What Are The Typical Saas Costs That Are Associated With Development?

Imagine your SaaS company as a software factory. To run it efficiently, you must follow the practices of actual factories that produce bicycles, airplanes, or other widgets.

A manufacturing company knows that it must minimize the expense (cost) associated with its go-to-market product while at the same time maximizing the ability to manufacture and deliver the best possible product. As the owner walks around the floor of the factory or examines the company financial statements, they will be thinking, “How do I…”:

• … drive out unnecessary expense in the manufacturing process and my raw materials?
• … make sure the finished product has the best design attributes?
• … change my product in an agile, effective way when I need to?
• … make as MUCH product as I can, as QUICKLY as I can?
• … increase (scale up) and decrease (scale down) manufacturing of my product?

Likewise, your SaaS (Software as a Service) company has similar considerations:

• Your SaaS development costs come from your materials (software developers, software tools, and supporting infrastructure).
• The application development should leverage world-class techniques, languages, and tools.
• It would be best if you had an agile software portfolio that can change characteristics and improve rapidly.
• You must be able to produce new code in an accelerated manner, and then scale back at the appropriate time.
  

All these factors affect software development costs, which are at the core of your SaaS application offering.

But what if there were better ways to produce your SaaS application? What if elements of your software could be produced elsewhere more quickly with the same (or better) design features at a lower product development cost?

Here are 4 SaaS software development cost considerations to help you better manage SaaS development costs. It's best to address these in the discovery phase of your project to better budget and manage the project. 

SaaS Cost Consideration #1: Labor Expense

Let’s examine the components of your labor expense: the cost of having a Software Engineer on your payroll. Naturally, you pay them a salary, which you can quickly translate into an hourly rate. But DON’T STOP THERE - don’t forget about these other real expense items.  Your labor expense includes:

• Employee benefits: vacation, sick time, insurance, payroll tax, retirement contributions, etc. When you add wages and cost of employee benefits, you have your “fully burdened cost”. These are costs you must bear with every software developer you hire. On a national average cost of these employee benefits are 31% of an employee’s fully burdened cost according to the Bureau of Labor Statistics. That percentage will be higher for a company populated by high skilled technology workers, versus hourly laborers. Don't forget about the costs associated with managing the payroll process itself.
• The expense to supervise the employees: People have to be managed. Effective management is like the crucial but unseen foundation supporting your software development team. A supervisor will set the software developer and development team work priorities, coach and guide regularly, have formal status reviews, oversee time reporting, and conduct performance reviews. A great supervisor ensures your development team is laser-focused on the most pressing tasks aligned with overall business goals. They provide mentorship and troubleshooting support, keeping projects on track. Ensuring accurate time reporting, especially if projects are billed to clients, consumes further manager bandwidth. Importantly, these management costs aren't just a one-time factor. As your team grows, so too must your management layer. This adds complexity and a continuous increase to the total cost of software development beyond the salaries of individual engineers.
• Hiring costs: Whatever you pay someone, you need to factor in the costs of acquiring that employee. Specialized recruiters for SaaS development experts can cost over $15,000 per development team member. If you use your own HR team, the expenses are harder to quantify, but for a large project you might need to expand that team. Indeed.com cites that companies should expect to spend 1.25 to 1.5 times the salary of the new team member to acquire that team member. That's a significant addition to your SaaS development costs that you might not think to include. 
• Tools: The infrastructure necessary to support in-house software development extends far beyond salaries. You'll need to invest in individual workstations, data center costs for computing power and storage (whether cloud-based or on-premise), and a comprehensive suite of software development and testing tools. These costs aren't one-time; they multiply with each employee you bring on. Additionally, in the rapidly evolving world of SaaS, there's the often overlooked expense of continuously training existing staff on new technologies AND the recurring cost of onboarding new hires. These add substantial overhead to your software development budget, impacting your bottom line.
• Office space and furnishing. Your company may be providing portions of leased office space (don’t forget furniture, phone, internet, etc.) for your software development staff.

Using internal staff for custom software development is more expensive than you think, compared to outsourcing. The TOTAL cost of a development team for SaaS development on staff can easily exceed $100/hour or more in some cases, per software engineer. It's crucial to realize that these expenses extend beyond the productive hours the engineer works on coding tasks. These additional costs can significantly raise the true 'hourly' rate your company pays, making in-house development a far more expensive proposition than it might initially seem.In contrast, software development outsourcing can produce savings by reducing (or eliminating) developer salary costs, supervisory activity costs, tools, and even office space, as well as hiring costs.

Download The 2024 Guide to Global Software Outsourcing Rates

SaaS Cost Consideration #2: Best-In-Class Design

A complex software solution or suite delivered as a SaaS application must have many design elements that represent best practices.

