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Outsourcing SaaS Development: Best Practices and Common Pitfalls

Mansha Kapoor
July 11, 2023

The global SaaS market is experiencing unprecedented growth, with projections indicating that it will surpass $700 billion by 2028. The vast potential for revenue generation in this sector is undeniable. 

However, amidst this lucrative landscape, it is crucial to emphasize the importance of getting the product right. The success of your SaaS venture hinges on the quality of your application and its ability to meet the evolving needs of customers. 

To get the product right, the trend these days is outsourcing SaaS development to companies that specialize in offering SaaS application development services. This is because businesses are increasingly realizing the benefits of leveraging the pool of external expertise to create high-quality SaaS applications. According to a report published on Statista, the size of the global outsourcing market was already at $92.5 billion in 2021, showcasing a remarkable growth rate compared to the previous year. 

A survey conducted by Deloitte found that 50% of the surveyed executives identified talent acquisition as the top internal challenge, meaning that top global companies are turning to outsourcing to solve this challenge.

But outsourcing alone is not a magic bullet. There are still key items you need to get right while paying attention to avoid common mistakes.

In this article, we will explore the best practices for outsourcing SaaS development, and shed light on common pitfalls to avoid. The goal is to help you navigate this booming market with confidence and maximize your chances of success.

Let’s get right in. 

Best practices for outsourcing SaaS development

Best practices, in the context of outsourcing SaaS development, refer to proven methods that have consistently yielded positive results in the industry. 

These practices will help you optimize the benefits of outsourcing and ensure a successful collaboration with external partners

What are these best practices?

Best practices relating to preliminaries

These are the things you need to tick off at the very beginning, before you can even start to look at the potential options of SaaS development companies.  Often, these may sound unnecessary , obvious, or even mundane.  or obvious or in fact boring. But they serve as the fundamental building blocks for a successful outsourcing endeavor.

Let’s see what you need to do here:

1. Firm up the goal 

In the context of a SaaS project, a goal refers to a specific and measurable objective that the project aims to achieve within a given timeframe. The goal should be aligned with your business objectives, such as increasing revenue, improving customer satisfaction, expanding market reach, or enhancing product functionality.

An example of a goal could be to increase user adoption and achieve a 20% month-over-month growth in active subscribers.

Once you have the goal, go further and think through the features and functionality you expect from your SaaS application. 

This clarity will help you communicate your needs effectively and ensure that the outsourcing partner understands your vision.

2. Keep abreast of the latest trends

While you will be outsourcing to experts, it's not wise to stay blind to the emerging trends around SaaS in general and specifically the latest trends in the industry you are targeting with your SaaS project.

For example, one important trend in the SaaS development landscape right now is the increasing adoption of microservices architecture. Microservices offer a modular approach to building applications, allowing for flexibility and faster development cycles. 

So you want to outsource to a partner that understands this area if you discover that it’ll be important for your application. 

Now, if you are not familiar with this trend, you may not have it in your checklist when searching for a SaaS development partner. Instead, you’ll come to discover it when it’s too late. Meanwhile your competition will be ahead with the technology. 

Another significant trend is the rise of artificial intelligence (AI) and machine learning (ML). Integrating AI and ML capabilities into SaaS solutions is now enabling businesses to deliver enhanced user experiences and gain valuable insights from data. 

For instance if you are planning to build a healthcare SaaS platform,it could leverage AI algorithms to analyze patient data and provide personalized treatment recommendations. Chatbots are also becoming popular. This article can open your eyes into ways you can use AI chatbots to scale. 

The shift towards DevOps practices has also become a prominent trend in SaaS development. DevOps emphasizes collaboration, automation, and continuous delivery. The outcome is faster time-to-market and improved product quality. 

3. Think through the SaaS budget 

Don’t wait to do this at the last minute when everything is taking shape. A well thought out budget is a cornerstone of the entire process. It’ll help you make decisions faster by separating essential needs from wants that can wait. 

Most importantly, take into account additional costs such as licensing fees, maintenance expenses, and ongoing support. 

A well-defined budget will help you make informed decisions about critical areas such as resource allocation, negotiate contracts based on your financial capabilities, and regularly track your expenses to ensure the project stays on track financially.

Please go through this guide into budgeting for application development.  

