SaaS Development Cost: What to Expect
The SaaS industry is experiencing a meteoric rise, and it’s not hard to see why.
That’s a lot of money to be made. But before you start dreaming of the profits that await you on the other side of your SaaS app, let’s talk about what it really takes to get there.
The basics: what is SaaS?
SaaS (Software-as-a-Service) is a cloud-based application model that allows users to access a program or software application over the internet. Many popular applications, such as Dropbox and Office 365, use this model.
The software is hosted on a remote server, updated and maintained by the provider, and made available to users via mobile apps, web apps, and API calls.
There are three core types of apps that you can develop: native, hybrid and responsive apps
So, what is the cost of SaaS development?
The cost of developing a typical SaaS app can range from $15,000 to about $150,000. Of course this is only a ballpark figure, and you can notice that the range is quite significant.
The true cost will certainly depend on a range of factors. These are the most impactful.
- Scope of the project
- UI/UX design
- Tech decisions
- Cloud hosting
- Database design
- Security and compliance requirements
- The tech stack
By now, you must be wondering if this SaaS cost is even worth it.
The answer is yes, and we have the market trends to support this.
According to a report by Research and Markets that was published in February 2023, the SaaS market is projected to hit $328.03 billion by 2027, with a CAGR of 6.6%.
This projection shows that the SaaS industry is not just lucrative now but will remain for the foreseeable future.
The finance industry has been the biggest spender on SaaS, with 86% of finance decision makers planning to increase their investment, especially in process automation. On its heels is the manufacturing and retail industry, with 85% of companies planning to increase their investments in automation. Healthcare and transportation come in third, with 80% of companies in these two industries looking to invest more in SaaS.
If you are interested in building a SaaS app targeting the booming financial sector, please start with this fintech app development guide.
Breakdown of SaaS development costs
As we walk through these estimates, you will notice these important trends:
1. The range can be quite wide
2. The highest estimates can look humongous
3. The time can look ridiculous
None of these should scare you. Instead, the scale of estimates should give you a clear mental picture of what is possible with your SaaS idea - from the smallest imaginable SaaS product that serves a few thousands to a giant product that can serve millions of users.
These estimates will also broaden your perspective, especially if you're solely focused on smaller products. It allows you to glimpse into the ambitious visions of others and realize the potential for big-scale endeavors. It's these audacious dreams that have given rise to renowned SaaS products like Salesforce, Slack, and countless others we admire today.
Another important lesson to acknowledge, which you may already be familiar with, is that most of these products are not funded solely by the owners' capital. Instead, they typically secure substantial investments by pitching their ideas to venture firms that actively seek out groundbreaking concepts with immense growth potential. These venture capital firms serve as catalysts for transforming innovative ideas into colossal success stories.
So as you look through the breakdown of SaaS development costs, don't confine yourself to the limitations of your current financial resources. Instead, broaden your perspective and think in terms of raising money for the project.
Furthermore, it's worth noting that launching your product in the market doesn't always have to mean a substantial financial investment. This holds particularly true for products that quickly gain traction. Take, for instance, the example of AirBnB, which initially launched as Airbedandbreakfast.com with a budget of just $20,000. On the other hand, the first version of Instagram received an initial funding of $500,000. Despite the contrasting amounts, both of these ventures have achieved phenomenal success.
A small investment can sometimes be sufficient to kickstart a remarkable product, as exemplified by the success story of AirBnB.
Enough of fundraising and pitching, which obviously is not our domain. Now onto the cost of developing a SaaS product.
The breakdown of costs is pegged on the main stages that play a key role in bringing a SaaS product to life. These are the main stages:
- Project validation and planning
- Creating the MVP (Minimum Viable Product) or POC (Proof of Concept)
- UI/UX design
- Frontend development
- Backend development & integrations
- Project management and post-launch maintenance
Project validation and planning costs: 40 to 250 hours
This phase should not take more than 40 hours if you have a detailed project plan and know precisely what you need.
But if you’re still figuring out the scope and details of the project, you should expect to invest around 250 hours here.
This stage involves the comprehensive assessment and analysis of the proposed SaaS solution to determine its feasibility, viability, and alignment with the overall business goals. It typically includes conducting market research, defining the project scope and objectives, identifying key stakeholders, assessing technical requirements and constraints, estimating resource needs, creating a project roadmap, and developing a detailed project plan with timelines, milestones, and deliverables.
Assuming you’re working with professionals whose rate is normally around $20-$60/hour, this stage will cost from $2,900 to $8,700.
Cost #1: Creating the MVP
You can validate the app concept by building an MVP before making a full commitment to its development. This approach enables you to gather feedback from users, assess the product’s viability, and make informed decisions regarding further investment in the project.
An MVP doesn’t have all the features but has the basic functionality. At this stage, the focus is to deliver a rock-solid basic version with all essential features. The idea is to see if the app has a future.
