The Components and Cost of SaaS Application Development

by Denis Sheremetov

Over the last decade, the Software as a Service (SaaS) delivery model has been replacing traditional on-premises licensed software for customers ranging from small shops to multinational tech giants. Salesforce, Shopify, Atlassian, Zoom, and Twilio are some of the biggest SaaS companies out there today. 

SaaS application development is a promising scenario for startups. A SaaS company can expect to attract a considerable customer base with moderate up-front fees and then rely on a fairly stable and lasting source of revenue.

Moreover, the demand for SaaS solutions grows in sync with companies. An average business with under 50 employees reportedly uses 25-50 apps; with 250 employees, this number exceeds one hundred. Even the increased need for collaboration software during the COVID-19 pandemic drives further growth of the SaaS market. As a result, it is expected to reach $120 billion in 2021. It seems like a perfect moment for starting a SaaS business.

This article will provide answers to questions such as:

  • What does it take to build a SaaS product?
  • How much does it cost to develop software of this type?
  • How is it possible to reduce development costs?

The Stages of SaaS Application Development

1. Ideation and market research

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., healthcare CRMmanufacturing resources planning, or hotel property management system. 

In any case, the app needs to solve a real problem. Its value should be clear and appealing to a broad audience, recurring, and financially beneficial. Moreover, you also need to make sure your targeted audience is likely to pay for your product 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 disadvantages of the current solutions and gaps that your SaaS platform or tool could fill. Learn where customers are spending time and money and offer a better, easier, and cheaper way to do the same with your tool. Search for ways to win over dissatisfied customers and attract new ones. Start thinking about your marketing strategy well ahead of time.

Entrepreneurs that build SaaS applications for the first time often start with a minimum viable product (MVP). Within a few weeks, a couple of developers or just a single designer can build a basic tool, giving you something to experiment with. Shorter time-to-market and minimal cost of development will reduce your financial risks. You can get the customers’ feedback faster and, based on it, either pivot or make adjustments, build up your product, and maybe eventually end up running a full-fledged SaaS platform.

A typical set of features for a SaaS application includes, but is not limited to:

1) Login and logout, ability to edit user profiles, change passwords, add and remove users, etc.

2) Functional tools that allow customers to perform their job and solve their problem. For example, a SaaS app for business collaboration may include document management, file sharing, search engines, communication channels like live chats, voice calls, etc.

3) Analytical tools and dashboard with graphics, reports, and statistics.

4) Account management system for differentiating customers’ roles, plans, available features, etc.

5) Billing system

6) Email notifications

All features should deliver value and meet the customers’ needs in the simplest and fastest way and at minimal cost on your side. Later, when you see how users interact with the basic set, you may gradually introduce more advanced features.

A basic design and list of user stories are enough for building an MVP. It may be more challenging to understand if what you’ve made actually works. It’s essential to determine the right metrics and benchmarks, e.g., how many registrations and sales within a certain period can be considered a success. Based on the results and customer feedback, you may either abandon the concept or proceed to proper product discovery and development.

NB. The number of project team members may vary depending on the SaaS app‘s complexity, deadlines, budget limitations, and other factors. At different points of the development process, you may need at least one person for each of the following roles:

… as well as possibly marketing, legal, financial, and other experts. You may recruit these people within your company, engage freelancers, or outsource your SaaS application development fully or partially. Despite certain nuances, the latter scenario will allow you to save money while focusing on core business processes. An outsourcing agency with years of custom software development on its track record can also offer valuable industry insights and advice.

2. Product discovery and planning

Our recommendation is to engage experienced SaaS developers at least at this point. They will help you make some of the early critical decisions. You may need to 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.

Accessibility on both web or mobile platforms is desirable, but since business employees work primarily on desktops, a B2B SaaS product should be firstly designed for the web. With appropriate responsive design, it will run seamlessly on tablets and smartphones as well.

Determining the optimal service price and conditions is one of the most challenging tasks: the endeavor’s success depends on this. 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

For example, the freemium model is the best way to attract customers to a new product in a competitive environment. However, it requires that the selected features appeal to the broadest audience possible and that you should be able to convert free users to regularly paying customers. If your product targets a narrow niche customer base, it may be better to offer the core features at cost, at a low subscription price, and several advanced service tiers at higher prices. It takes thorough marketing research to calculate a service cost, create the packages and subscription plans, etc.

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. Selection of the technology stack

Your team’s professionals should decide which programming languages, tools, and platforms are most suitable for building your unique MVP or full-featured SaaS product. We can compare the choice with choosing the building materials for a house.

SaaS solutions’ complex architecture is delivered employing different frameworks, libraries, and development tools. 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 team needs to work out the optimal combination for your product: 

  • Recommended technologies for front-end web development include, but are not limited to, HTML + CSS and JavaScript frameworks: Angular, React, or Vue.js.
  • Mobile development frameworks include Flutter, Java, Kotlin, Objective-C, React Native, and Swift.
  • For back-end (server-side) SaaS app development, popular programming languages and frameworks include JavaScript (NodeJS), PHP (Laravel), and Ruby (Ruby on Rails). 

Regarding a cloud host for your SaaS platform, Amazon Web Services (AWS), Azure, Digital Ocean, Google Cloud, Heroku, and Vultr offer a wide choice in terms of hardware, supporting software, content delivery network, and DevOps tools.

Proper research into the cloud platforms and their prices and plans is necessary after defining your SaaS application’s specific needs. Your choice may also depend on the MVP’s core features that can be better delivered in one language than another. For instance, PHP has good tools for statistics and computation.

The primary relational databases for SaaS apps are MySQL, PostgreSQL, and Redis. And finally, you’ll need to decide on a server for your SaaS application, e.g., Apache or Nginx.

A SaaS platform should be ready for constant growth and providing excellent user experience without lags and bugs, so it is important to design and build a scalable SaaS architecture. Elasticity, the ability to reduce the number of servers to the required minimum almost instantly to save resources and money, is also essential.

A plan of customization, integration options, and maximum security is essential. The app will have to use data encryption. For a medical or financial service, consider all possible ways to guarantee a high level of security. Your software should also be ready to handle increasing numbers of users without slowing down.

You can decide whether you want your SaaS application’s back-end functionality to be developed from scratch or using API integrations. Typically, a business’ generic subdomain (and sometimes the supporting subdomain) is built using third-party integrations. This reduces the development time and allows for scaling your business rapidly.

Before making each decision, it’s critical to estimate your 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.

4. SaaS design, development, testing, and debugging 

The job of UX/UI experts at this stage is not limited to designing highly aesthetic interfaces to impress your future customers. Simple and straightforward navigation and user-centered design of the interactions are equally, if not more important. Excellent UX/UI will facilitate frequent and long use of your SaaS platform or tool.

When the team is building the SaaS architecture and core features, tests should be conducted continuously, at each iteration, including:

  • functionality testing
  • user experience testing
  • performance testing
  • compatibility testing
  • security testing

Pay special attention to security and compliance with industry standards. 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. 

There are also national and international regulations to comply with, e.g., the European GDPR or HIPAA for software in the U.S. healthcare sector. Again, the team’s experience in building apps for a particular industry will be priceless.

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.

NB. The marketing and sales processes, essential for drawing in customers, should be prepared along with the app development process. Every SaaS product needs a landing page or website with a tour, SaaS features and pricing, QA and legal pages, and sign-up/login. 

5. Launch, maintenance, and improvements

All the operations being deployed should correspond to the specifications, service-level agreements, security and other regulations, and the cloud services’ shared infrastructure. Moreover, it’s vital to launch the product in an income-oriented way, including active marketing and sales activities, collecting customer feedback, monitoring relevant metrics, and rapid testing of new business hypotheses and changes implementation.

You will need to run user testing and analytics continuously in the first few months after your SaaS app launch. Monthly recurring revenue, customer acquisition cost, customer lifetime value, net promoter score, customer churn, and other metrics can inform you about your SaaS product’s success and growth.

Customers’ direct feedback shows precisely how your targeted audience feels about the product and helps determine new features and the entire further development strategy of your SaaS startup.

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. 

Monitoring the customers’ behavior and revenue, you can adjust the chosen SaaS model as well. Flexibility with subscription fees and complex SaaS packages will help you boost the revenue and achieve long-term profitability for your product.

Major Factors Determining Your SaaS Cost

Type, complexity, and scope of the SaaS product

Firstly, it is the time frame that determines the cost to develop software of any type. It depends on the product’s complexity, the chosen technology stack, and the number and skill level of the people working on your project.

Generally, it takes around two months to develop a SaaS MVP. A full-featured SaaS application development may last from 6 to 12 months. Every 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.

Tech decisions

For example, the subscription-based SaaS model deals with sophisticated subscribing, trailing, upgrading, canceling, and unsubscribing activities. There are two options for implementing this functionality. The first is to develop your own system. Naturally, it will take longer and will be more expensive when the developers would research into, design, and build it from scratch. However, your company will pay just once and will have full control of the processes and integrations.

Another option is to integrate a ready-to-use solution or application, e.g., Stripe’s API. It’s cheaper and easier at the development stage, although afterward, your company will have to pay regularly for API maintenance.

The same applies to the payment system. If you have unique requirements for payments, you may need to order a custom payment system. Otherwise, it is easier, faster, and cheaper to integrate with Braintree, PayPal, Stripe, or other payment systems that provide their APIs.

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, and less time is wasted. So, spending some time upfront to build automated tests will save your money in the long run. These tests will still be useful after your SaaS product is launched.

Location of the SaaS development team

If you lack the necessary human resources or work with a limited budget, you can choose among onshore, offshore, and nearshore outsourcing options. The choice of the outsourcing partner may depend on your requirements for the level of expertise, hourly rates, etc. 

Freelancers are less expensive. 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 specialist 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.

The choice of the region where your team is based may impact the final cost dramatically. For example, programmers in South Asia or South America may charge ten times less per hour than in the U.S. or Canada. Thus, a simple MVP that takes some 1,000 hours to complete may cost $120,000 in the U.S. and $25,000 in India.

Outsourcing your SaaS product development to Poland, Ukraine, or Belarus will probably provide you with the best price-quality ratio. The cost to build the same MVP will start from $35,000, and a full-featured SaaS platform’s cost may reach $100,000. Still, it’s a significant saving compared to what you would spend with a company based in Western Europe or North America.

Post-release expenses

It would be a mistake to consider the SaaS development cost as a one-time payment: expenses do not end once your app has been deployed. You will need to keep your eyes peeled for the customers’ and end-users’ requests and complaints and keep improving the SaaS product to deliver the best service possible. New expenses on 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. 

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
  • Project team and technology stack decisions
  • UX/UI design, development, and QA
  • Product launch and post-launch maintenance

For startups, the price of SaaS application development 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. tech-related choices

As a result, the cost of making a tool with 1-2 core functions may range between $15K and $100K. A SaaS platform may cost anywhere between $50K and $500K to build.

If you decide to add a mobile version, be ready to shell out anything from half to double your web SaaS cost.

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, Alternative-spaces can help with every stage of SaaS application development. If you have any questions or need a consultation, please feel free to contact us. If you would like to get a specific estimate of your SaaS concept, you may fill out a short estimator form online. Our experts will be back with an answer in no time.

Content created by our partner, Onix-systems.

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