Best practices relating to choosing the right SaaS development outsourcing company

There are important practices that will guide you into selecting the correct partner. 

1. Work with a checklist that is tailored to your goal

A checklist is just that - a checklist of the most important items that you’ll be looking at as you evaluate the various potential companies that offer SaaS application development services. 

Essentially, you want to choose a company that scores the highest in your checklist. We say highest because it may not be possible to find one that scores 100%. Perfection is always elusive, so we go for the best.

Below is just a very simple illustrative template of the kind of checklist you should use. 

Add as many items as are critical to your unique needs:

Item Score or comments
Has this company completed significant SaaS projects that are closely related to my project?
Has the company handled projects in my industry or niche?
How many years has the company been developing SaaS products?
How many products has the company developed since founding?
What percentage of the company’s products are successful?
Out of 10, how do I rate the overall talent at this company?
Out of 10, how do I rate the network value of this company?
Costs- Are their costs reasonable? Can I afford them?

2. Always use a shortlist to pick the best outsourcing SaaS development provider

Start by listing as many companies that offer SaaS app development services.

The list can be as long as you want but keep it between 50 and 100. Of course it can be much shorter than this if you are more experienced in this exercise. 

While a simple Google search will give you a reasonable pool of companies, it's also good that you go deeper and use resources such as directories that focus on SaaS application development or software development in general. In here you will find a good mix of companies from different locations, competing for your attention.

From the initial long list of 50 to 100 companies, use the checklist to score the companies in the list and shortlist the top 5. 

Ideally, any company from your shortlist is as good as the next one. Remember these are the best out of the 50 or 100 that you started with. So should you feel that time is not on your side, you can as well ‘close your eyes’ and pick any from among the five and  get the project started.

But since you need the very best of the best, there is still room to single out just one. How do you do this?

  1. Scrutinize each provider’s portfolios and reviews. For reviews, go to platforms like GoodFirms, Clutch, etc. The exercise here is very easy. Just look at the total number of reviews vs the overall rating. The one with the highest score out of 5 based on the most number of reviews takes position one or scores the highest rating.
  1. Look through their portfolios, count the number of SaaS projects they have completed successfully. The one with the highest number of completed projects scores the highest rating. 

If they have provided contacts for their past clients, try to see if you can get confidential feedback from those clients. You can decide  not to use this for rating though. This is because some clients may not be willing to give any feedback or may not be available to spare some time to talk to you. So do not use lack of direct feedback from past clients to judge a provider’s ability as it does not really reflect in the quality of services they gave. The clients who are normally willing to give feedback are mostly those who may have developed close relationships with the company. Factors such as relationships or communication preferences can influence the willingness to provide feedback, and it is not indicative of the service quality itself. Some clients excel at building relationships, while others prioritize focusing solely on the job at hand.

Based on 1 & 2 above, rate the 5 developers from position one to position five.

Next, create and send out a Request for Proposal (RFP) to the top 3. 

There are high chances that all will respond and probably ask more questions. Answer their questions to enable them to give a satisfying proposal.

Consider the proposals and pick the provider who presents the best offer, not just in terms of cost only but also across other areas that are critical to the project. This could include things that often sound simple but are very critical, such as how long the project will take, payment terms, post launch support privileges, flexibility vs rigidity, etc. 

3. Always agree on all major project expectations before starting the SaaS project

Take sufficient time with your chosen provider to go over the project expectations in detail. 

This is the perfect chance to establish a clear understanding of the project scope, deliverables, timelines, and quality standards. 

With this, you mitigate misunderstandings and ensure that the final product meets your desired requirements

Let's consider a practical example to illustrate this practice, because it’s a critical one:

Imagine you want to create a fitness tracking platform called "FitTrack". Your vision is to provide users with a comprehensive SaaS-based solution that helps them track their workouts, monitor progress, and achieve their fitness goals. To turn this vision into reality, you decide to outsource the development.

These are some of the key aspects you could agree on;

Core features

  • Exercise tracking
  • Calorie counting
  • Goal setting
  • Progress visualization
  • Social sharing capabilities

Platform compatibility

  • Web browsers
  • Mobile devices
  • Wearables integration

User interface

  • Intuitive and user-friendly
  • Attractive visual design

Data management and security

  • Data storage
  • Data privacy
  • Regulatory compliance

Development timeline and milestones

  • Realistic timelines
  • Milestones and deliverables

Tech stack

The developers will have a better idea on what tech stack to use based on your core features. Here are some of the options they may choose from:

  • LAMP: Linux (operating system), Apache (web server), MySQL (relational database management system), and PHP (programming language). This open-source stack is widely used for SaaS applications due to its flexibility and cost-effectiveness.
  • MEAN/MERN: (MongoDB, Express.js, AngularJS, Node.js) and (MongoDB, Express.js, React, Node.js). These are popular full-stack JavaScript frameworks used for SaaS development. These stacks leverage JavaScript throughout the entire development process, from the front-end to the back-end
  • Ruby on Rails: Follows the Model-View-Controller (MVC) architectural pattern, focuses on simplicity and convention over configuration. Rails, combined with a database like PostgreSQL, is commonly used for rapid development of SaaS applications.

There could be more depending on your project, of course. But this representation of how you can structure your expectations and make sure you do not leave out critical items. 

In fact, you are better off erring on the excess side than on the less side. We normally say that less is better in SaaS development. But this does not mean leaving out things at this stage. You better start with excess things and go throwing out some as the project gets underway. Fortunately, modern frameworks like the Agile methodology emphasizes on iteration, which makes it easy to get rid of some items or even add some. 

4. Never outsource a SaaS project without signing a contract

A contract provides a legally binding agreement that outlines the rights, responsibilities, and expectations of both parties. 

Without one, there is a higher risk of misunderstandings that could potentially lead to project failure or legal complications.

Make sure the contract contains these essential components:

  • Scope of work: Clearly define the scope of the project, detailing the specific tasks, deliverables, and timelines.
  • Project timeline: Outline the project timeline with key milestones and deadlines. Include provisions for any potential delays or change requests.
  • Intellectual property (IP) rights: Clarify whether the IP rights belong to your company or if they are shared or retained by the development partner.
  • Confidentiality and Non-Disclosure: Ensure that the development partner agrees not to disclose or misuse any confidential data or trade secrets.
  • Payment terms: Be clear about the payment method, currency, and any penalties or late fees for missed payments.
  • Quality assurance and testing: Specify the testing protocols, bug fixes, and acceptance criteria.
  • Support and maintenance: Include provisions for ongoing support and maintenance. Outline the level of support, response times, and any additional fees.
  • Termination and dispute resolution: Include provisions for termination of the contract, specifying conditions under which either party can terminate the agreement. Define the steps for dispute resolution, such as negotiation, mediation, or arbitration.
  • Liability and indemnification: Clarify the liability of each party for any breaches that may occur during and after the project. Include indemnification clauses to protect both parties from claims arising out of the project. Be clear on what type of cyber insurance each party must acquire. 
  • Governing law and jurisdiction: Specify the governing law and jurisdiction that will govern the contract.

5. Think carefully about location of the SaaS company: onshore, nearshore or offshore?

Depending on your project, certain aspects such as culture and time zones could be more important while others could be flexible. Those that are most important will influence your decision on the location of the SaaS app development company that you will choose to outsource SaaS development to.  

For example, if your product is highly local with cultural connotations, then onshore outsourcing is the automatic choice. 

Onshore outsourcing refers to partnering with a development company located within the same country as you. This option offers advantages such as proximity, cultural similarities, and legal familiarity. Onshore outsourcing is suitable when collaboration and communication need to be seamless, and when projects require strict adherence to local regulations. It is especially beneficial for businesses that prioritize face-to-face interactions, have sensitive data security concerns, or require real-time availability for meetings and updates. This option may come with higher labor costs, particularly in regions with higher living expenses.

Nearshore outsourcing involves partnering with a development company located in a neighboring or nearby country, typically within the same geographic region. This option provides a balance between proximity and cost-effectiveness. It’s a suitable choice when seeking cost savings while still benefiting from cultural similarities. It allows for shorter travel distances and shared working hours.

Offshore outsourcing entails partnering with a company located in a different country, often in a different geographic region and time zone. This option offers significant cost savings and access to a wide talent pool. It’s particularly suitable for projects that do not require constant real-time collaboration, where cost savings outweigh potential challenges related to cultural difference and language barriers.

