Ever wondered how much money it takes to start a SaaS company?
First, let’s make sure we understand what a Software-As-A-Service product is:
SaaS businesses provide software and services over the internet — typically through a subscription model.
Popular examples of SaaS products include: Dropbox and Evernote .
Most of these kinds of businesses target individual consumers: productivity tools, online storage, social networks.
Some SaaS businesses, however, target other kinds of customers, distinguishing them between B2C and B2B Saas.
Usually, the main difference between B2C SaaS and B2B is the price point.
B2B Saas generally have a high-end price point, as opposed to B2C which have a low range price point.
But let’s now dig deep into how much it actually cost to start a SaaS company.
How much do you need to launch a SaaS company?
First of all let’s define the steps involved in a SaaS company startup, these are:
– Idea validation
– Company incorporation
– Product development and design
– Product launch
– Account registration on payment platforms
– Marketing your SaaS app
– Customer support and maintenance
Now, let’s see how much it costs to do all this.
Idea validation
Idea validation should be pretty fast and not expensive. It usually starts with an initial investment in creating a landing page to gauge interest, or getting some early adopters that will give you feedback.
It might take a couple of months and cost somewhere between $1000 to $5000.
Company incorporation
Company incorporation depends on the desired jurisdiction.
Let’s assume you are based in the US, then it would cost ~$500 for incorporating an LLC or $800 for incorporating an S-Corp.
These are just the legal costs, so it doesn’t include the business registration fees which are usually around $300, or the cost of obtaining a Federal Employer ID Number (EIN) which is also quite expensive.
So in total it might cost you around 1.5$K to 2K$.
We are not done yet.
Product development and design
Product development and design is usually the biggest expense in a SaaS company startup.
It will take around 3 to 6 months, and require a dedicated team of developers.
It will cost you at least $50K for the initial development, and another $50K to get your MVP out.
After that you will need to pay your team monthly ($10K/month), on top of the server costs and other expenses.
This is where most SaaS companies fail: they underestimate development and design costs, and eventually run out of money before they can raise a Series A round.
Product launch cost
Product launch is another important step in a SaaS company startup.
You are gonna need to write a press release, create some buzz around your product on social media and hire an experienced sales team to acquire your first customers.
For a product with a price point of $50/month, you would need to sign up at least 100 users in your first month to prove product/market fit.
This will cost you another $10K.
If you are not able to launch your product successfully at this point, your startup is starting in a steep uphill.
Account registration on payment platforms
Account registration on payment platforms is a pretty straightforward step for a SaaS startup.
For example Stripe, Paypal or Braintree will charge you 2-3% plus $0.30 on every transaction.
However, keep in mind you will have to register in most countries where your customers are, which adds a lot of expenses and time.
Marketing your SaaS
Marketing your SaaS is a very important step, since if no one knows you exist, you won’t get any users.
The more expensive a product is, the more you should invest in marketing.
Depending on the channel, it will cost between $1000 to $5000/mo.
Customer support and maintenance
Customer support and maintenance is one of the most important factors that determine customer retention and your company’s bottom line.
To build a good support team you will need to invest a lot in training and hiring the right people.
It will cost you between $3K to $10K per month depending on the number of support tickets.
Also, don’t forget you will eventually need to build a product roadmap for your company, which will require hiring a product manager or at least a project manager, who will cost another $5K to $15K per month.
After all this is said, do you really think, there is $100K budget for building a SaaS company?
It’s usually not enough to validate an idea, develop a product, launch it successfully and scale it.
This amount is more suitable for developing the MVP only.
For a full-blown SaaS company you will need almost $300k in my opinion
A good SaaS startup investor would look for the product/market fit, a good team and a good strategy for generating revenue.
You will need to show traction, which means you have acquired at least 100 customers with a good retention rate.
It is highly unlikely you will get an investment without a proper team in place and enough traction.
Conclusion:
So, if you are planning to build a proper SaaS company, make sure you have at least $100k – $300k in your bank.
If not, go back to the drawing board and look for bootstrapping the whole thing yourself together with a technical co-founder.
Otherwise, you might end up like the majority of failed SaaS startups.
And remember to not scale too soon since traction is more important than growth at this phase!
Cheers, Alessio.