Before we get into the costing of Software-as-a-Service (SaaS) products, it is important to understand the difference between the cost of goods sold and the price of a service or product. Cost of goods sold is the cost of producing a product or providing a service. They include all costs that are directly related to the production costs, but also to the distribution of the administration. The production costs of a SaaS product are usually the development costs of the software.
The price, on the other hand, is the amount the customer must pay for a product or service. The production costs are ideally the basis for pricing, as the price should be sufficient to cover the production costs and make a reasonable profit.
Especially at the beginning of self-employment, when a start-up does not yet have a comprehensive sense of the costs in the company, the number of customers and the prices of competitors on the market, a price is often communicated according to gut feeling.
This is not a problem at the beginning because the number of customers is still very small. However, within the first year of the start-up, the managers of the start-up should intensively deal with the calculation of their service. This does not inevitably mean adjusting the sales price, but determining the marginal costs is very important to determine the number of users that are at least necessary to cover the running costs. If it is a scalable business idea, the number of customers can be increased with the respective marketing measures.
The Following Costs Are Incurred in the Development of SAAS Software:
1. Development costs: These are the costs of developing the SaaS product, including developer, designer, project management and infrastructure costs.
2. Operating costs: These include the costs of running the SaaS product, such as hosting of a website, cloud infrastructure, databases, security, scaling and customer support.
3. Marketing and sales costs: These are the costs of marketing and selling the SaaS product, such as marketing campaigns, advertising, lead generation, sales teams and sales commissions.
4. Customer acquisition costs: These costs refer to the costs to acquire new customers, such as marketing campaigns, advertising, lead generation, customer demonstrations or presentations.
5. Maintenance and support costs: These are the costs of maintaining and supporting the SaaS product, such as troubleshooting, updates, training and customer support.
6. Scaling costs: As the SaaS product grows and gains more customers, scaling costs may be incurred, e.g. for additional server capacity or scaling of the infrastructure.
The actual calculation consists of allocating the costs listed above to a product or service with the help of allocation keys. If a start-up offers freemium products, the payable products must cover the costs of the free products. This challenge can be solved with the help of a mixed calculation.
Since there are different pricing models for SaaS products, such as monthly subscriptions, usage-based prices or tiered prices, these must be reflected in the calculation.
Finally, the Common Calculations for SaaS as a Subscription Are Presented:
1. Cost-based calculation: This includes the "classic calculation" presented above and is based on the costs of your SaaS product. Add up all the costs associated with the development, operation, marketing, support, and other aspects of your product. Divide the sum of all costs by the expected number of paying customers. This allows you to determine the minimum price required to cover all costs (marginal cost). By adding additional margins, the subscription fee can be determined.
2. Competitive pricing: Another method is to set the subscription fee based on your competitors' prices. Analyse the market and find out what other SaaS products with similar features and target groups are charging. Consider the added value and unique selling points of your product compared to the competition. Based on this analysis, you can try to set a competitive price. However, this does not guarantee that the total costs of your start-up will be covered.
3. Value-based pricing: In this approach, the price is set based on the perceived value of the product to the customer. Examine what benefits and added value your SaaS product offers your customers. The benefits or added value will often be time savings, increased efficiency, or solving specific problems. Ultimately, a percentage (usually 10%) of the cost savings will be priced. If a company saves 120,000 EUR per year by using your software, the annual fee would be 12,000 € per year, or 1,000 € per month.
4. Price tests and customer feedback: You can also conduct price tests and collect feedback from your potential customers. Offer different pricing models and analyse customers' reactions and buying behavior. This can help you determine the optimal price for your subscription fee.
It is helpful to contact an expert from our team or to attend a Digitale Gründung workshop. They will help you to create a well-founded and meaningful calculation.
