Software Development Cost

Software development is crucial for all businesses in the digital world. Even if you don’t need to develop custom software first-hand, your functions are surely dependent on software support. The custom software development cost can vary massively as there are a lot of factors involved in the final price.

To get an estimate of the cost and effort into developing any custom software, first, you have to determine what kind of software you need for your business. Many aspects have to be considered in this scenario. Some of them include the type of platform, target functions, required features, specific problem areas, and so on.

Once you provide all the relevant information to the software development vendor or software developer, they can give you an idea with regards to software development cost and the challenges associated with the process.

The most popular forms of custom software are mobile applications and web platforms. Most businesses and organizations rely on these to integrate with their systems. However, even these software types can vary. Here are the basic types:

  1. Mobile applications for enterprise management
  2. Desktop applications for offline work and security
  3. Big data applications for business needs
  4. Content Management Systems for running websites
  5. Customer Relationship Management Systems
  6. Real-time applications for data monitoring and analysis
  7. Automation software for business processes
  8. Web portals for customer actions
  9. Online stores or Ecommerce websites
  10. Virtual workspaces

There can be many more custom software types. Depending on the complexity and functions, these can be basic, moderately complex, or complex applications. Each type requires a different time duration and cost to be developed.

Questions to ask before defining software development requirements

Who will use the product?

Business
Image Source
To make a useful custom software, many questions need to be answered first. One of the first queries should be about the user base of the product. Depending on who will use the software, the software developer and the business owner/s can decide the functionalities, interface, and difficulty level.

Several groups are eligible for this question. The custom software might be targeted at online sellers, in which case the platform must be ecommerce friendly. If HR professionals are using it, extra features need to be added for employee management.

If it’s aimed at clients, their requirements must be kept in mind. If students are the target users, educational aspects and features like assignment submission and record-keeping must be a part of the package. Depending on the end goal of the application, the development requirements should be listed.

If the software development requirements are not clarified in the beginning, it will just make the process longer and bumpier.

What are the product’s tasks?

Another crucial information before deciding on a cost is about the tasks the product is expected to perform. A software platform can be used for a variety of tasks, including data processing, running reports, client communication, selling products, and so on.

Before quoting a price, the software developer must be aware of the following aspects.

  • The idea behind the product: The app idea should be clear, along with what it is trying to achieve.
  • Wireframe: This is required to understand the website’s structure and priorities.
  • Features: It includes what features must be present, which ones are negotiable, and which, if any, should be avoided.
  • References: It is extremely helpful to have a point of reference before jumping into building the product. Any competitor’s website or similar such examples will do in this regard.

Since the software development cost changes with the addition or subtraction of every feature, it is essential to have a clear idea of the software product’s tasks before committing to a cost or time duration for development.

How will users access the software product?

The access platform plays a major role in the development and deployment of the software. It has a direct impact on the costs and features as well. First, you must decide whether you want the software to work on mobile platforms or desktops or both.

The front-end and back-end software development varies depending on its usage and platform, and hence this aspect is very important. Some possible platforms are:

  • Android: Android apps are for mobile users and contain features that are suitable for a small screen. They also need regular updates and troubleshooting.
  • iOS: If your user base consists solely of Apple customers, your software can be iOS-based. However, most software developers choose to build a product that can be used both in Android and iOS systems.
  • Desktop: Desktop applications can be more extensive and heavier but often alienate a major chunk of users who prefer mobiles. Depending on the compulsory features, you can choose to opt for a desktop setting.
  • Cloud: The most updated form of software is cloud products. These platforms run on shared resources and are accessible to users around the world via the internet.

Other possible platforms can be Linux, Unix, Mac, etc.

What Security Measures are Required?

Security Measures
Image Source
The risk with using default software is often about security threats. With increasing cyber attacks, data breaches, and hacking, this risk has become even more real in recent years. Even a social media giant like Facebook faced huge controversy as it failed to protect the privacy of all its users.

Thus, it is better to opt for a custom software solution to tackle security issues. However, this software development cost will depend on the level of security you’re looking for.

There are multiple ways to make a platform secure. Some of the most well-known ways include multiple levels of protection, encrypted data, and multi-factor authentication. At the very least, you should opt for a two-factor authentication system for logging into the platform.

Security measures add layers to the program and make the software development process more complex. Hence, it should be counted into the factors that influence the cost of custom software development.

Which Third-Party Apps will be Linked?

The next aspect in determining the software development cost is whether any third-party apps need to be linked with the software. Often, organizations look for software that can integrate with their existing systems to produce a cohesive environment. If the new product refuses to work with the old systems, it can lead to a disruption in the entire workflow.

