Creating a SaaS product seems to be simple: think of a concept, find developers to make it happen, launch the product, and obtain customers. Nevertheless, many businesses do not take into consideration the unknowns that go into creating and building a successful SaaS. The unknowns can build up over time, and they could severely impact overall profitability if they are not planned for.
Market research and product validation
Are often the first hidden costs of developing new software; before businesses can begin developing software, they must first determine if there is market demand for the product or if the product will be sold to end-users. For example, a start-up developing a Commercial Relationship Management (CRM) tool may expend a significant amount of money conducting market research (e.g., surveys, website analysis, and advertising) to determine the types of consumers who might be interested in purchasing the CRM before even beginning to write code for the CRM. Although some business owners do not consider this type of research to be very important, if a business does not conduct the research, they run the risk of developing a product that ultimately has no demand in the marketplace.
Design and user experience
A third situation where unforeseen expenses arise. Many types of software-as-a-service platforms, such as food delivery, will often make changes in design after hearing how customers react to the software being developed. In the case of the food delivery example above, if customers say that the software’s dashboard is too difficult to figure out, then the developers might have to hire a different group of designers and/or programmers to redesign the dashboard and implement the new design into the software so that there are added costs beyond what was initially budgeted for designing the dashboard.
Development delays
Furthermore, the cost of a project can increase significantly. It’s not uncommon for a project that was supposed to be completed in three months to take 6 months (or longer) to complete due to the multiple factors that can affect a project (i.e. bugs, changes in requirements, and third-party integration). For example, when you have to integrate payment gateways (such as Stripe/PayPal), there is usually additional development time/testing required due to this integration, which will increase total project costs (labour costs + operating costs).
Infrastructure and cloud hosting costs
Can also develop rapidly over a short amount of time. During its initial phases, a SaaS company’s expenses associated with social media are generally minimal compared to what they will likely incur when their user base expands dramatically and requires much faster hosting equipment, such as dedicated server(s), increased cloud space, improved CDN delivery methods, and enhanced database management tools (an example would be many users on an Education platform using video technology all at once may cause significantly more bandwidth to be consumed, resulting in increased billing charges from AWS or GCE).
Security and compliance
Companies providing Software as a Service (SaaS) solutions frequently have additional expenses that are typically not considered when budgeting. SaaS merchants that provide customer data to their customers will have to budget for costs associated with SSL certificates, software for Cybersecurity, backups and legal compliance, such as GDPR. For example, an online healthcare SaaS provider may need advanced software systems to protect a patient’s records, which could add up quickly to a large expense over a long period of time.
Marketing
New Businesses often overlook a significant expense. Consumers are often unable to find a great product or service on their own because their paths to discovering new products have become much harder to follow. To grow their user base, businesses invest heavily in online advertising (PPC), Search Engines, Influencer Marketing (think Blogs), Content Development, Email Campaigns, and many other similar channels. For instance, a project management SaaS (Software as a Service) Solution will likely need to invest thousands of dollars each month for advertising to compete with larger companies within its sector.
Customer support
Live chat software, support teams, onboarding systems, and CRM tools are just some of the potential costs that businesses can incur when their user base continues to grow. If a company has an increasing number of users of its live chat software—for example, a SaaS accounting software product—then it will need to hire additional customer support representatives for technical and/or billing issues on a daily basis.
Ultimately, there is much more involved in creating a SaaS product than just writing code. There are many hidden costs involved with research/development/design/revising/marketing/selling/support and scaling. If you don’t plan for these costs early, you may find it difficult to build a profitable SaaS product as your business grows.