Depending on the features you want to include in the MVP, this phase can take about 300 to 700 hours. With an approximate hourly rate of $20 to $60, the MVP development cost can range from $17,500 to $30,000.
Sometimes an MVP can be as simple as a landing page or explainer video, meaning you really do not need to spend all this money at this stage. An idea with potential can gain traction with the most basic showcase.
If you are not familiar with MVPs or not sure how to go about it, this MVP checklist is a good place to start.
Cost #2: UI/UX design
A good design can make the difference between success and failure. As such, it shouldn’t be overlooked when budgeting.
Extensive research, wireframing, prototyping, iterative testing, and refining the design based on user feedback are all essential components that contribute to the overall cost.
The design process itself can span from 120 to 250 hours, depending on the complexity of your project. With UX design costs ranging approximately from $35/hour to $60/hour, the total investment for this phase can fall within the range of $6,475 to $11,100.
Cost #3: Frontend development
The frontend in a SaaS product refers to the user-facing interface and functionality that users interact with. It encompasses the visual design, layout, and user experience (UX) components of the software.
The frontend development cost is one of the most difficult to estimate. But on average, this phase can take 180 to 700 hours to finish. With an hourly rate of $33 to $60, the total cost of developing the frontend can range from $14,520 to $26,400.
There are multiple stages within the frontend development phase, and all combined can take about 10 to 12 weeks to complete:
Cost #4: Backend development
Just as the name suggests, the backend serves as the backbone of the application, supporting and powering the frontend to deliver a seamless user experience.
Building the backend involves tasks such as designing and implementing the database structure, developing APIs or web services for communication, handling business logic and algorithms, ensuring data security, and managing integrations. It’s one of the most expensive stages in SaaS application development.
Here is what to expect:
- Approximate time: 2 to 3 months
- Hourly rates: $30 to $100
- Total cost (estimate): $24,000 to $80,000
A much cheaper way is to provide a backend via APIs. Instead of developing a full-fledged interface, the backend is designed to primarily serve as a data source or service provider. With this approach, other applications or clients can interact with the backend by making API requests to access specific data or trigger specific actions.
Cost #5: Post release expenses
The journey is not over the moment you launch the app.
You have to constantly update, fix bugs, add new features, and manage the technical aspects of the app to ensure everything works perfectly at all times.
Note that this isn’t a time-bound task, but one whose expenses are incurred on an ongoing basis.
- Approximate time: Ongoing basis
- Hourly rates: $33 to $60
- The cost: Varies depending on the complexity, features, size of updates, and the team.
The total cost of developing a SaaS app
Based on all the estimations above (except the ongoing post-release costs), the total SaaS app development cost is between $65,000 to 156,000.
This table summarizes all the important costs we’ve discussed above.
On the lower side: $65, 395
We took the approximate lowest rate and multiplied it by the average time it takes to complete that stage, then summed up all the lowest costs for each stage.
On the higher side: $156,200
We took the approximate highest rate and multiplied it by the average time it takes to complete the state, then summed up the approximate highest costs for all the stages.
The money is perfectly worth it l. A well-executed SaaS app can attract a broad customer base and generate impressive recurring revenue streams.
Please note that other critical costs such as marketing and sales are not included in this breakdown. These are out of the scope of this guide which is specifically focussed on the development cost of SaaS products.
SaaS development cost by region
You may not have thought about this. But you will be better prepared when you understand how the development costs vary across different regions. This is particularly important if you are intending to outsource the project to a SaaS app development company or individual developers.
For example, hiring developers from the United States or Western Europe typically costs more than hiring developers from Eastern Europe, Asia or Africa. Why the difference?
First, the cost of living in Western countries is generally higher, leading to higher wages to maintain a comparable standard of living. Second, Western countries often have more developed and competitive tech industries, resulting in higher demand for skilled developers and driving up their rates.
On the other hand, Eastern Europe, Asia, and Africa offer a larger pool of highly skilled developers at relatively lower wages, as the cost of living is lower in these regions and the demand-supply dynamics differ.
Here is a glance at how the rates can differ by region:
The cost of hiring a SaaS development company
How much does it cost to build a SaaS app when you hire a SaaS development firm? You can expect to pay from $ 50,000. Some SaaS development companies may quote a figure as opposed to the hourly model. This is mostly the case when the project scope is very clear, allowing them to approximate the length of time it will take them to build from start to completion.
What is the advantage of using a SaaS app development company for your SaaS project? A well established SaaS development company gives you access to extensive expertise and resources that surpass in-house development or hiring an individual developer. They maintain extensive networks comprising industry partners, vendors, and potential clients, which facilitate collaborations and expand opportunities for growth.
More reasons why a SaaS development company will make sense in the long run:
- A credible SaaS development company has completed multiple projects,ensuring a higher likelihood of success for your own project.