Depending on the purpose and functions of the software, you need to determine which third-party apps should be compatible with it. These may include the IoT network, e-wallets for ecommerce or shopping websites, Customer Relationship Management (CRM) apps, or even social media platforms for marketing and promotion.

Do you prefer any Technology?

As you know, there are many programming languages or technologies that can be used to build custom software. This language is also a factor in its production cost.

First, you must decide whether the product must be built on Java, PHP, MySQL, .NET, or any other platform. Based on this choice, the structure and coding pattern of the product will vary. Hence, it is a significant factor in cost determination.

It is very tough and time-consuming to convert software built on a specific platform to another platform-friendly code. So, this decision is crucial to the software development process. Any custom software development company would advise you to have a clear idea of aspects such as third-party app integration, platform technology, security measures to be implemented, etc., before moving forward to discuss software development costs.

Factors That Impact Custom Software Development Costs

1). Software Size and User Base

Once all the questions to ask before software development are addressed, your next priority is to list the factors that impact customer software development costs. One of the most prominent factors is the size of the software solution. Often, small platforms are built on hourly rates as they don’t take much time. However, if it is a hefty software project, paying on an hourly basis will ultimately cost you much more.

The same logic applies to the user base. If the platform is needed for a few people, it will need less back-end work and feature integration. If you want a product that can be accessed globally, a lot more thought will go into its development.

2). Software Complexity

As said earlier, the software can be a basic app, a moderately complex one, or a straight-up complex app. Clearly, the more complex the app is, the more investment it requires.

Depending on the number of screens the software will have, the price will go up. Small applications that have between 20 to 30 screens are cheaper to develop, compared to large ones with more than 40 screens.

Also, if your software product is built to integrate with another application, you can leave certain responsibilities to the host, like software security and data support. On the other hand, if it is designed as a stand-alone application, it will need more holistic programming.

3). Design Requirements

Design requirements encompass UX/UI design, architectural design, and basic design of website elements. All of these together form the design aspect, which again impacts on software development cost.

Every platform appeals to users through its visuals first. An optimized interface design makes the platform user-friendly and leads to a smooth customer experience. Similarly, the font, color, and background choices of an interface impact how it is visualized by users.

If you’re willing to work with free templates and designs, the software cost remains low. But if you need custom images, illustrations, and animation, it is bound to drive up the software development cost. It will be more so if design revisions and reworks are needed after software development.

4). Software Development Approach

The development approach refers to the method via which you conceptualize and create the software product or service. The entire software development lifecycle depends on it, so does the software development cost.

You can choose to take a predictive, incremental, agile, hybrid, or iterative approach, depending on the software product you’re building. In each of these cases, the processes, methodology, and workflow are changed, even if slightly. Thus, any cost calculation related to the custom software development process must include this factor.

Typical software development approaches include incremental, spiral, or waterfall methods. The incremental method refers to performing needs analysis and delivering in a series of increments or software builds. The spiral consists of risk-driven prototyping with some controls, whereas the waterfall method believes in a sequential or linear development. Each of them works differently and has different costs involved.

5). Solo Developer v/s Development Team

Needless to say, if a solo developer works on custom software, your prices will be in control. Instead, if you have to pay an entire development team, the per head cost will add up to a greater amount. However, this assumption is not absolute. The cost also depends on the expertise and experience of the developer.

If you hire inexperienced fledgling developers only, the process might take longer and need rework. On the other hand, if you hire experienced and knowledgeable software developer, the whole workflow can be optimized. The ideal solution is to hire a combo of experienced and wise software developers with young people for fresh ideas.

6). Integration with Existing or External Systems

As mentioned earlier, system integration is a crucial factor in the grand scheme of things. The need or ability to integrate with external software falls into the list of software development requirements. This factor is also very subjective and depends solely on the functions of the custom software development.

For example, if you are building an ecommerce website or a booking app like Uber, you need to make it flexible enough to integrate with external payment gateways and give users a smooth experience without having to leave the website. Similarly, if you are building a traffic analysis tool, it may require integration with social media platforms, websites, and so on. All this leads to changes in the overall cost.

7). Migration of Existing Data

If you are building custom software for an existing business, it will require some degree of data migration. Often, software development companies prefer keeping a backup with the help of external databases. In shopping or user-based websites, data storage and migration are important factors.

They contribute to the software development cost. Exactly how much so will depend on the amount of information to be integrated. If this requires external memory or processing support, naturally, you will have to pay a fee for that. If not, the development cost can be adjusted with other developmental factors. Either way, data migration is significant to the process and must be factored into the workflow.

Average Cost of Software Development and How to Estimate Software Development Cost

1. Software Type

Software Type
Image Source
As said earlier, the software type decides the level of complexity of the product and how much time and effort it takes to be developed. Keeping that in mind, there are different price brackets for each type.

