Profit Margin for the Average SaaS?
I have a question for the makers, that actually achieved getting some MRR. I've looked at several stories here on IH, and I'm very thankful for so many hackers sharing insights into their books.
However, I was wondering, are there some average estimates how much a SaaS cost, or what we have to subtract for expenses and similar? This is probably hard to tell, since I can't give a definition for "the average SaaS", but maybe a rough estimate?
How does that change with the amount for MMR, if at all? Let's say for 100$/mo, 1000$/mo and 10k$/mo?
Also what is the biggest cost? Is it hosting, or tax, or salary of employees?
Generally, SaaS MRR is not related to computing costs at all - most SaaS essentially has a marginal cost of $0. The costs are essentially entirely R&D. There are some exceptions, like Dropbox, but they are very rare. Most SaaS automates or simplifies some human information problem, which costs nothing once the code is written.
When you don't make much money yet, your overall margin can be very low. When you make a lot of money, your margin is basically 100%.
Thank you very much for your reply. That's what I was thinking. So geting your first employee is financially one of the biggest steps.
Because as an Indiehacker you can't loose doing what you like.
You can look through the financial reports of all public SaaS companies and try work it out yourself. But YMMV given they are often VC funded and/or unicorns.
There are a couple of segments it would be interesting to get general ballpark numbers for. In particular solo technical founders with no staff or when the founding team has no staff... because that's closest to our situations. Various things factor into it though right because it depends on what it costs you to serve each customer. That's going to be context dependent but there are broadly speaking a few categories it should be possible to narrow it down to. For instance when a SaaS application has extremely little cost per extra customer added (just a simple crud app with no heavy data storage/bandwidth/paid 3rd party api consumption cost) and the other scenario for when there is high data storage/bandwidth/3rd party api consumption etc.
@csallen is it a little too much transparency to try asking people what their margins are? I'd also really love to know this. Often we see MRR MRR MRR MRR but how much of that can I take home? What size business do I need to build before I'm actually ramen profitable?
Buffer is not VC funded and has open data:
https://buffer.baremetrics.com/
If you google it, you can find a few more SaaS products that opened up their BareMetrics dashboards:
https://baremetrics.com/open-startups
Alas, this does not include the cost side of the equation.
Yeah, it's amazing to get this kind of insight into businesses. But it doesn't at all tell you what margins might be.
So far these articles are some of the best resources i've found on understanding SaaS financials.
https://www.cobloom.com/blog/saas-cfo-metrics#
https://www.forentrepreneurs.com/saas-metrics/
https://www.forentrepreneurs.com/saas-metrics-2/
https://cardinpartners.com/blog/2017/6/26/saas-valuation-faq-series-part-1-the-quick-ratio
Buffer has taken a few rounds of funding though it was later stage.
My initial point stands though that you can actually work it out what the numbers are for public companies if you look at financial reports they are required to publish.
I'd like to ask that, it's just a lot of work for people to keep it up-to-date, so not quite realistic yet. First milestone is to just get people in the habit of updating their revenue regularly. I might do some sort of monthly transparency report prompt, though, in which case I could ask for anything and everything.
Even just casually getting the datapoint once in the context of that specific snapshot would fill in the mental gaps.
I'm also mostly interested in the solo founders/no staff scenario. Because it seems like you can almost run an MVP and validation phase on the free tier of most vendors.
Most SaaS startups have at least 60% profit margins.
But keep in mind that, profit is a 2 sided game: income and expenses. There are SaaS startups run with 90%profit ratios whereas there are some startups with zero profit.
At different stages of your startup, you will apply different tactics. These are not just related to your MRR. 10,000$ MRR can come with 1 customer or 1000 customers. You got it.
Try to understand the game from a wider perspective.
This may help you:
https://www.umutsonmez.me/profit-machine-strategy
I think every single thing here is far too variable per business to place an average number on for the whole of the SaaS space.