When delivering an SaaS product, there are a wide range of costs you need to take into consideration. Aside from your initial outlay, if you want to achieve a gross profit of 80% (a figure that is typically recommended to base your SaaS business model on) and a healthy net profit so that you can finance growth, you need to get your pricing and costs right.
While many entrepreneurs have a good idea of marketing and office costs, technical costs can be harder to identify. In this blog post we will address the main technical costs SaaS businesses can face.
Hosting is one of the main technical costs of SaaS, and you’ll see server costs increase as your business expands. If you’re aiming for a high number of users in the early days, make sure your budget is prepared.
We recommend budgeting £500 per month towards servers for the initial months, a budget which will increase as your user base does. Hosting costs are stepped, not linear, so build that into your plan. The exact costs will depend on the level of service required, your particular needs and the provider. Here are just a few providers worth considering: Brightbox, Rackspace, Heroku, Amazon Web Services(AWS) or Claranet.
We also recommend getting performance monitoring software for your apps and servers. Application monitoring from New Relic will cost $49 (~£32) per app server. You will also need something like Server Density, which will monitor up to 10 servers for $99 (~£66). Again, your budget for each of these will increase as your business does, when traffic rises and more servers are needed. Also, check if any of these services come as part of your hosting package.
When sales are made and money changes hands, you also need to think about billing fees. If you will be charging your clients via direct debit, services such as GoCardless will take 1% of the transaction (capped at £2 per transaction). If your subscription will be done via debit or credit card payments,Recurly currently charges 1.25% plus £0.10 per transaction.
Software Development Costs
However, one of the highest expenses in SaaS business will be the development of your software product. Whether you opt for an in-house development team or hire a software development company to help you out, you need to plan not only for the initial build, but also for ongoing technical support, maintenance and development.
From the moment you start demonstrating your software to potential clients, you will start receiving requests for additional features. Make sure you have some budget set aside for these so that you can be agile and respond quickly when acquiring new business.
Other costs to remember
In SaaS, as in any business, a large portion of your budget will be taken up by operations and marketing. Obviously, these costs will be contingent on your own setup, but be sure to factor in user/customer support personnel and relevant software. Costs for Desk start at $3 (~£2) per month, or you can opt for Zendesk, though this is a more expensive option to start with. You will also need software to run your business, including an email client (even Google charges for business email apps; prices start at £3.30 per user per month). You may also need an accounting application, such as Kashflow – from £18 a month or Xero from £12 per month.
This is not an exhaustive list—we have simply tried to capture the most common, largest, and recurring costs for SaaS businesses so you don’t get caught out by unforseen costs.