• UX/UI - An intuitive and attractive layout must maximize the user interface and user experience for any SaaS product. UIUX design is integral to any successful SaaS application.
• User Experience (UX) Fundamentals
  • Intuitive Navigation: Users should grasp how to find what they need within seconds. Clear menus, logical hierarchies, and familiar patterns are key.
  • Search Functionality: A robust search bar is non-negotiable, helping users quickly find specific features, content, or settings.
  • Responsive Design: The layout must seamlessly adapt to various screen sizes (desktop, tablet, mobile) for a consistent experience.
  • Speed & Performance: Slow loading times are a deal-breaker. Optimize code, images, and ensure your hosting can handle traffic surges.
  • Error Handling: Provide clear error messages that guide users on how to resolve issues without frustration.
    User Interface (UI) Considerations.
  • Visual Appeal: Employ clean design, modern color palettes, and on-brand elements for a professional, trustworthy feel.
  • Consistency: Maintain a uniform look across all pages and features to reduce cognitive load on your users.
  • Accessibility: Design with users of all abilities in mind – this includes color contrast, text alternatives for images, and keyboard navigation.
• Documentation - The SaaS application must be structurally well-written – and adequately documented.
• DB Architecture - As part of your app development, your database design must be optimized to ensure that “worst case” transaction volume can be within your targeted system response time.
• APIs for service interoperability - The software architecture of your SaaS product should allow for standardized methods of passing information to and from external systems using a common API. You’ll want a design that allows you to interface with common marketplace systems, credit card processing, sales tax calculation, web services, etc.
• Separation of Concerns - The software design and SaaS product development should also allow for user configuration of screen content, visible (or hidden) data fields, and other form factors without compromising (“breaking”) the core software base. Today's customers demand that level of customizability but it's always critical for the product to continue working as it is meant to.
• Upgradability - The SaaS application must be designed so that upgrades can be created and deployed seamlessly.
• Compatibility - The SaaS product must be written to perform optimally with current versions of the deployed operating system and database management system.
• Multi-platform support - Industry standard browsers should access the software equally well without compromising the user experience.
• Dev/Ops and CI/CD - Continuous Integration/Continuous Deployment - If you’re planning for rapid deployment of new versions of code to your SaaS application environment, you’ll need to incorporate automated deployment toolkits so that you have fast, efficient and predictable releases to production.
• Quality - Quality must be designed into the SaaS product software with test plans defined for the successful usage paths and proper handling of exceptions. Automated testing is required for a true DevOps methodology that enables frequent or continuous deployment. Quality assurance cannot be overlooked.
• Multi-platform support - Complementary mobile options should be part of the total SaaS application. Most SaaS solutions will be accessed by a multiple browsers across PCs or MACs, plus smartphones and tablets. Mobile app development costs have to be factored in as part of the overall cost of your SaaS platform.
• Security - Like quality, this cannot be “bolted on” - software needs to be designed from the start with an eye on balancing ease of access and use with protecting against unwanted data leaking out or having your service shut down. This affects design philosophy, software toolkits, infrastructure, and coding standards of your SaaS product. Common attacks include denial of service, cross site scripting and buffer overflows. The software must be secure and comply with best practices for avoiding cross-site scripting and other hacker vulnerabilities.

Beyond the Basics

• Scalability: The design must accommodate growth, both in terms of users and features, without degrading performance.
• Security: Robust security measures and clear communication about data protection are essential to build trust.
• Integration Capabilities: The ability to play nicely with other software in a user's tech stack enhances the value of your SaaS.

Key Takeaways: SaaS design is an ongoing journey. Start with strong bones, then use analytics, user feedback, and competitive analysis to guide continuous improvement for long-term success. A robust SaaS product demands a multifaceted design, necessitating a wide array of specialized coding expertise. Outsourcing web development expands your horizons, providing access to global centers of excellence. These hubs harbor highly-skilled developers who have honed their talents through rigorous certified training along with the invaluable experience gained working on diverse projects. This depth of skillset becomes invaluable, particularly when you need cutting-edge solutions or deep industry-specific knowledge to give your SaaS product a competitive edge. With outsourcing your SaaS application development, you transcend the limitations of regional talent pools and tap into niche expertise that would be difficult, if not impossible, to replicate in-house.

SaaS Cost Consideration #3: Agility (Flexibility)

Even with the most carefully laid plans, the world of software development is synonymous with change. Evolving consumer demands, shifting regulations, and the relentless march of competition all create scenarios where your SaaS application needs to adapt – sometimes requiring skills you simply don't have in-house. But building that expertise internally carries a hefty price tag.

Similarly, training existing development staff in new methods and a new technology stack means downtime - as they stop productive output and begin the progression of learning, then develop fluency with new tools. All this loss comes in addition to the software costs of the new tools required to create your SaaS app.

What options exist when the right software development talent either blows your budget wide open or simply isn't available in your area? Even when you do find those niche skills, the process of recruitment, hiring, and onboarding introduces significant costs and delays. Then there's the often overlooked reality: training your existing team on new technologies and processes incurs a 'hidden' cost as they step away from productive work to climb the learning curve. All this investment comes on top of potentially steep licensing costs for the new development tools themselves.

The nature of SaaS application development creates a unique pressure point: your subscribers expect continuous evolution and improvement. They compare your product to a vast (and growing) landscape of competitors, and loyalty is often fleeting if you're not delivering innovation at a steady pace. In this environment, delays in adding new functionalities can be crippling.

