SaaS Software Development Costs - Onix’s Guide

Gartner predicts worldwide user spending on cloud computing services should grow 23% in 2021 and total $332.3 billion. The segment of software as a service (SaaS) alone is expected to reach $122.6 billion. This trend is likely to continue in the years to come. 

 

If you are thinking about starting a SaaS business, you can find some tips on the development of a SaaS platform in this article.

 

You can also find here answers to questions such as:

 

• What are the main components of SaaS products?
• What does it take to build a SaaS product?
• How much does it cost to develop SaaS?
• How is it possible to reduce SaaS development costs?

 

You can also directly proceed to an online form we created to help entrepreneurs estimate their SaaS startup costs.

 

 

7 Key SaaS Components

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. Read also: The Features of Healthcare CRM Software

 

• 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.

 

• 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.

 

These components are usually present in every SaaS solution. Depending on the types of SaaS products, the number of components may vary.

In terms of user-facing features, a typical SaaS application should also include:

 

1. Login and logout, including two-factor authentication.
2. Ability to edit user profiles, change passwords, add and remove users, manage role-based access, etc.
3. 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 a SaaS product may look complex and intimidating, but it isn’t always the case. You can start small. Contact our consultant, and within a few days, we will help you formulate the requirements for each component.

 

The Stages of SaaS Application Development and Their Costs

 

Let's look at how to create a SaaS in just 4 basic stages. In addition, we will consider in detail the SaaS development costs for each step.

 

1. Market research and ideation

Costs: Zero if you do everything on your own. If you hire a business analyst, be ready to pay around $80/hour in the US (in Ukraine, it may be $40/hour). In that case, a week’s job might cost from $1,600 to $3,200, but the total price would depend on how long it takes the expert or experts.

 

First of all, 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.

 

 

Your future SaaS app needs to solve a real problem. Its value should be clear and appealing to a broad audience, recurring, and financially beneficial. You also need to make sure your targeted audience is likely to pay for it through subscriptions. 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 SaaS platform or tool could fill. 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 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, $40/hour, we can estimate this phase at $1,600-$4,800.

 

 

Entrepreneurs that build SaaS applications for the first time often start with a minimum viable product (MVP). It basically includes the key SaaS components and possibly at least one unique functional tool. However limited, all app features should deliver value and meet the customers’ needs in the simplest and fastest way.

 

 

The benefits of this approach include a shorter time-to-market, ability to test your ideas and get the customers’ feedback fast, and minimal cost of building a SaaS product. 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 eliminate all unnecessary features of 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.

 

 

At the end of this phase, you should have the project documentation, approved prototypes, and project plan, including the timeline, budget, and the project team lineup.

 

 

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 $35, a basic calculation leaves us with a minimum estimate of $34,000. It’s worth mentioning that Adoric took 6 months.

 

 

The task of UX/UI experts at this stage is to develop simple and straightforward navigation and user-centered SaaS website 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 level agreements, and make sure that your subscription covers the backup and recovery strategies.

 

The app will have to use data encryption and other SaaS security features, especially if it deals with medical 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
• performance 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 SaaS application development, 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 improvements by a couple of developers, design and QA specialists will start from $10K per month. Additionally, hosting costs for SaaS may range from $1K to $10K. For example, Adoric’s expenses amount to $7K monthly.

 

All the operations being deployed should correspond to the project 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.

 

 

It is essential to refresh, update, and optimize the service frequently. 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. 

 

SaaS Software Development Costs: 3 Key Factors to Know

Firstly, it is the time frame that determines the cost to develop SaaS software of any type. Secondly, it is the specialists’ hourly rates. 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 bill.

 

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 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 impacts 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.

 

Simultaneously, senior developers’ hourly rates are higher than junior developers, and the more people on the team, the bigger your payroll.

 

The product development team’s geographical location may have the greatest impact on the cost to build a SaaS app. For example, the wages of programmers in Southeast Asia may be ten times lower than in the U.S. or Canada.

Your company may form an in-house team, engage freelancers, or outsource your SaaS application development fully or partially. The decision will directly determine the costs.

 

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.

 

A Few Challenges to Building a SaaS Product

Before understanding the SaaS startup software costs, it is necessary to learn about the problems that often arise during the creation.

 

Small target audience

Focusing on a specific industry or business problem as a popular SaaS trend. However, choosing a niche that is too narrow or a course too unorthodox, you risk not getting enough customers to generate revenue.

 

To prevent this situation, it’s recommended to address your app’s SaaS product-market fit from the onset, stay responsive to customer feedback and market trends, and iteratively modify, update, and optimize your SaaS app to meet their needs.

 

 

Security issues

SaaS applications deal with consumers’ financial and personal information and vast amounts of user data. Financial and medical systems are especially attractive targets for hackers. Data storage issues, malware attacks, data leakages, and other vulnerabilities pose the risk of not only reputational and financial losses. The failure to comply with local and international legislation regarding privacy and security may impose your startup to exorbitant fines. Countless fixes of newly discovered issues and improvements to the app’s security will be draining your enterprise of cash. If customers don’t trust your app, they will not use it, limiting your chances to succeed. 

 

SaaS application security and compliance should be your top priority at every stage of your product development. The app should feature two-factor authentication, role-based access, field-level encryption, and other attributes of secure software systems.

 

 

Poor execution

 Poor execution of your ideas can dramatically increase the cost of building a SaaS product. To mitigate the risk, managers recommend using SWOT Analysis, a simple framework for analyzing your enterprise's strengths, weaknesses, opportunities, and threats. It helps clarify your objectives, discover the factors that can help or prevent you from reaching them, address what you’re lacking, leverage your benefits, and build on what you do well.

 

Several Ways to Reduce SaaS Startup Costs

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.

 

Flexibility with hosting plans. After defining your SaaS application’s specific needs, research into the cloud platforms and their prices and plans. 

 

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, offshore outsourcing allows saving money, sometimes half of the budget, while focusing on core business processes.

 

Other factors that accelerate product development, helping reduce a SaaS cost, 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

 

 

Thus, if the software development startup costs interests you the most, these are the points to pay attention to.

 

Freelancers or Outsourcing Agency?

The choice of the outsourcing partner 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 SaaS 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 employee or freelancer 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.

 

 

To Recap

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 planning
• UX/UI design, development, and QA
• Product launch and post-launch maintenance

 

 

SaaS application development cost may vary dramatically depending on:

 

1. the geographical location of the product development team
2. the type and complexity of the product
3. its features, integrations with other services, etc.
4. project team and technology-related decisions

 

As a result, the cost of making a simple tool with 1-2 core functions may range between $15K and $100K. 

 

A SaaS platform may cost anywhere between $50K and $500K to build.

 

A mobile version will entail new expenses.

 

However, 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.

 

 

FAQ

 

• What are the major components of SaaS?

The essential SaaS components are:

 

1. CRM system
2. Marketing automation
3. Billing system
4. Customer analytics
5. Customer support
6. SaaS platform
7. Infrastructure

 

• What factors determine SaaS development costs?

The factors that impact the final cost of development of a SaaS platform include, but are not limited to: 

  

• Type, complexity, and scope of the SaaS product
• Deadlines
• 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 $120,000 in the U.S. and $40,000 in Ukraine.

 

• What is the best way to reduce the cost of building a SaaS product without compromising quality?

Outsourcing SaaS product development to Central and Eastern Europe, e.g., the Czech Republic, Poland, or Ukraine, is likely to provide you with the best price-quality ratio.