There are a lot of elements involved in building and launching a SaaS system. One of the very first steps, though, can be, as Bugs would say, “a doozy”.
The Initial Estimate
This is where you either start off on the right foot or step on the hidden trap trigger like Indiana Jones’ bumbling tagalong. That’s because properly nailing down all of the various elements – and doing it accurately – is a huge, and daunting, task. Yet, it remains a vital step.
This step is crucial because of the following:
- It helps you and your team fully understand what you’re about to dive into.
- It provides a solid basis for your project scoping efforts, which should make that take less time and get the work going faster.
- It gives you ideas about how much various elements will cost so that you can find ways to strengthen your plan.
We spend a lot of time talking about project scoping (naturally), but it is important to remember that initial estimates – especially accurate ones – are so important because they help you and your clients understand what they are about to embark on. It’s fine if the estimate is a wide range on a big project, but as you would expect, the narrower the range, the more like you are to land the deal and the better you serve your clients.
Your initial estimate will likely have a wide range between the minimum and maximum costs, and that’s okay.
After you have the basics down, you can work with your team, discuss details, and pin down estimates for different items with smaller ranges. Here at JH Media, we have a specific process for this, which we’ll be sharing in this article.
This is the process we use at JH Media Group for SaaS build. If you need help building your SaaS system, please give us a call!
Your SaaS Project Sales & Planning Process
Before we get started, I want to make sure we cover the overall project process. Here are our steps in a SaaS project sale (note that your own steps may differ, especially if you are the client):
- Meet with the client and understand their vision.
- Evaluate the potential success or failure of the project. This is CRITICAL. If a potential client doesn’t know what they are getting into or are unprepared for the journey they are about to take, we will not work with them. This is because
- They are probably going to fail.
- It’s going to cost them a ton of money.
- They are going to blame us to some extent.
- They are probably going to be a bad client to work with.
- I don’t like taking people’s money if we can’t provide value. I have no problem telling someone they need to rethink the system and that we are not going to work with them until they do. It is ALWAYS better for everyone.
- Meet a few more times to identify and clarify the major features and obstacles in the project.
- Put together a project estimate (this is what this article is about).
- If the estimate is in line with their budget and they want to work with us, then do a smaller engagement to research the project and write up a project Scope of Work. This includes things like a:
- Creative brief
- Information architecture (IA)
- Project flows or wireframes
- Project plan
- Final price or very narrow range
- Contract for the full project. From here we get started on the project.
Estimating a SaaS or large web-app project
Over the years we’ve put together a thorough spreadsheet that helps us estimate every feature, every section, every subsection, and every page or view that goes into a SaaS system or large web-app project. If you take the time to work through this process with your team so that everybody understands what goes into the project and can agree on a good set of features, you can start to figure out a solid cost range. After you have a good understanding of what goes into the system, you can use this tool to put together a solid estimate.
From our perspective, this helps our clients to look over the project and decide:
- If they want to go with us.
- If they don’t want to go with us.
- If the project is potentially too expensive (no matter who they hire).
Moreover, our method is designed to be especially helpful to our clients. We can put together an in-depth SaaS estimate that shows people not just what project build will cost, but also what their ongoing operations costs.
Pro-Tip: This last item is one of the tricks you will want to steal – most companies or startups looking to build a new SaaS neglect to include ongoing operations costs in their initial estimate. If you take nothing else away from this article, don’t forget this tip.
So let’s take a look.
This is a segment of our standard SaaS or large project build process. The item we’re focusing on is denoted by the blue circle and arrow: ‘Produce Estimate’.
This step in the process is most efficiently performed with three people:
- The strategist
- A salesperson (sometimes)
- The project manager
Together, this little team can list out all the features, some of the pages, all of the major tasks, and crank out a round number estimate.
This can all be done using the SaaS build spreadsheet mentioned above. This tool has multiple components, which we’ll break down one-by-one.
