Considering the growth rate of SaaS solutions, the idea of starting a SaaS company seems lucrative. Between 2018 and 2019, the SaaS market added $20 billion in value. Even with the pandemic, the growth rate of the SaaS market has shown no sign of stopping. According to Gartner, the SaaS market is projected to reach USD 105 Billion in 2020, and PRNewswire forecasts a USD 307.3 Billion valuation by 2026, at a CAGR (Compound annual growth rate) of 11.7% during 2020-2026.
In summary, the SaaS market has a big and profitable future.
Do you want to get a piece of this pie too?
In this deep dive guide, you will learn everything about the SaaS business, from initial market research to getting funding and building a SaaS solution. Read on to learn more.
To be upfront, the cost of a SaaS app is hard to estimate, but at Businessware Technologies the cost of development of a SaaS MVP starts from $20,000 to $30,000 depending on the requirements, like number and complexity of features, design, app type and so on.
Describe your project and we will get back to you with a price estimation.
Clutch studies show that SaaS app development can cost anywhere from $5,000 for a 'bare bones' MVP to $1,000,000+ for a full fledged SaaS environment.
SaaS is a relatively new software sales model, where developers build and host their apps on the cloud, and allow users access for a fee or for free. Consumers can access the software through any internet-enabled device.
A SaaS app is software hosted on the cloud (data center). Unlike traditional applications, users don't need to download and install software to use a SaaS solution. The application is accessed through the internet, and every information is saved on the internet with an option to download to your device.
SaaS solutions are famous for their flexibility.
There is a high possibility that you use a SaaS application right now. Google Docs, Zoom, Google Suite, and Slack are popular tech products with web and on-premise versions.
Cost efficiency – With the SaaS business model, there is no need to purchase and maintain hardware. All you need to launch a SaaS app is a cloud server like Digital Ocean, Azure, and AWS (Amazon Web Services).
Scalability – Scaling your SaaS solution's capacity and output is seamless when it is hosted on the cloud. When your application consumes a lot of server resources (storage, bandwidth, CPU, etc), you can easily scale up by buying additional resources from your cloud service provider.
Reliability – SaaS apps are cloud-based solutions. A cloud is a network of computers/servers that can be hosted around the world. This ensures minimal downtime when a computer in the network goes offline.
Security – Cloud service providers offer regular maintenance and upgrades to ensure data remains private.
Technological advancement means giving up old, often manual ways of performing actions for more efficient methods of executing the same activity. In many ways, SaaS is a step up from the on-site software delivery method. It is easier to build and distribute an app via the SaaS model than traditional software. For consumers, a SaaS application offers several benefits that are unavailable with on-premise applications:
To put things in perspective, let's compare the difference between SaaS and traditional apps.
As defined earlier, SaaS is a relatively new software delivery method that delivers software to consumers through the cloud. On the other hand, traditional apps are delivered physically to consumers and have to be installed on a computer/smartphone before use. The difference between a SaaS application and on-premise application is best illustrated by comparing Canva and Adobe Photoshop.
For over 20 years, Adobe Photoshop was a traditional app. Consumers had to purchase a CD with a license or buy them separately. The license fee is one-time; hence, it was quite high. As technology evolved and consumers became familiar with web apps, the need for web applications increased.
Canva was among the first companies to offer consumers a truly online photo-editing platform. As a SaaS platform, Canva servitizes graphic design, allowing users to create a range of graphics using different editing tools. The entire editing suite is available for a fee and is paid for on a month-month basis. Canva was an instant success among the graphic design community as it was easy to use and easy to access.
In a bid to keep pace with consumer demand and technological evolution, Adobe Photoshop moved to the cloud completely in 2013, ending the traditional method of accessing the application. Now, you can use the application as a SaaS or download the application and update it through the internet. Rather than paying a high upfront cost for Photoshop, you can pay for the service monthly and cancel the subscription at any time. This method is more flexible and value-driven than a traditional app.
As is expected, SaaS has flaws, which must be considered before adopting or developing a SaaS application for your business.
From a developer standpoint, the disadvantages of the SaaS model are the high ongoing operation and maintenance cost. You need a concrete subscriber base to cover the cost of building and hosting a SaaS application. So it is vital to perform market research to check the demand for your service before developing a SaaS app for your startup. If your target audience occasionally needs your service, then an on-premise application may be a practical choice.
