Building a SaaS product is deceptively accessible. Modern development tools, cloud infrastructure, and AI-assisted coding mean that almost anyone can build software. But building software that generates sustainable revenue? That's an entirely different challenge — and it's the challenge a SaaS feasibility study is designed to evaluate.
The graveyard of failed SaaS products is enormous. Most don't fail because the technology didn't work. They fail because nobody wanted to pay for it, or because the cost of acquiring each customer exceeded the revenue that customer generated. A feasibility study catches these problems before you've spent six months building something the market doesn't need.
Why SaaS Needs a Different Kind of Feasibility Study
SaaS businesses operate on fundamentally different economics than traditional businesses, and the feasibility study must reflect this.
There's no physical location, no inventory, and no construction cost — but there's development cost, infrastructure cost, and the enormous challenge of customer acquisition. Revenue is recurring, which creates compounding value over time, but also means the initial investment in acquiring each customer must be recovered over months or years rather than in a single transaction.
The key SaaS-specific metrics that a feasibility study must address are: Customer Acquisition Cost (CAC), Lifetime Value (LTV), the LTV:CAC ratio, Monthly Recurring Revenue (MRR) growth, churn rate, and the months to recover CAC.
Core Components of a SaaS Feasibility Study
1. Problem-Market Fit
Before evaluating the financials, your feasibility study should validate that a real, paying market exists for the problem you're solving.
Problem Severity: Is this a "must-have" or a "nice-to-have"? SaaS products that solve critical business problems (compliance, revenue generation, cost reduction) have much higher willingness-to-pay than tools that offer incremental convenience. Current Solutions: How are potential customers solving this problem today? If they're using manual processes or spreadsheets, there's likely a willingness to pay for automation. If they're already using a well-established competitor, you need a compelling reason for them to switch. Willingness to Pay: What's the price sensitivity of your target market? Small businesses might balk at $50/month for a tool; enterprises might consider $500/month trivial. Your pricing assumptions must match the segment you're targeting.2. Market Sizing (TAM/SAM/SOM)
SaaS market sizing follows the same TAM/SAM/SOM framework as any business, but with some specific considerations.
TAM: The total annual spending on software solutions in your category, globally or within your target geography. Use industry reports from Gartner, IDC, or specialist analysts. SAM: Narrow by your target customer segment (SMB vs enterprise vs mid-market), geography (English-speaking markets initially?), and product scope (if you're building a niche tool within a broad category). SOM: This is where SaaS founders consistently over-estimate. Your realistic year-one SOM depends on your marketing budget, your ability to convert free trials, and the competitive landscape. A bootstrapped SaaS with a $2,000/month marketing budget will have a very different SOM than a venture-backed competitor spending $200,000/month.For a detailed guide, see TAM, SAM, SOM Explained.
3. Unit Economics
Unit economics are the core of SaaS feasibility. If the unit economics don't work, nothing else matters.
Customer Acquisition Cost (CAC): The total cost of acquiring one paying customer, including marketing spend, sales team costs, free trial costs, and onboarding effort. For self-serve SaaS targeting SMBs, CAC might be $50–$300. For enterprise SaaS with a sales team, CAC might be $5,000–$50,000. Monthly Recurring Revenue per Customer (ARPU): The average revenue each customer generates per month. This is determined by your pricing tiers and the mix of customers across those tiers. Churn Rate: The percentage of customers who cancel each month. SaaS churn rates vary by segment — B2B SaaS targeting enterprises might see 0.5–1% monthly churn; SMB-focused tools might see 3–7% monthly churn. The difference is enormous when compounded: 3% monthly churn means you lose 31% of customers annually; 7% monthly churn means you lose 58%. Customer Lifetime Value (LTV): The total revenue a customer generates before they churn. Simplified formula: LTV = ARPU ÷ Monthly Churn Rate. At $50/month ARPU and 5% monthly churn, LTV = $1,000. At 2% monthly churn, LTV = $2,500. LTV:CAC Ratio: The holy grail of SaaS metrics. This ratio tells you whether each customer you acquire generates more value than they cost. The benchmark is 3:1 or higher — each customer should generate at least 3x what you spent to acquire them. Below 1:1, you're losing money on every customer. Between 1:1 and 3:1, the business works but growth is constrained. Months to Recover CAC: How long until cumulative revenue from a customer exceeds the cost of acquiring them. Benchmark is under 12 months. If it takes 18+ months to recover CAC, your cash flow will be severely strained during growth.4. Development Cost Estimation
MVP Development: What does it cost to build a minimum viable product that can be sold to early customers? This ranges enormously — from $5,000–$20,000 for a simple tool built with AI assistance, to $100,000–$500,000 for a complex platform with integrations, security requirements, and multi-user architecture. Ongoing Development: SaaS products require continuous development — bug fixes, feature additions, security updates, and platform maintenance. Budget for at least 1–2 developers on an ongoing basis, or equivalent outsourced cost. Infrastructure: Hosting, database, CDN, monitoring, and third-party API costs. These scale with usage but start small — perhaps $100–$500/month for early-stage, growing to thousands as the user base expands.5. Revenue Modelling
SaaS revenue modelling is fundamentally about compounding — new customers acquired minus customers lost to churn, accumulated month over month.