Begin With Standard Features
The first element of the spreadsheet focuses on is a listing of “standard features”. In this area, we start off with the general systems that every SaaS system needs. That includes things like a project setup, pre-launch site checks, and launch, architecture writeup, UX design flows, revisions, design meetings, team kickoff, et cetera.
Variable UX Design Time
I would like to point out that the UX design flows (see red box below) item can very often get way, way, way higher than 40 to 100 hours. This can be 500 hours, or 700, or even higher sometimes. It really depends on what the project is, what goes into it, how big it is, etc.
NOTE: The Dashboard estimates are strictly for the most basic version of it; the dashboard’s specific features are listed in a different worksheet page called “System Specific Features”. We know we will almost always need to build a dashboard, so it is taken into account here. But the specific functionality of it will have to be outlined in the system-specific area of the document.
Standard SaaS or large project features
In addition to the setup, there are items like:
- Login and logout
- Permissions management
- Admin panel build
- Billing systems
- Email notifications
- And more!
Don’t Get Into The Weeds Yet
Every single element of this will become critical at some point during the build. On this page you only need to address the basics – the base build without all of the extras. Again, there is a page dedicated to specifics, so don’t overload your estimates by doubling up.
Finally, as you’re going through and building this, we like to add in a percentage for just general mobile responsive changes (see the blue box). In this case, we’ve got 10% on this, but sometimes it can be 20% or more. It also depends on how the system is being built.
So all of these things get added up to get our labor totals (green box), and then we add:
- A Project Management Percentage (Management gets paid, too!)
- Quality Assurance Percentage (Testing and Debugging)
Both percentages are 20% of all task-related hours. What that means is we’re gonna take all the hours, sum them up, and then take a percentage of that amount.
This helps to ensure that we include all costs in our estimate.
Labor Hours Range
We end the rundown of basic cost estimates with totals area (in the red box). Not only do we have the min/max/average hours listed, we also include, in each column, three totals:
- The average hours
- Plus 20%
- Minus 20%
The reason we’ve got this is that this is just an estimate and there are a ton of ways at this point we can sway the price as we move along. It is great way to force yourself to keep in mind how things can change based on how in-depth various functions and features are designed in each area.
SaaS costing as it relates to value metrics
Value Metric is a variable that changes the price as it goes up. This can include metrics such as:
- Number of seats (users)
- Number of projects
- Number times the database is hit
These different elements can greatly affect the amount of work that has to be done and the cost of the system for a lot of reasons. So please be sure to take the value metric into account!
If it’s a matter of just the number of users, then it can be a really quick thing to do. If it’s the number of projects and a bunch of other variables, it can balloon the scope. The +/- 20% lines are used to give you perspective on just how much scope changes can affect the cost, which can help to keep everybody focused on preventing scope creep in the long run.
Project Estimates Aren’t Built In a Day.
In the case of the estimate that we’re providing for an example:
- We’ve already had a minimum of two or three conversations with the client at this point.
- We’ve asked most of these questions, but haven’t really delved in depth by this point into everything (but we’ve got a good idea).
- We have done a bit of research on the system to ensure it is actually possible to build.
- As pointed out above, we (not just the client) think this thing is going to work.
Very often at this point, the architect building the estimate has to enter hours that they aren’t 100% sure about so they have something to work with. Then they have a talking point to use to go back to the client with. It is an important point that we make sure to discuss the entire system before completing the estimate most of the time. For you, this will typically be entirely internal, but the process won’t actually change all that much.
NOTE: As this process is ongoing, typically every single box in the ‘notes’ column gets filled, which takes time, but is immensely valuable moving forward.
Finally, we’re able to reach the final price estimates for the base features.
This, again, was just for the Standard SaaS Features Worksheet. We’ve still got to go into system-specific features.
SaaS System Specific Features
The project in the image was for a really small system, just a few features. The majority of the special features centered around the Dashboard and a few client forms. Very often, however, this System Specific Features area can be quite large. It can take weeks to write a scope of work for a large SaaS project.
