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The Costs Of Making A SaaS Product -- And Is It Worth It?

If you want to bring software to the market, you have a couple different options. Until about a decade ago, you’d develop for a certain platform and either transpose code for other on-premises environments as you go or port to another platform after the product was fully functional.

This is still how certain software is created -- namely, console video games and mobile applications. But it’s fallen out of favor for computing needs, especially for business. This is why many developers focus on making SaaS services, whether they like it or not.

Developers may or may not love developing on a hosted platform, but investors love it as there is the ability to scale without buying a trunkful of servers and an army of support engineers.

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Are SaaS company values really worth the money that is invested in them? Before looking at the financial figures to get the ball moving, it’s important to understand market dynamics prior to securing that first round of funding.

SaaS Market Growth Over The Last Decade And Factors In Business Operation Costs

The idea of on-demand delivery for an application isn’t new, but it didn’t take off until the end of the previous decade when technology caught up with all the ideas floating around. The market has grown substantially since last decade, with expected growth of $32.9 billion from last year, for a total of $186.4 billion. That’s a far cry from a total revenue of $6.4 billion in 2008.

You can attribute financial growth to a few intertwining factors, namely the ease of deployment, accessibility and the fact that most SaaS products are turn-key solutions. Today, competition has become fierce, which has shifted costs for service providers over the past few years:

• Companies that seriously produce competitive SaaS products are experiencing increases in customer acquisition costs (CAC).

• Web ads are now everywhere, which has helped the market grow; however, the pricing for digital advertising is rising considerably.

• The growth of SaaS is congruent with consistent (some might say, “falling”) prices for hosted services.

Because of the CAC, factoring in the costs of advertising and the fact SaaS apps are everywhere, this changes what it takes to excel as a competitive service provider, which is important to consider. To be brief, this means an exceptional service is necessary to stay in business and that it’s expensive to obtain customers.

Of course, before a company even gets to this point, there are the startup costs and matters of revenue to consider.

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