How to Build a Cloud-Based SaaS Application in 5 Steps

While software as a service (SaaS) was a relatively new business model a decade ago, it’s now one of the leading software trends worldwide. Suitable for a significant number of industries, such as retail, finance, marketing, healthcare, and travel, SaaS may be the right fit for your business.

So, how to build a SaaS application? In this article, we:

• define what SaaS applications are and tell about their advantages
• describe the SaaS development process step by step
• point out important things to keep in mind when building your software as a service app
• give a rough cost estimate for cloud-based SaaS app development.

Let’s start with the basics.

What is a SaaS application?

Before we answer the question “How to create a SaaS application?”, let us briefly sum up what SaaS is.

SaaS, or software as a service, is a business model alternative to traditional software licensing. With the SaaS software delivery and maintenance approach, developers don’t sell their programs with a lifetime license or wait until next year’s version to release feature updates. Instead, companies market their software as a service (hence the name), typically via a subscription model.

Let’s consider a popular product that in 2012 transitioned from the on-premises software delivery model to the SaaS model — Adobe Photoshop. Years ago, Adobe Photoshop and countless other programs were sold to consumers for a one-time price. Once the consumer paid, they were given a key to access a specific version of Photoshop.

Instead of paying a high up-front cost for a one-time product license, Adobe customers sign up for a monthly subscription to Adobe Creative Cloud.

For example, the monthly Photography plan that includes access to Photoshop and Lightroom starts at $9.99 a month, while the last version of Photoshop available with a lifetime license starts at $700.

Why do users get more benefits with a subscription model than when buying a lifetime license?

First, $10 a month is affordable for many different demographics, including students.

Second, the user can cancel their monthly subscription at any time. Thus, if users no longer require this solution, they won’t feel sorry for buying a program they won’t use to the fullest.

One more significant benefit of SaaS platforms, including Adobe’s, is the ability for users to test a product’s functionality for little money.

Now let’s have a look at more benefits cloud-based applications bring to their users and owners.

Advantages of SaaS solution

If you consider building a SaaS application, you must ensure your customers will benefit from this delivery model. In the previous section, we’ve already mentioned one of the considerable SaaS advantages for users. The good news is that there are more, and cloud application owners also benefit from selling software as a service.

Benefits of SaaS for users

In addition to the cost-efficiency of cloud apps, users can also take advantage of SaaS products’ accessibility, instant and regular updates, scalability, and reliability.

• Accessibility. Cloud-based web applications are accessible after logging in from any device anywhere in the world. Users only need a stable internet connection to effectively work with SaaS apps.
• Instant and regular updates. While mobile and desktop app users still have to download new software versions to get updates, SaaS web apps have a huge advantage. Apps that run on the web are updated automatically, so users don’t even notice when and how apps are updated — they consistently access the latest version of the software.
• Scalability. If the users’ app requirements increase, they can upgrade their plan in a few clicks. Downgrades are also painless.
• Reliability. A cloud is a network of servers that can be located around the world. Even if one server goes down, the application will remain online.

Benefits of launching a SaaS app

There are many reasons to build SaaS products, not only use them. Let’s list them to fully understand what SaaS solution development can bring you.

• Ability to enter a growing market. Taking into account the benefits software as a service can provide to users, it’s no wonder the SaaS market is growing. According to Statista, the SaaS market will increase from $197 billion in 2023 to $232 billion in 2024.
• Ability to attract a large customer base. The number of businesses that want to switch to SaaS applications increases constantly. The more companies want to use SaaS apps, the more chances you have to attract a broad audience. Moreover, cost-efficient monthly subscriptions make software affordable even for new businesses with limited budgets.
• Regular and long-lasting revenue. The SaaS model allows SaaS developers to gain a relatively stable source of revenue through subscriptions. This enables them to plan and carry out regular development efforts that keep their users happy and subscribed.

Despite all the benefits SaaS offers business owners and platform users, it’s important to remember that software as a service doesn’t work for all businesses. Let’s see what apps work best with the SaaS model.