Just like on the first worksheet, we utilize the additional overhead percentages. For those who may not be too fast with spreadsheets yet, here’s a closeup of how that’s coded:
An EXACT estimate on a SaaS or large project is impossible
Unexpected events and changes happen, unknowns pop up, and people just get sick sometimes. So you’re never going to be able to look at an item and say “that’s going to take exactly 7.32 hours total”.
When we go to take a look at the overall totals on the system specifics page, it may come out to a big range. In this case, the -20% in the minimum column would take just 54 hours, and our +20% maximum weighs in at 170 hours. That is 3X longer!
But if we go back to the Standard Features page:
Here, the maximum of 1,604 is over five times larger than the absolute minimum of 296!
Why the big range?
The advantage here is that when we get done with the estimate, we can say that it’s definitely not gonna be less than 300 hours for this part and it’s almost definitely not gonna be more than 1,600 hours. And, this is the important part:
The more definite and detailed you can be, the more definite your cost range will be.
That’s why it’s so important to go through each item one by one. The way this usually works is we put a broad estimate together, and then we come back and we go through each thing individually.
Every SaaS Needs a Website
The next estimate we work on is for the website. This example is just a standard, simple quote on a basic website.
First off, this area is for a very basic build estimate.
We’ve got design, development, quality assurance, and content. Sometimes we’ll come back and put a much more advanced quote together for the marketing website (so, again, as in other things, this could be a lot bigger).
Going a Step Further: Estimating Ongoing Costs
The last major step we like to do when building a SaaS system for our clients is to give them an estimate on what their actual ongoing costs are going to look like. It’s one thing to estimate the build cost of the thing, but another, entirely, to help them get an idea of what they’re going to be paying long-term.
While the build cost is very important, you’ve got a lot of expenses you have to take into consideration. Not everybody is prepared for these numbers, and running this estimate can mean the difference for your long-term success.
Consider Long-Term Costs Like
- SaaS Build, Management, and Maintenance costs. This includes things like software, documentation, password management, time tracking, et cetera
- Marketing: This is a big one. You need to have an idea about what your marketing spend is going to be, and it’s going to add up quickly. Most SaaS systems are really looking at 20 grand, annually, at a minimum, which is what this small SaaS system was quoted. That’s really actually very little money to spend on this, but it’s a good place to start.
- Business setup costs: This includes any recurring private or public fees, such as insurance, fees charged for licensing at federal, state, or municipal levels, etc.
- Personnel: The cost to hire new employees and pay existing ones, including executives. Without human capital, any business will turn belly-up in a flash.
Even for a smaller SaaS, the ongoing costs in this example run nearly $400k per year. This number is important because, for this client, that’s going to set the baseline. They have to hit that mark in sales to break even for the year, disregarding entirely any effort to recoup the costs of building the system. This can affect their pricing, their marketing strategies, and a host of other things that they can now make an informed decision about.
You will want the benefit of this knowledge, so we’ll stress it again:
Do not skip this step.
Breaking Down the Overall Costs
All of this comes together in the overall cost area. This section includes our total average cost, minimum costs, maximum costs, and the +/- 20% in each area.
Initial. Monthly. And yearly.
It’s a conversation to a conclusion and success.
That is to say: the last thing to do is to present your initial estimate and start the conversation in earnest.
We started off with presenting a big range with an idea on vision and most of the functionality, and then we go through and we go through feature and thus each line with that client so we can bring that range down through clarification, education, and conversation.
Once that range looks good to both us and the client and we have a contract in place, then and only then do we start working on the project.
Doing an estimate for a SaaS or large project can take as little as 3 hours and as much as 3 weeks. So it is important to be careful how you’re using your time on these things. For the most part, we like to put this together for all the people we talk to. It helps them run their businesses just as much as it helps us to give them a quote on the project.
So if you need a hand with your estimates, or need help with any part of your SaaS build, please let us know! We would love to help you find success in your new venture.