific needs, research into the cloud platforms and their prices and plans. Eventually, you may also try to reduce SaaS costs by requesting a discount before a hosting subscription renewal, or, after a while, leverage the established relationship with the provider to negotiate a volume discount or lower price for a long-term contract.
Outsourcing. If you lack the necessary human resources or work with a limited budget, you can choose among onshore, offshore, and nearshore outsourcing options. Despite certain nuances, hiring an offshore dedicated team allows saving money, sometimes half of the budget, while focusing on core business processes.
Other factors helping reduce SaaS software development costs may include:
- well-chosen technologies
- thoughtful UX design
- a clear plan the team sticks to
- willingness to change requirements if it saves development time
- validation of feature ideas before development
The choice of the developers may depend on your requirements for the level of expertise, hourly rates, etc.
Freelancers are less expensive. However, the communication, collaboration, and coordination between distributed team members, as well as the management and oversight, will grow more complicated with every freelancer joining the project.
Outsourcing agencies charge higher fees, but you will automatically engage a team specializing in SaaS development, with experienced designers, PMs, and skilled web and mobile developers under one roof. You don’t need to search, screen, interview, and choose each product developer yourself.
Moreover, agencies sign NDAs and formal contracts and have mechanisms in place to ensure your outsourced project’s success. For instance, if a team member suddenly leaves the project, the agency will substitute them immediately.
An outsourcing agency with years of custom software development on its track record can also offer valuable industry insights and advice.
A company that decides to build SaaS application is likely to go through the following steps:
- Research and validation of the SaaS business idea
- Product discovery and project planning
- UX/UI design, development, and QA
- Product launch and post-launch maintenance
The cost of building a SaaS product may vary dramatically depending on:
- the geographical location of the product development team
- the type and complexity of the product
- its features, integrations with other services, etc.
- project team and technology-related decisions
As a result, the “average cost” of SaaS software development you may come across on the web ranges anywhere between $10K and $500K and up.
By making well-informed decisions, you can not only save considerable amounts but also enhance the overall system’s utility, quality, performance, safety, and eventually, its profitability on the market.
Whether you wish to convert your original software tool into SaaS or start a SaaS business from square one, Onix can help with every stage of SaaS application development. If you have any questions or need a consultation, please feel free to contact us.
- What are the major components of SaaS?
The essential SaaS components are:
- CRM system
- Marketing automation
- Billing system
- Customer analytics
- Customer support
- SaaS platform
- What factors determine SaaS development costs?
The factors that impact the final cost of SaaS software development include, but are not limited to:
- Type, complexity, and scope of the SaaS product
- Tech decisions concerning APIs, cloud services, etc.
- The lineup and size of the SaaS development team
- The skill level and experience of the specialists working on your project
- Hourly wages of the specialists
- Miscellaneous post-release expenses
- How long does it take to build a SaaS product?
Generally, it takes around 2-3 months to develop a SaaS MVP. A full-featured SaaS application development may last from 6 to 12 months.
- How much does it cost to build a SaaS platform?
The total amount will primarily depend on where the SaaS dev team is located. A simple MVP that takes some 1,000 hours to complete may cost around $120K in the U.S. and $40K in Ukraine.
- What is the best way to reduce my custom SaaS development cost without compromising quality?
Outsourcing SaaS product development to Central and Eastern Europe, e.g., the Czech Republic, Poland, Romania, or Ukraine, is likely to provide you with the best price-quality ratio.