Tl;dr: Build and launch a SaaS app that performs a function that people are willing to pay for.
In reality, there are several steps to launching a Software as a Service business. These steps are divided into three parts; What, How, and When.
A SaaS business is similar to any other company in any industry; it is set up to solve a problem and generate revenue. That means the first step to launching a SaaS is finding a problem that can be solved with a SaaS application.
Assuming you've already identified a problem to solve, market research will help you achieve the following:
Identify opportunities and threats in the market – It is not enough to know the problem you want to solve; you should also know the opportunities and threats in the market. In business, the process of identifying the opportunities and threats to your business is called SWOT analysis.
A good SWOT analysis will help you identify the STRENGTH and WEAKNESS of your business, as well as the OPPORTUNITIES and THREATS. With this information, you can compare the risk and opportunities for your business, and decide whether to explore the idea or not.
Determine consumer needs and wants (know your audience) – To win at marketing, you have to develop a product that meets your customers' needs and wants. Market research tools such as polls and questionnaires can help you identify your customers' needs and wants quickly.
Pricing model - A thorough market research will help identify a pricing model for your product. This step is essential to forecasting profit and building a business proposal. At some point in your business development process, you may have to pitch your idea to investors and colleagues for funding.
Investors are concerned about the relevance of your solution and profit potential. When the demand for your solution is strong, and the cash flow projection is high, it is easy to get funding.
There are several pricing models for SaaS businesses, but the ultimate determiner of your pricing is customers. How does your target audience value your products/solutions? Can you communicate the value of your product to your target market?
The answers to the questions above can help you choose a reasonable price point for your product. At Businessware Technologies, we recommend using a value-based pricing strategy to select your pricing model. A value-based pricing strategy considers your service's value to consumers when setting a price point for your service. As the saying goes, "the customer is always right." That can be the case in pricing.
With that in mind, you can adopt one of the following pricing models for your business
Choosing a pricing model can be daunting, but it is worth the effort. Whatever model you choose, always remember that the value your customer places on the solution determines your pricing model's success.
Forecast profit – Profit forecast helps you set a reasonable target for ROI. Good market research will reveal the financial capacity of your target audience and allow you to set a proper pricing model
Starting and running a SaaS business is capital intensive. It doesn't matter if you have a lean plan; you need significant resources to build a SaaS app and launch it. The first step to getting financing is knowing how much you need.
You can get a rough estimate of your financial need by calculating the cost of building, launching, and maintaining a SaaS app. Although these estimates are tentative, they give you a good idea of how much you need to start your SaaS company.
There are many ways to finance your startup, from personal financing to loans, venture capital, Angel investor, and equity financing. Each type of financing has its advantages and trade-offs.
For startups in the ideation-incubation stage, personal financing, equity financing, and loans are easier routes. With these recommended financing options, you don't give up control of your company to investors. However, venture capital financing is an excellent option for companies that are ready to scale quickly. Usually, SaaS startups in the growth-scale stage apply for VC funding.
This is where you determine how to develop a SaaS app for your startup. There are two ways to approach this stage: do the legwork yourself or hire developers to execute the idea. A good developer will help you choose the best technology to build your SaaS solution, select a reliable cloud service, and more.
You need three elements to build a SaaS app for your startup: A cloud service provider, content delivery network, and a developer team.
Cloud Service Provider: SaaS apps run on a cloud. The cloud is a network of servers that offer data processing resources. Simply put, the cloud network handles your app's processes. So you need a cloud service to host your app.
Amazon Web services (AWS) and Azure are the most popular cloud networks on the market. Both cloud services are reliable, their differences being pricing, interface, and popularity among developers.
At Businessware Technologies, we usually use AWS or Azure as with either of these cloud services, the application gets scaling out of the box. You don't have to switch platforms as your user base grows, and data load increases.
Content delivery network: A content delivery network makes your SaaS platform accessible to users around the world. When a user initiates an action to use your site or app, a CDN will connect them to the nearest server to ensure that they access your service quickly and reliably. This is similar to how Uber works, connecting users to drivers nearby to ensure they get transport quickly.
If you or your team does not have the skillset or motivation to build and continuously update a SaaS platform, then hiring a team is best. A development team will provide industry insights and tailored recommendations on building a SaaS app for your startup. Also, a development team will help maintain your platform and roll out updates as needed.