A simple marketplace web app can take more than 1000 hours to build, and its cost can be above $50,000. The same app for Android and iOS may cost anything between $40,000 to $50,000.

An ecommerce app can be priced between $30,000 to $35,000 for the web.

Cab booking apps like Uber can be expensive. They are estimated to have a cost of up to $55,000 for production.

Hotel or other booking apps, on the other hand, can cost more than $60,000 for the web version. Its Android or iOS version may be priced at $45,000 or more.

These are just average software development costs and might differ, based on the country, development time, or app type. Basically, each custom software involves various factors that cannot be predicted without knowing the specifics.

a) Enterprise

Software development cost estimates can vary according to the enterprise concerned. When you’re building custom software to cater to a specific company’s needs or employees, the features, scale, and the number of screens, depending on the requirements.

For small or mid-range enterprises that don’t require too many implementations, the cost can range anywhere between $30,000 to $40,000. You can get it done for a lower price, depending on the purpose of the software. For larger enterprises or global usage, the software has to be scalable and flexible. That naturally drives up the costs.

Understandably, not all businesses can afford to hire software development teams from big experts like Ernst & Young or Accenture. Small businesses often look towards freelancers or smaller development teams to strike the right cost-benefit balance. After all, setting up an in-house development team can be a lot more expensive than hiring an individual or a group of developers.

On average, enterprise-level software needs complex development processes and can range between $200,000 to more than millions.

Also Read: In-house vs. Outsourcing Software Development

b) Mid-Market

Mid-market companies are the ones that have annual revenue in the range of $10 million to $1 billion. This segment of American businesses holds most of the mid-scale companies. However, this definition is not absolute, and in many cases, the range is considered higher than $10 million.

Mid-market companies often require software solutions to address specific professional needs. It can be to amp up their operational processes or provide support for certain functions.

In each case, the requirements from the custom software will be at least a little bit different. Hence, the software pricing will fluctuate as well. The best you can do is calculate the cost breakdown, factor in the development factors that will influence the cost, and reach an average estimate for the pricing.

If you had to take a guess, the estimated mid-market development prices would be between $45,000 to $600,000 or more.

c) Small Scale

A small-scale company also needs custom software to cater to its needs. The development and deployment process starts with proper research. Generally, small-scale industries do not have a high budget or requirement list. Hence, the software development process has to be optimized.

Depending on the size of the team, the complexity, and the site design, the development cost may vary. In a general sense, the cost can be calculated through the following formula:

63% D + 15% PM + 15% QA + 7% (UI/UX Design = Total Development Cost

Here, D stands for development, PM for project management, and QA for Quality Assurance. Since these factors are variable for individual software requirements, the total cost also varies within a range of $10,000 to $550,000.

2. Time-based estimate

Time is a major factor in software costs. Depending on your deadline and how early you plan to begin the software development process, the total cost will change. For instance, if you need software in a small time frame, the developers have to put in more resources and hours into the task.

On the other hand, if you can provide an ample amount of development time, the work can be done by involving fewer people and putting in fewer hours. In this context, time-to-market is a relevant factor.

It refers to the amount of time between the initial conception of the software product and its release into the market. Each software has a different time-to-market, based on a multitude of factors, from features to scale. Generally, businesses like to keep this duration as short as possible.

To accommodate the software development process into the timeline, proper planning needs to be done. Immediate costs have to be figured out and a priority list made, to make the most of limited time.

Based on these nuances, organizations can decide whether to employ an individual or team, what materials to procure, which experts to consult, and so on. All these directly affect the software development cost estimate.

3. Effort-Based Estimate

After a time, the effort is another factor that influences the average cost of software development. For example, let’s say you’re planning to build a mobile app for your company’s HR portal. You need to add basic features there, such as leave tracking, salary statements, company events, IT portfolio, etc.

Now, this seems like a simple enough app which isn’t expected to require a lot of time and effort. However, you decide to make the app more extensive. So you tell the software developer to add a Service Requests section, put in customized health and wellness notifications, automate event notifications like birthdays and anniversaries, and so on.

You also want the employee to be able to raise purchase requisitions from the app, view their status in real-time, have chat-based technical support for emergencies, integrate their LinkedIn profile, and lots more. These features would make the app more extensive and require third-party integrations and design complexities.

Hence, the price calculation based on efforts is extremely subjective for custom projects. Although you may have an estimated range, the final cost would depend upon what went into making your software unique and just as you wanted.

4. Size of the Software Development Team

The size of the software development team influences costs greatly. There are two ways in which you can ensure software development. You either set up an internal team of developers or collaborate with external agents or contractors to get the job done.

The size of the team is also directly proportional to the size of the software and its user base. It differs according to the company and the software development requirements.