Types of SaaS applications

While the SaaS market is growing, the SaaS business model is not a silver bullet for all industries. For example, if you offer one-time services for your customers, SaaS isn’t what you need since your users won’t pay a monthly fee for a former operation. SaaS works excellent for people who need to use an application regularly.

Before you find out how to build a cloud-based SaaS application, it’s necessary to define which type of product you want to develop. It’s worth mentioning that both business-to-business (B2B) and business-to-consumer (B2C) web-based applications can effectively use the SaaS model. Let’s have a look at several examples.

Examples of B2B SaaS applications

In the B2B sphere, the SaaS business model is widespread. Here are just a few types of apps that can successfully adopt this model.

ERP systems

A Cloud-based ERP system is a web app consisting of numerous modules to optimize and automate internal business processes. ERP software development is a complex process, including inventory, accounting, HR and CRM, and many more modules. As of June 2023, the biggest names in ERP software are Oracle Cloud ERP and SAP S/4HANA Cloud.

Project management tools

You’ve probably heard about Jira and Trello — two of the most recognizable project management tools worldwide. Companies can effectively manage everyday business processes thanks to such cloud-based applications.

Collaboration tools

Globalization caused collaboration tools to be irreplaceable. Apps like Google Workspace, Zoom, and Slack have become a significant source of effective communication for teams that have yet to be able to carry out their everyday tasks offline since spring 2020.

Marketing software

Marketing is an engine that drives clients to a business and plays a vital role in business development. Social media marketing (SMM) platforms, like Brandwatch or Loomly, and marketing analytics tools, like Google Analytics or Hubspot, allow businesses to streamline their marketing efforts and track performance to improve their market position.

Nowadays, many B2B SaaS apps include AI features that empower their performance. For example, Tableau, a data visualization and analytics platform, offers AI-powered analytics through its CRM solution. Zendesk, a customer service and support platform, offers an Advanced AI add-on – a set of AI-based features that improve customer service experience.

If you are considering adding AI features to your cloud-based SaaS application, get acquainted with our article that explains how to build an AI-based SaaS product.

Examples of B2C SaaS applications

Not only businesses benefit from using cloud-based applications, but people around the world use them daily for purposes such as leisure and education.

Streaming services

Netflix is an American streaming service that allows users worldwide to watch movies and TV shows from any device. Spotify is another popular streaming service that uses the SaaS business model. By subscribing to Spotify, users can access songs in dozens of genres by thousands of artists in one place, which is much cheaper and more convenient than buying each album separately.

E-learning apps

Many online learning apps also use the SaaS model to sell their solution. For example, Duolingo offers users two plans: free and plus. A plus subscription provides extended functionality such as ad-free content, unlimited access to the platform, and mastery quizzes. Some online education platforms also have subscription plans. For example, Coursera offers access to the whole library for $59 a month. It is cost-efficient for avid learners who can choose any courses they want and even get internationally recognized certificates.

If you plan to build one of the types of SaaS platforms listed above or something similar, you’ll need to go through a custom software development process.

How to build a SaaS product in five steps

The SaaS software development process has its peculiarities due to the cloud-based nature of SaaS apps. So, how to build a SaaS platform? The SaaS product lifecycle takes five steps: discovery phase, application design, architecture design, development and testing, and maintenance and further development.

Step 1. Discovery phase

The SaaS software development project starts with proper planning. A discovery phase is about structuring your plans for SaaS application development and preparing a bunch of documents to help your development team build the SaaS application you want. During the project discovery phase, a business analyst sets up several meetings to learn the details of your project and creates documents such as:

• Software requirements documentation — reflects requirements for your cloud application; describes the features your SaaS application should have as well as technical specifications (such as app structure and dependencies), the project objectives, user groups, the scope of work, etc.
• Risk assessment and mitigation plan — a prediction of what risks you might face when developing your cloud-based SaaS application, along with ways to minimize those risks
• Feature breakdown list — a table that contains all the features you want to implement in your SaaS platform, along with time estimates for their implementation
• Cost estimate — a table with a projected budget you might spend on SaaS application development

These documents are only part of your deliverables during the discovery phase. Moreover, at this phase, a BA helps you define the optimal software engineering team structure for your SaaS platform development within the allocated budget and timeline.

