It's been a generation since Salesforce launched the world's first software as a service platform, and SaaS still remains one of the most popular business models in tech today.
It's easy to see why.
With an overall market size expected to exceed $1.2 trillion by 2032, there is a lot of money in software as a service. And because SaaS companies generally run gross profit margins in the 65-75% range, they get to keep most of it.
Even though it can be quite lucrative, the economics of launching a SaaS product aren't as straightforward as "build it and they will come." Variables like project complexity, features, team composition, geographical location and go-to-market strategy can factor significantly into how much it costs to build a SaaS product.
This post will cover some of the basics to think through when architecting your product and building your launch plan.
Let's start with some benchmarks. On average, it costs between $50,000 and $150,000 to get a SaaS solution off the ground. However, these costs can quickly escalate into the millions depending on the scope and complexity of your project.
More complex SaaS applications often require sophisticated features such as advanced data analytics, artificial intelligence capabilities, extensive customization options and robust security measures. Developing these features demands a higher level of expertise and more development time, which can significantly increase costs.
Additionally, users often demand SaaS products to integrate seamlessly with other software and systems, especially in enterprise environments. Developing these integration capabilities requires additional resources to ensure compatibility and maintain the integrity of data exchange, which adds to startup expenses.
With your MVP and future state in mind, you can approach building your infrastructure. Depending on complexity, this might include advanced cloud services, higher levels of data redundancy, increased storage capacity and enhanced security measures. All of these factors can lead to higher initial investment in infrastructure.
Complex SaaS solutions, especially those targeting large businesses, need to be highly scalable to handle potential spikes in user numbers and data volume. Ensuring scalability sometimes requires significant upfront investment in scalable architecture and testing.
More complex SaaS applications, particularly those that handle sensitive data in regulated industries like finance or healthcare, must comply with stringent regulatory standards (e.g., PCI, HIPAA). Bringing your SaaS product into compliance can involve costly audits, additional security measures and ongoing legal advice to keep up with regulatory changes.
Not to mention, the average data breach in 2023 cost the platform responsible for preventing the breach about $4.5 million. While security measures like encryption and secure access protocols can be costly, not implementing them can be even worse.
More complex products generally require more extensive customer support, including dedicated teams for technical support, customer success and possibly on-site assistance for deployment and troubleshooting. Setting up and maintaining such support systems is costly but essential for complex SaaS products.
As the complexity of the product increases, so does the need for comprehensive user documentation and training materials. Producing these resources involves significant time and financial investment to ensure that they are helpful and enhance the customer experience.
Lastly, you need someone to sell your product. The sales cycle for complex SaaS products is usually longer and involves more stakeholders.
This can increase the costs associated with sales activities, from staffing a knowledgeable sales team to spending time on customer education and negotiation.
While we’ve discussed the different factors influencing the cost of building a SaaS platform, it’s equally important to explore strategies to reduce these costs. Implementing strategies such as:
Can help keep costs down while allowing you to ship as many features as possible in your SaaS product.
Perhaps the biggest question is whether to build with an in-house team versus working with an outsourcing agency.
In-house teams require competitive salaries and benefits, including health insurance, retirement plans and other perks, which can be substantial, especially in high-demand tech markets. Additionally, in-house teams can be difficult to build. In a recent survey, more than 75% of respondents said they had difficulty filling technical roles, leading to unexpected delays and expenses.
Conversely, outsourcing companies or freelancers typically charge based on the project or hourly rates. While these rates can sometimes be higher than the hourly wage you might pay an employee, they often end up being more cost-effective when considering the absence of benefits, taxes and other employee-related costs.
You can scale an outsourced development team up and down quickly and even directly hire specialists as needed, but it comes at the added cost of complexity and risk. Project management with an external agency can be fraught, and when working with an external software development agency, there is an ever-present risk of quality issues and risks to confidentiality and consistency.
The cost savings can be substantial, however — working with an offshore team in Eastern Europe, for example, can cut software development costs by a factor of 10 in some cases.
Using pre-built components and APIs can significantly accelerate the development process. By integrating these ready-made elements, developers can focus on creating unique features specific to your product rather than reinventing the wheel with basic functionalities. This faster development cycle not only speeds up time to market but also reduces the amount of labor required, translating directly into cost savings.
And if we take things a little bit further, using a low code software development platform like 8base can accelerate your development process even further. 8base is a fully scalable, serverless GraphQL backend that allows your development team to easily plug in and build with their frontend framework of choice.
Starting with an MVP allows companies to enter the market with a basic version of the product to test assumptions about business models and user behaviors with minimal resources. This focus on launching the simplest version of the solution that is viable can significantly cut down on initial development and maintenance costs.
Then, development emphasizes iterative processes, where the product is developed in small, manageable increments. This allows teams to test and refine features based on real user feedback continuously. By addressing issues in smaller sections, companies can avoid the costly reworks that come with wild scope changes and discovering problems in later stages of development.
Meet Archie, 8base's AI-powered Product Architect. Archie is free to get started, and the way it works is simple. Just give it a quick text prompt about your SaaS application.
Archie will immediately get to work, drafting detailed business and technical blueprints. But it's more than just a spec builder — Archie reshapes how development teams build SaaS applications. It employs a suite of large language models (LLMs) tailored to different stages of the product lifecycle, along with AI APIs, to deliver actionable results.
Here are some of the standout advantages Archie brings to the table:
We've seen Archie accelerate the development process by up to 50x, helping products get launched more quickly and with less overhead.
Building a SaaS platform in 2024 involves balancing the complexities of development with strategic cost management. That said, it's possible to drive down costs using AI tools like Archie.
We're excited about helping you achieve amazing results.
