How Much Does It Cost to Start a SaaS Company?

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
Administration costs
Business set up fees	Required	$450
Insurance	Recommended	$1500
License fees	Optional	$400
Lawyer fees	Recommended	$800
Software costs
File hosting service	Required	$400
CRM software	Recommended	$350
IT support	Recommended	$1500
Location costs
Office space rent	Optional	$6000
Utility costs	Optional	$1200
Wi-Fi	Required	$100
Payroll costs	Required	$200
Marketing costs
Campaigns and mailing lists	Required	$300
Press	Required	$500
Google Ads	Required	$300
Total Cost		$14,000

SaaS Production Costs 

The production costs of SaaS differ in three main ways;

• Frontend 
• Backend 
• Marketing and quality assurance 

Each of these sectors will require a unique set of professional knowledge.

Frontend Costs 

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. 

This is done by combining the graphics and the user interface. A developer with knowledge of programming languages such as HTML and Javascript should be hired in this stage to ensure the creation of a convincing frontend. 

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. 

Backend Costs

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.

Quality Assurance 

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

Frequently Asked Questions 

1. 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. 

2. 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. 

3. 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. 

Conclusion

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!