Step 2. Application design

Regarding web app design, you need to think about the user interface (UI) and user experience (UX). Before developing SaaS applications, it’s essential to decide on the interface so it perfectly meets the needs of your target audience.

When considering your SaaS platform’s user interface and user experience, remember what devices your target audience will use. SaaS applications work on both computers and mobile devices. A UI/UX specialist will prepare designs for devices with different resolutions so your users can work conveniently in the office, at home, or on the go.

Step 3. Architecture design

The software architecture is the foundation of a successful application that meets stakeholders’ technical requirements.

SaaS architecture is cloud-based, meaning databases, storage, and the whole infrastructure are located in the cloud, not on physical servers. The most popular cloud computing solution for building SaaS architecture is Amazon Web Services (AWS). While there are many alternatives to AWS, like Azure, Google Cloud, or Oracle, Clockwise Software engineers mostly choose Amazon Web Services for our clients’ projects. There are several reasons why we prefer this cloud provider.

• Flexibility. Using AWS, software engineers have access to 200+ services. Developers can choose from nearly any programming language and database.
• Scalability. Amazon Web Services offers scalability opportunities out of the box. App owners can do it in a few clicks if they need to scale. Downscaling is also possible thanks to the AWS pay-as-you-go business model. This means that users pay only for the services they use.
• Security. The world’s market leader in cloud-based services, AWS offers top security for users’ data. Protected data centers and encryption opportunities make AWS the number-one choice for developers and entrepreneurs.
• Pricing. We’ve already mentioned that AWS uses the pay-as-you-go model allowing users to not overpay when their business scales. Moreover, AWS offers free packages that allow small businesses to develop a SaaS application at a reasonable price.

Whether you choose AWS, Digitalocean, Google Cloud, or Heroku for your SaaS project, a software architect should work on preparing your high-level architecture design. The design describes your app’s components and their connections and serves as the basis for future development.

Step 4. Development and testing

While the previous steps to developing SaaS applications might not seem obvious, this one is clear and doesn’t require much explanation. During this step, SaaS developers work on your application’s front and back end. Simultaneously, quality assurance (QA) engineers check that each functionality works properly – both in isolation and as part of one system.

It’s important to mention that in software development, especially when discussing a SaaS startup, development and testing is iterative. SaaS developers don’t build the whole application at once. They usually start with building an MVP (minimum viable product) that includes only the most essential features to meet the basic needs of your target audience. Once they develop a SaaS application MVP and launch it, you can gather feedback from first adopters and think about which existing features to improve and which new features to build.

This iterative approach to SaaS platform development is called Agile and is widespread in software development, especially among SaaS startups.

The final part of the iterative development process is deployment. Deployment is making a cloud-based SaaS application available to end users. During this step, a DevOps specialist or another development team member with relevant experience prepares all parts of the new code to be deployed and merges the entire codebase into production.

Step 5. App maintenance and further development

Once your MVP is available to users, focus on assessing its performance. During this step, you should gather user feedback, analyze it, decide what can be improved, and determine what new functionality your users need. At the same time, SaaS developers on your team can help you fix existing bugs. Following the latest SaaS trends is important to stay ahead of your competitors.

The cloud-based SaaS application development steps are interconnected; you need to follow every step and complete all of them if you want the development process to be successful.

Now, let’s look at other aspects that need to be considered when building SaaS applications.

Things to keep in mind when developing SaaS application

SaaS app development is a complex and long-term process requiring lots of responsibility. So, if you don’t want SaaS application development challenges to become troubles, you need to think through several important things before developing your cloud application.

Technology stack

Selecting a tech stack for your SaaS application is akin to choosing the building materials for a house. Your technology stack is what’s used to develop a SaaS application.

First, you’ll need several tools for developing the platform’s client-facing components. These are well-known and nearly ubiquitous:

• HTML + CSS
• JavaScript frameworks (Angular, React, Vue.js)

For server-side development, there are a few programming languages (and corresponding frameworks) to choose from:

• JavaScript (Node.js)
• PHP (Laravel)
• Ruby (Ruby on Rails)

SaaS applications are built based on cloud computing, so cloud services are essential for building SaaS applications. We’ve already mentioned that AWS services are a top choice for ensuring the reliable performance of cloud-based applications. With over 200 tools, scalability opportunities, and a focus on security, we believe AWS is the best choice for building SaaS products.

Some of the AWS technologies we apply in our projects are AWS S3, AWS KMS, and DocumentDB.

• S3 is file storage that allows application owners to store large amounts of data at a reasonable cost.
• AWS KMS is a system that helps to manage and encrypt/decrypt keys for different services.
• DocumentDB is a fast, non-relational database used to store metadata.

There are dozens of other AWS tools that we used to work with on our previous projects. This cloud service provider has various tools to cover each specific use case.

Of course, the choice of a tech stack should be made by technical specialists within your team who know for sure how to develop SaaS application properly.

Tenancy model

One of the peculiarities of cloud-based SaaS applications is that it can use one of two types of architecture: single-tenant or multi-tenant.

Tenancy in software as a service applications determines if tenants share the same database, software instance, and computing resources. A tenant, in this case, is any business that uses the SaaS application.

In a multi-tenant architecture, the same database, computer resources, and application infrastructure can be shared among numerous tenants, but each tenant’s data is isolated and secured from other tenants. Multi-tenant architecture is scalable and easy to maintain. It’s the best choice for software as customer relationship management software or email marketing software like Mailchimp, as they serve multiple businesses from the shared infrastructure.

In a single-tenant architecture, each tenant has its dedicated instance of the software, including database, resources, and infrastructure. Such an approach allows developers to ensure that app’s users don’t share their resources with others. Single-tenant architecture offers such advantages as enhanced security and customization. This type of architecture model is the best choice for software that provides financial services demanding the highest level of security or healthcare software where providers can use single-tenant solutions for increased patient data privacy.

The best architecture approach for your application depends on your needs and requirements. A software architect, together with a business analyst, will help you choose the right tenancy model for your business needs.

Pricing strategy

Even if your development team knows how to build a SaaS website of the highest quality, it's essential to choose the right pricing strategy: it can make or break your web app. Though there are no hard and fast pricing rules, several proven pricing strategies have emerged as the SaaS business model.

• The freemium model allows users to choose between free and premium features. Typically, an app’s core features cast a wide net and appeal to the broadest possible audience. To bring in money with such an app, it’s necessary to convert free users to paid (or “premium”) users by offering an advanced set of features for a one-time or monthly fee. Evernote, for example, offers free note-taking and cross-device synchronization. But you can also pay to sync across additional devices and store more data in the cloud. Duolingo, which we’ve described above, also uses this pricing strategy.
• The pay-as-you-go model works the following way: the more action users complete with the software, the more they pay. This model works well with software companies like Amazon that charge users for the number of API requests their application sends to the server within a particular period of time. SMM platforms or accounting apps can also be monetized this way: the price will depend on the number of scheduled posts or generated invoices.
• Tiered pricing offers different packages for users depending on their needs and budget. The idea of this pricing model is similar to the previous one: the more features your customers use, the more they pay. However, your revenue is more predictable as you provide monthly packages. HubSpot uses tiered pricing by offering three packages — starter, professional, and enterprise — targeting businesses with different needs.

It’s not necessary to have deep SaaS development expertise if you want to launch your own SaaS product; by starting a project with a discovery phase, you can make sure that you will make the right choices toward tech stack, tenancy model and pricing strategy before you proceed to the actual development process.

Managing risks during SaaS product development

If you want to build a successful SaaS product, it’s vital to consider all the risks you may face. That is why risk management is an integral part of any software project.

But how can you organize this process?

A risk management process encompasses the following steps:

Step 1. Planning risk management. The first thing you need to do is discuss with everyone involved in the project (namely, team members and stakeholders) how you are going to deal with upcoming risks. At this stage, you need to create a risk management plan and identify risk sources.

Step 2. Identifying and categorizing risks. This stage is probably the most important and effort-consuming. Risks are usually identified during requirements analysis and project kickoff meetings, and the ability to identify risks is dependent on the development team’s experience. In order to structure identified risks, you need to categorize them.

In project management, there are various risk categorizations. From our company’s broad experience, we can claim that the most relevant risk categories in software development are technical and organizational risks.

Technical risks are associated with technologies, technical processes, UI/UX design elaboration, security systems, and third-party integrations. Organizational risks, in turn, depend on organizational factors related to the development process: establishing requirements, constraints that hinder the development process, risks associated with dependance on third-party teams, and others.

Identified and categorized risks enter the risk register — a chart used to document, analyze, and prioritize risks. This allows for a structured and understandable approach to risk management.

Step 3. Analyzing risks. The main goal of risk analysis is to adequately assess each risk in order to develop a strategy for its mitigation. This involves estimating each risk’s severity, likelihood of occurrence, potential harm, and hours required for mitigation.

Step 4. Responding to risks. Once you have identified each risk and estimated its severity level, you are ready to start working on its mitigation. There are four ways to respond to risks: eliminate them, transfer them to another team, develop a mitigation plan, or accept them. Your response should depend on the risk’s specifics and level of severity.

Step 5. Monitoring risks. You can hardly identify all risks during the project planning stage. That’s why you need to constantly monitor both the status of current risks and the probability of occurrence of new ones during the whole software development lifecycle.

Risk management is a complex process that requires a lot of attention. If you need detailed information about risks and how to manage them, proceed to our comprehensive article about risks in software development that contains a lot of insights from our own experience.

What are the costs of SaaS development?

As you got acquainted with the steps of SaaS development, you are probably wondering how much you need to invest to build a SaaS app and then sell it to customers or other businesses.

Of course, the custom app development cost varies depending on the complexity of the product, its features, chosen SaaS technologies, integrations with other services, and so on.

If you opt for outsourcing web app development to Ukraine, the cost of MVP SaaS product will start from $100,000. However, it’s unnecessary to invest this amount of money into your project immediately. You can withdraw from a discovery phase service costing from $15,000. It will help you decide if investing more money into your startup is worth it. You will also get all the necessary documentation to start the development process and attract investors.

You can hire dedicated developers if you need to complete your existing in-house development team with the necessary specialists. However, note that developing a SaaS product in-house is costlier than outsourcing it to a SaaS development company since there are a lot of additional costs: you will have to pay a regular monthly salary to each team member and provide your workers with office space and all the necessary software and hardware. In our article dedicated to the web application development cost, we share more detailed information about estimation.

If you delegate the project to a third-party company that offers SaaS application development services, you can avoid these issues; the SaaS application development company will handle everything from team composition to further development of a full-fledged product.

You also can reduce the cost of custom software development by hiring a CTO as a service. CTO (chief executive officer) is a tech consultant who will help you resolve all tech-related questions and, this way, avoid unexpected expenses that may occur due to improper tech choices. You can hire a CTO with deep SaaS development expertise to work for you on an on-demand basis.

Conclusion

Cloud applications aren’t the solution for every business case, but the SaaS model has quickly grown in popularity due to its benefits to consumers and application providers.

Suppose you decide to build a SaaS platform. In this case, you should get ready for a five-step development journey that consists of discovery phase, application design, architecture design, development and testing, and application maintenance. Suppose you want to enter the market with a high-quality SaaS solution. In this case, you need to follow all of these steps and involve specialists with deep SaaS development expertise into your project.