6. Emphasize collaboration and transparency 

Treat your SaaS outsourcing partner as an extension of your team rather than a separate entity. Foster a collaborative environment where both parties can share ideas and provide feedback. 

Ensure that the SaaS outsourcing partner provides regular progress updates, shares any challenges they encounter, and promptly communicates any changes.

Common pitfalls to avoid when outsourcing SaaS development

We mentioned somewhere earlier that perfection is ever elusive, so we’re in a constant strive for the very best we can get. This is to say that you can never stay safe from all the possible pitfalls. You will certainly make some mistakes. But they should be minimal.

Here are the common ones you should avoid:

1. Insufficient due diligence

Inadequate evaluation of the vendor's capabilities, track record, and references can result in poor quality or even data breaches. 

To mitigate this, invest time in researching potential partners. Enrich the checklist we discussed earlier and be thorough when engaging one on one.

2. Unclear communication and expectations

Lack of clarity will truly lead to misunderstandings and tiresome rework. 

Articulate your goals, provide comprehensive documentation, and maintain regular communication channels with the SaaS development outsourcing team. 

Regular progress updates, milestone reviews, and feedback sessions are crucial to keep everyone on the same page throughout the project lifecycle.

3. Inadequate contract and legal considerations

Neglecting to establish a solid contractual agreement can expose your project to significant risks. This can be catastrophic when a big sum of money is involved, or when your SaaS product is serving a sensitive industry like healthcare. 

A poorly drafted contract may also fail to protect your intellectual property rights, which again is a vital item that many entrepreneurs and managers tend to forget about. If you are not familiar with IP rights please check this resource by the US Chamber of Commerce Global Innovation Policy Center which explains the value of intellectual property rights.  

What’s the best approach? Engage legal experts to craft a robust contract that covers all the crucial aspects we discussed under the best practice of contract signing. In fact, you will easily find legal experts who specialize in SaaS contracting. 

4. Poor or lack of project management

Successful SaaS development outsourcing requires diligent project management and oversight. 

Relying solely on the outsourcing partner to manage the project without active involvement from your side can result in misalignment. 

To avoid this, assign a dedicated project manager within your organization to coordinate with the SaaS development outsourcing team.

5. Inadequate quality assurance and testing

Insufficient testing can result in functional or security vulnerabilities, compromising user experience and data integrity. 

Verify and make sure that your outsourcing partner has robust quality assurance processes in place. They must conduct comprehensive testing, and adhere to industry standards.

6. Lack of clarity in requirements

This happens when you do not  invest in creating detailed specifications, wireframes, and user stories to clearly communicate your expectations.

Remember the work of the developers can only be as good to the extent to which you give them clear requirements. They may not help much with creating requirements. So it’s your role to make sure the requirements are clearly understood. If this is not your strength, please consider using a consultant to help you craft coherent requirements. 

7. Failure to plan for scalability and future support 

It's common to focus primarily on the product's initial launch and overlook the long-term considerations of scalability and future support. This shortsighted approach can lead to significant challenges as the product gains traction and begins to grow.

One crucial aspect that is often neglected is the role of the SaaS outsourcing development team beyond the product launch. It's essential to envision their post launch responsibilities.  

Find out if the team possesses the necessary expertise and capacity to handle the evolving needs of a growing product.

Discuss payment terms at the growth stage. The pricing structure should allow for scalability and include provisions for adjustments as the user base expands.

Outsourcing SaaS development is not just a transaction, it’s a partnership

Outsourcing SaaS development is a strategic decision with profound impact on the growth and success of your product. It goes beyond mere cost savings or technical expertise; it opens up opportunities for innovation and accelerated time-to-market. 

It is a chance to tap into a vast pool of global talent - professionals who possess diverse skills, perspectives, and cultural backgrounds. This diversity can fuel creativity and foster an environment that can propel your product to the top of the market.

Outsourcing also pushes us to confront our fears and preconceptions about relinquishing control. Trust becomes the cornerstone of successful outsourcing partnerships, built through open communication, transparent processes, and shared goals. It teaches us to trust in the expertise of others and empowers us to focus on core competencies, enabling your product to thrive in an increasingly interconnected world.

So, deploy the best practices here and pay attention to avoid the pitfalls. Embrace a shift in mindset – from a transactional approach to a strategic partnership.

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Mansha Kapoor