- They can self-manage the entire project. That means they will take care of everything from UI/UX design, development, and deployment to continuous maintenance and support. The only person you’ll be dealing with is the project manager.
- They will take care of the common legal paperwork related to hiring developers. This will save you time.
However, if you’re on a tight budget and don’t mind managing the project, you may want to consider hiring individual developers to handle different parts of the project. While this will require more hands-on management and coordination, it allows for direct control over the development process and potentially reduces costs.
The downside of hiring individual developers, rather than a development company, is the increased responsibility and potential challenges that come with project management. Assembling and coordinating a team of individual developers can be time-consuming and requires expertise in technical oversight, task delegation, and quality control. Moreover, individual developers may have limited availability or may face unforeseen circumstances that could impact project timelines. There is also a higher risk of miscommunication, lack of alignment, or differing coding practices among them, which may result in inconsistencies integrating their work. Finally, if a developer decides to leave the project or becomes unavailable, it may lead to disruptions. This will send you back to the drawing board to find suitable replacements and maintain project continuity.
SaaS development cost based on type of solution
The cost of a SaaS project can also vary depending on the type of solution you’re looking at. Some solutions may demand more resources than others.
These are the estimate costs for developing the initial version of SaaS solutions that perform some of the most relatable tasks.
Managing SaaS development budget: use these tips
The best way to reduce costs in any project is to think like a strict accountant.
Accountants meticulously scrutinize every financial aspect, meticulously tracking expenses, identifying cost-saving opportunities, and prioritizing essential expenditures. Their attention to detail and risk assessment skills enable them to uncover potential waste or inefficiencies, leading to effective cost-cutting strategies.
That's the exact mindset you need here to identify cost-cutting opportunities. Start with these tricks:
Implement systems that eliminate manual efforts and streamline repetitive tasks throughout the development lifecycle. Some of the tasks that can be automated include testing (unit, integration, regression), deployment (CI/CD pipelines), code formatting and linting, documentation generation, infrastructure provisioning and scaling (IaC), release management (versioning, changelog generation), and performance monitoring and error tracking.
Common automation tools include:
- Jenkins: A popular open-source automation tool used for continuous integration and continuous delivery (CI/CD).Jenkins allows developers to define pipelines that can be triggered automatically or manually.
- Ansible: Focuses on configuration management, application deployment, and orchestration. It uses a declarative language to describe the desired state of systems and automates the necessary steps to achieve that state. Ansible's agentless architecture makes it easy to manage and automate infrastructure, enabling tasks such as provisioning cloud resources, configuring servers, and deploying applications across multiple environments.
- Selenium: A widely-used open-source framework for automating web browsers. Selenium supports cross-browser testing and can simulate user interactions, validating the functionality and performance of web applications.
Go open source
Open-source software, which is freely available and customizable, eliminates the need for costly proprietary licenses, reducing upfront expenses. The extensive community support and contributions provide a wealth of time-saving ready-to-use libraries, modules, and frameworks.
Examples of common open-source software for SaaS projects:
- Kubernetes: A container orchestration platform that automates the deployment, scaling, and management of containerized applications.
- PostgreSQL: A relational database management system (RDBMS) that offers a reliable data storage solution.
- Django: A high-level Python web framework that follows the model-view-controller (MVC) architectural pattern. It simplifies the development of complex web applications by providing ready-to-use components and libraries for tasks such as URL routing, form handling, and database integration.
Work with experienced experienced teams
Experienced developers and project managers have built successful SaaS solutions before.
They can streamline the development workflow, leverage their knowledge to find effective solutions, and ensure that the project stays on track.
Their extensive expertise facilitates efficient problem-solving, enhanced risk management, and superior project coordination.
What are the hidden costs of SaaS development?
In addition to the primary development costs we have discussed, it is crucial to be aware of potential hidden costs that may arise. These unforeseen expenses can catch you off guard if you are unprepared, making it essential to keep them in mind.
These are the common hidden costs to watch out for.
- Maintenance fees
- Support costs
- Legal and compliance
- Update costs where applicable for any tools that you subscribe to
- Fees for add-ons and integrations
We highly recommend that you budget for these costs under miscellaneous expenses.
Benchmarking: the cost of developing a SaaS app similar to popular apps
Sometimes it helps to draw inspiration from successful SaaS products that we all have most likely interacted with. How much did they cost to start?
This information can guide your cost estimation process.
Important to note that these costs should not be confused with the current market valuation of the apps. These are successful products that have entrenched their positions in their respective market segments. The costs here are only a speculative estimate of what it may have cost to build the apps. Building them to the iconic levels they have reached is another journey altogether that takes many years and a lot of investment to get the brand to the current status.
There you have it! SaaS development cost can range from a few thousand to several hundred thousand dollars.
Remember that no budget is set in stone. The final cost will ultimately depend (for the most part) on the development team, the desired features to be implemented, and the project timeline.