Before choosing a development team, you should make a list of the requirements you need. Skillset, working hours, location, pricing, rating, and experience are factors to consider. A good development team should have the capacity to work with different technologies. Your development team will recommend the best technologies for your project.
Have a look at these profitable SaaS startups by Businessware Technologies: their reports may motivate you to make a great project.
In the interest of learning, here is a list of technologies you need to build your SaaS platform:
Here are the key aspects of every SaaS application:
Since SaaS projects are not launched on the end-users device, they need top-line security protocols to classify and protect data. Your SaaS app must have the capacity to store the data of multiple users separately. Often, data separation is achieved by using different databases.
While security protocols are focused on keeping user data vaulted, privacy protocols ensure that user data is private at all times. Recent research revealed that Data privacy is a vital factor to consumers. Most consumers choose platforms with clear and reliable data privacy rules.
SaaS solutions are always designed with a high workload in mind, which will increase non-linearly as more users adopt the platform. Therefore, the architecture of your SaaS solution must be scalable.
At Businessware Technologies, we recommend the micro-service architecture because it allows you to scale high-load parts of the system separately. Also, the service-oriented approach has several other advantages.
As part of this approach, the code is isolated in separate microservices, making it easier to read and develop. However, a microservice solution is more demanding for developers. You need a seasoned team of software developers and software architects to build microservice app architecture. Businessware Technologies developers are industry leaders with a proven record in building microservice architecture.
As the user base increases, more data needs to be stored. You can store this data on physical servers or in cloud storage.
Increasing physical capacity (CPU time, RAM, HDD) can increase the cost of building your SaaS solution and subsequent maintenance. Also, a physical capacity increases the cost of migration: moving to another server will be difficult and costly because you need to maintain the running application's uptime and monitor data security.
To avoid these problems, we recommend using cloud platforms such as AWS or Azure. Both of these platforms offer the option to scale "out of the box." So you can increase data capacity and hosting without migrating.
The main stages of building a SaaS app are prototyping, MVP, and mature application.
A prototype shows the look and feel of your SaaS app. At this stage, you determine and validate the strategic design direction for the app through usability testing.
It takes less time to build an MVP compared to a mature application. Consequently, an MVP allows you to reach the market early, evaluate demand, test economic viability, and gather feedback. Based on the feedback you receive from early users of your solution, you build an advanced version for a broader audience solution.
A SaaS MVP (minimum viable product) is an early-stage version of your solution with functional core features. With an MVP, you can measure the impact and profit potential of your solution without spending big.
It is unnecessary to develop an MVP for all platforms because the solution concept may change after testing the MVP. This means that the implemented solution is experimental, and the code will not be used in the finished product.
The process of building a SaaS MVP is similar to that of building a finished SaaS solution. However, an MVP product offers only the core features of the main product required to solve a problem.
A finished product refers to the full version of your solution. For an app to be considered a finished product, it must have passed beta tests. The finished product is not an ultimate version. As technology evolves and consumer tastes change, you have to modify and update your product.
There is no definitive cost of building a SaaS application. Instead, the main determinants of price are product complexity, its features, integrations with other services, development teams, etc. While third-party service costs are standard, developer cost varies based on region and skill set. You have to choose a development team with a proven skill set and a competitive rate for the best result.
Developers in America and Canada charge anywhere between $60 and $80 per hour. For developers in Western Europe, pricing ranges from $45 to $65 per hour. Eastern European developers charge between $20 and $30 an hour.
At Businessware Technologies, it takes about 1000 hours to build an MVP with core features and architecture to scale.
If the MVP concept is well thought through, and the functionality and design are critical system features, then the development can take about six months. An example of such an application is the party management platform that we've been working on. At the MVP stage, we implemented the following functionality for iOS:
The implementation of this system took us 4000 hours. In this case, we implemented microservice architecture and cloud data storage, so scaling the application was seamless. Now a mature platform consists of continually developing iOS and Android apps.
Building an app for your startup is a huge commitment. The process starts with market research to identify a problem and assess the demand for the solution. Afterward, you should consider the technology and skill set required to deliver the solution.
The SaaS model is typically ideal when your solution solves a real problem, helps customers generate revenue, and appeals to a broad audience.
If you need experienced developers to build a SaaS app for your startup or move your on-premise software to cloud, contact firstname.lastname@example.org.