This is precisely where outsourcing becomes a compelling solution. By partnering with a specialized software development provider, you can rapidly deploy web development teams equipped with the skills and subject matter expertise tailored to your project. Whether it's an industry-specific solution or utilizing the latest cutting-edge technologies, these outsourced app development teams accelerate your development timeline. This frees your in-house developers to focus on core strengths, propelling your SaaS product forward without the friction and expense of internal expansion.

Key Takeaways: SaaS providers are held to a particularly high standard by the user community to deliver solutions that evolve on pace with - or ahead of - the marketplace. By leveraging software development outsourcing partners for your product development, you have the potential to QUICKLY deploy teams with new skills and niche experience (industry verticals, subject matter expertise, etc.).

SaaS Cost Consideration #4: Scale

Your SaaS “software factory” should have ability to “produce software code” in a scalable manner...increasing or reducing activity as situations change. Software staff size or capacity cannot be your limiting factor to produce a SaaS application.

Ideally, your app development cost structure should be “ N + 1 ”, meaning the overall cost of performing more work is simply a developer’s labor rate / hr for one more hour of work (meaning additional labor cost is linear). But when more capacity needs means additional hiring, then you have a surge of costs which you must then work to offset over time by productive work. Your labor costs will not scale a linear progression, but in a “stair step” as you constantly work to offset the upfront costs of a new hire:

• Recruiting fees
• Management and HR time expense in review resumes
• Orientation and new hire training

Finally, let's explore the often overlooked challenge of SCALING DOWN. Fluctuations in market demand, seasonality, or simply the conclusion of a project phase can necessitate a reduction in software development labor and product development costs. Unfortunately, when it comes to in-house teams, downsizing carries a heavy price tag for the organization. Usually, employee separations initiated by the company cost real dollars to the organization.

• Severance pay (including continued benefits)
• Time and energy for offboarding knowledge transfer

Then comes the less obvious, but equally significant, cost of knowledge transfer. Ensuring that the work of departing developers transitions smoothly takes time and effort from remaining team members. Moreover, layoffs undeniably impact morale. A talented software developer, sensing instability, may pre-emptively jump ship, leaving you facing the added cost and delay of finding and training replacements.

This is where the flexibility of outsourced software development companies shines. Their business model is inherently built to handle fluctuations in your project needs. Scaling down is a natural part of their engagement cycle. They manage teams accustomed to redeploying to other projects, minimizing disruption to your own workflow. This agility allows you to match your software development resources to your current requirements, eliminating the financial and logistical headaches associated with downsizing an in-house team.

Key Takeaways: Depending on an internal staff hire process to increase software development capacity for your SaaS offering needs has some natural limitations:

• Pool of available SaaS app development talent
• Time and cost to recruit, hire, train, equip, and integrate into the team
• Upfront outlay of expense is not immediately offset by productive software development
  

Outsourced software development companies can usually scale a team overnight, instead of taking months to recruit and hire. The available pool of global talent is far superior in size and speed-of-deployment than your local options. Teams of outsourced SAAS application development professionals can be quickly and easily reduced, or eliminated, when needed.

An outsourcing option also negates unexpected “gaps” in capacity due to circumstances like unexpected employee resignation or extended illness.

Summary

SaaS solution providers have many of the same cost considerations (and challenges) that a traditional manufacturing company - and a traditional IT department. As a SaaS company, some of the typical business cost management challenges are magnified.

• Your labor considerations are doubly important. Generally, proper project management cost is your only “knob to turn."
• You don’t have complex shop floor machinery - you have people writing code.
• Software doesn’t support the business operation - Your Saas product is the OUTPUT (finished good) of the business operation. You must be intentional about delivering a SaaS platform to the market that has best-in-class features.
• When marketplace appetites change - you must be able to react with speed and high technical skills to evolve your SaaS platform offering.
• You must scale up - or scale down in software development capacity with speed and in a manner that allows you to achieve an “N plus 1” or “N minus 1” cost equation.
  

At first glance, the idea of a SaaS provider relying on outsourced software development might seem at odds with the very nature of the business. However, let's draw a compelling analogy: just as manufacturers across industries strategically utilize "purchased parts" from third-party suppliers, there's compelling logic to outsourcing certain components of your SaaS development. Why? Because for specific functionalities, it can be dramatically cheaper, faster, and more efficient to partner with specialized experts than to attempt to build every single element of your product in-house. This frees up resources to focus on your core competencies while accelerating your product's path to market.

Accelerance unlocks access to a global network of certified software companies, each boasting a specialized area of expertise. Whether you need niche programming language skills, in-depth knowledge of a particular industry vertical, or subject matter experts to tackle unique challenges, we'll match you with the perfect development team. Additionally, our network includes partners who excel in DevOps solutions tailored for SaaS applications, ensuring a seamless pipeline from development to deployment and ongoing optimization.

Get the Guide

Discover up-to-date offshore, nearshore and onshore software development rates with the true-cost analysis you need to make an informed decision when hiring a software outsourcing company.