Month 1: You acquire 20 customers at $50/month ARPU. MRR = $1,000. Month 2: You acquire another 25 customers, but lose 1 to churn (5% of 20). Net new = 24. Total customers = 44. MRR = $2,200. Month 6: Acquisition is improving as marketing matures. But churn compounds too. The model must project this accurately.Key inputs to the revenue model:
- Monthly customer acquisition by channel
- Conversion rate from trial to paid (if freemium/free trial)
- Monthly churn rate by cohort
- Expansion revenue (upgrades, add-ons) as a percentage
- Pricing changes over time
6. Cash Flow and Runway
SaaS businesses almost always burn cash before they become profitable. The feasibility study must model the "valley of death" — the period between starting to spend on development and marketing, and the point where MRR exceeds monthly costs.
Monthly Burn Rate: Total monthly expenses minus monthly revenue. In early months, this is nearly all expense and minimal revenue. Runway: Total available capital divided by monthly burn rate. If you have $100,000 and burn $10,000/month, you have 10 months of runway. Break-Even MRR: The monthly recurring revenue needed to cover all costs. This is your target for survival.7. Financial Metrics
NPV: The net present value of projected cash flows over 5–7 years, discounted at an appropriate rate (typically 20–30% for early-stage SaaS given the risk profile). IRR: The internal rate of return on total invested capital. VC-backed SaaS targets are typically 30–50%+ IRR, reflecting the high failure rate across portfolios. For bootstrapped SaaS, 20–30% IRR represents a strong opportunity. Payback Period: Time to recover total development and go-to-market investment from cumulative net cash flows. SaaS payback periods are typically 1–3 years for viable businesses.When a SaaS Idea Fails the Feasibility Test
Your feasibility study should flag the idea as non-viable if:
The TAM is too small — if the total market can't support a meaningful business even with optimistic market share assumptions, the opportunity isn't there.
The LTV:CAC ratio is below 2:1 even with optimistic churn and acquisition assumptions. This means the business economics are fundamentally broken.
The required runway exceeds available or raisable capital. If break-even requires 24 months of operation but you only have capital for 12 months, the idea isn't feasible without additional funding.
The competitive landscape includes well-funded incumbents with similar features and lower pricing. Competing against established players with deep pockets on features alone rarely works.
The churn rate required for viability is unrealistically low for the target segment. If your model only works at 1% monthly churn but you're targeting SMBs (where 4–6% is typical), the assumptions are broken.
The Bottom Line
SaaS feasibility is ultimately about unit economics. Can you acquire customers for less than they're worth? Can you retain them long enough to recover that acquisition cost and generate profit? Can you scale acquisition without proportionally scaling costs?
The feasibility study forces you to answer these questions with data rather than optimism. And if the answers are unfavourable, you've learned that in hours rather than months — saving your development budget for an idea that does work.
SimpleFeasibility generates SaaS feasibility studies with market sizing, unit economics modelling, MRR projections, NPV/IRR/payback calculations, and interactive What-If analysis. Test different pricing strategies, churn scenarios, and growth rates before writing a single line of code. Validate Your SaaS Idea →Related Articles: