The market space of Software as a Service, or SaaS, continues to grow and is often hailed as the next big thing that will change digital life as we know it. With all that’s been happening around you and the growing trends in the business world, you may be thinking of starting your own company and entering this profitable field.
The start-up cost of a SaaS company is averaged to be $112,000. The SaaS products will cost between $20,000 to $200,000 while the administrative costs will cost between $60 to $12,000 given the scope of the company. Additionally, 15% to 20% of revenue should be kept aside to market the product in the long run.
Although starting a SaaS company from scratch may seem like a daunting task, breaking down and analyzing the cost will help you to plan accordingly. Hence, this article will break every cost down and guide you through the costs incurred by many sectors that will help you in planning your next big venture.
SaaS Company Start-Up Cost
Although SaaS is a modern investment dealing with all the cool digital stuff, you will still have to go through the boring bits of paperwork to register your company as a legitimate business. Registering a company will cost you an amount between $12,000 to $24,000 depending on the scale of the business and who you hire.
The following table covers all the necessary sectors any business would require in the digital era including business formation, software, office space, websites, and marketing.
|Type of cost||Requirement level||Average cost|
|Business set up fees||Required||$450|
|File hosting service||Required||$400|
|Office space rent||Optional||$6000|
|Campaigns and mailing lists||Required||$300|
SaaS Production Costs
The production costs of SaaS differ in three main ways;
- Marketing and quality assurance
Each of these sectors will require a unique set of professional knowledge.
The front end of SaaS production refers to the general design and the outlook of the product. Hence, a perfect front end should have the potential to convince the customer to try the product.
In general, developing the front end would take around 360 working hours to be fully completed. Assuming the average rate of a developer in America to be $60 per hour, a complete front-end integration would cost $21,600.
Alternatively, a front end can be designed through low code software and websites which can save a fortune. But this method is not recommended if you’re going to start a company as there are reliable concerns.
The backend of a SaaS is where all the work gets done. Although backend development doesn’t affect the user experience like design and interfaces, it provides the crucial aspect of running your product smoothly.
Backend development primarily focuses on databases, backend logic, APIs, and servers. Programming languages of python, java, PHP, Ruby, and .net are used in this process.
Backend development takes a lot more time than designing the front end given the complex processes. It would take around 560 working hours to complete a backend with all systems running smoothly. Given a developer working in the USA will charge an average of $60 per hour, the developing sector will cost $33,600.
Although this sector is often overlooked, quality assurance provides vital feedback on the completed product. This final stage of development will be like a trial run where the company can fix errors, overlook smooth running of key backend components, and improve user-friendliness based on developer feedback.
Quality assurance would take around 25 hours to complete. Again, given the $60 hourly rate of a developer, it would cost $1,500 to complete this stage.
Once these three stages are complete; you will have a fully integrated SaaS product in your hands. Here is a complete table about SaaS development costs.
|Stage of development||Key components||Time involved||Average hourly wage||Total cost|
|Front end||SaaS UI/UX design user interface||360 hours / 9 weeks||$60||$21,600|
|Back end||Databases Backend logic servers and APIs||560 hours / 14 weeks||$60||$33,600|
|Quality Assurance||Trial runsBug fixes||25 hours / 3 days||$60||$1,500|
|Total||945 hours / 24 weeks||$60||$56,700|
Hiring A Developer Vs Hiring An Agency
With all the development costs involved, you might be thinking of hiring a development agency as opposed to hiring a single developer. There are both pros and cons in both ways and you should be well informed to make a wise choice.
|Hiring a developer||Hiring an agency|
|Lower pay rate The complete pay rate is less with an average of $56,000||Higher pay rate The pay rate is higher than most developers with an average of $90,000|
|Need to micromanage There is a need to micromanage because the developer will look up to you for input||No need to micromanage because an agency comprises many experts who will know exactly what you want|
|Technical knowledge neededYou will need technical knowledge to advise the developer on what to do||No need for technical knowledge Agencies will take care of all technical matters through a project manager|
|Experience required Requires experience in hiring the proper developers according to your needs||No experience required The agency will have a sophisticated in-house recruitment process, meaning you will get the best developer working for you|
|Time-consuming Outsourcing all work to a single developer can be a very time-consuming process||Time-saving A team of developers will work through an agency which will significantly cut the development time|
|Less accountability Quality assurance could be an issue with less accountability||More accountability The agency will give a guarantee on quality, allowing you to hold them accountable|
After the creation of a viable product is complete, you will need to worry about the administration part where you must complete paperwork to create your company while thinking about the marketing strategy.
Learn More about SaaS
With Tech stocks driving the recent bull runs, it is understandable that most aspiring entrepreneurs have their sights set on the tech industry. Within technology startups, Software as a Service
The hype created by the SaaS products is real; not only do they help to increase the efficiencies of companies by a lot, but also they significantly increase the throughput,
The technological world is moving at a fast pace. Not long ago, all the major businesses had their on-site software and solutions. The word ‘cloud’ was nothing but a bunch
Frequently Asked Questions
- What’s the advantage of using a marketing agency?
Using a marketing agency will give your company more reach as an agency has more tools and resources at its disposal. Agencies will know what products to focus on and how to sell them while having contacts with influencers and popular social media channels. However, this would cost a fortune as opposed to in-house marketing.
- Can one person build a SaaS on his own?
Yes, there have been many SaaS start-ups designed by a single person which have turned out to be profitable. However, this is a lot of work and responsibility to take on as one person and there might be adverse effects like stress and depression due to the high workload involved.
- How Much Does It Cost to Create an MVP?
A Minimum Viable Product will cost between $15,000 to $50,000 based on how complex a project is. Other factors such as size, the hourly rate charged by a developer, and the size of the product will also play a key role in the cost.
We hope this article proved useful in breaking down the costs required for starting a SaaS company from the ground up. Don’t forget to leave aside at least $112,00 so you can create the company of your dreams. We know it’s a daunting task and a great big business world out there, but keep trying. Happy hunting!