Typically, a software development team has to have a manager, a team lead or coordinator, and a group of developers. These roles may have different names in different organizations, but their tasks are basically the same.

The manager is in charge of the software development process. They can also be the product owner, technical expert, or simply a figurehead to bind the team together and address their requirements. The team lead heads the development process, looks into all technical aspects, guides the developers, and reviews their work.

The software developers are in charge of building the actual software and ensuring its smooth functioning and adherence to the list of requirements. They can also test and troubleshoot the product if required. Based on the software’s size and features, the size of the team can be increased or reduced.

Checklist to Determine Cost of Custom Software Development

1. Choosing the Right Software

The first thing on your custom software development checklist should be choosing the right software. This is where it all begins, and this decision sets the tone for the rest of the factors.

Choosing the right software is not a simple and one-track decision. You need to consider a lot of factors before deciding on the right fit for your business. The cost of the software development process depends on every factor, individually as well as together.

In your quest to find the right software, these are the factors that you should consider.

First, you need to figure out which platform would work best for the software. Currently, Android is the favorite of most developers as it is flexible and user-friendly. Depending on whether the software will be majorly used on the phone, laptop, or other devices, select the appropriate platform.

The next factor is the software developmental approach. This helps in creating the project plan, which is crucial for cost estimates. Keep your timeline and budget into concern before deciding on a developmental approach.

The third aspect is the software’s scope and scalability. This also depends on the user base that plans to use it. The more scalable the software needs to be, the higher its development price will rise.

All these factors together influence your decision on the software type and thus affects the development cost.

2. Hiring a Suitable Software Development Team

Software Development Team
Image Source
Your software development team has to be suitable for your business and requirements. As mentioned earlier, a big development team warrants more costs when compared to a solo developer. But your voice depends on the kind of software you want.

For a mid to large-scale company, custom software development generally requires a big experienced team of experts. For small businesses, you can make do with student developers or young freelancers.

To hire a suitable software development team that optimizes your costs and development time, you need to make a product plan, jot down its complexities, and determine the level of resources required for the task.

a) In House Software Developers

In-house software developers are the ones that are on the payroll of the company that requires the custom software. They can work more closely with the company’s needs and be on stand-by, in case any maintenance activity is required.

Having an in-house software development team has both advantages and disadvantages. Generally, mid-range or small enterprises do not have an in-house team of developers at their disposal. Setting up a new team within the company involves a lot more costs and effort.

You need to hire software developer, cover their insurance and benefits, give them allowances, and ensure they get regular work. If later, you want to change the software platform or choose to develop in a different programming language, you would need a group of developers with a different skill set, which would be a problem in this scenario.

It is also not a practical idea for companies that do not require software development regularly but are just looking for a customized solution for some of their needs.

b) Offshore Developers

This is where you outsource the development work to professionals who are not a part of your company payroll. You may choose to hire a single developer if your project is small. Or you can hire a software development company for a larger and more complex product, to get a group of experts at the same place.

In terms of costs and responsibilities, offshore development is the way to go. Hiring a software team for your project ensures you get the work done by experts at a reasonable pricing model.

Depending on the scale, timeline, and complexity of your project, you can decide whether to hire an individual freelancer, a team of developers, or an on-contract vendor for all the resources.

Needless to say, a bigger and more experienced team requires more investment, compared to freelancers or individual developers. However, this approach is the most cost-effective and can be adopted by small and large enterprises, depending on their budget and requirements.

3. Considering Risks for Future Developments

When you’re building custom software, especially one that has the potential to become universally relevant and applicable, you need to factor in the risks for future developments. This is so that an unprecedented event doesn’t affect your software’s functioning or reputation.

The CTO of Slack, Cal Handerson, emphasized the importance of finding the product-market fit quickly upon release. Since the technological market is evolving every second, your product needs to find its niche as quickly as possible.

If you focus merely on the present operations and ignore the scalability potential of your software product, you would be doing a great disservice to the software. This could end up creating a dent in your brand and make you lose the credibility of your users. As they say, it is better to be safe than sorry.

Types of Software Cost Estimation Techniques

1. Bottom-Up Estimating

The bottom-up way of software cost estimating involves going down to the lowest level of detail and aggregating the information to arrive at a total sum. To take this approach, you have to build detailed cost, time, and effort estimates for the entire package.

Once your estimates are ready, you will find it easier to arrive at an average cost of software that will be close to the actual number. And since all your figures are broken down into basics and well-researched, you will have a lower risk of exceeding the budget.

This works best if you divide a huge project into smaller assignments or goals. Then you assign costs and resources to each section, thereby building a framework based on reality. It also helps in effective project management and calculation of time and expense.

To arrive at the total sum, you simply have to add the cost estimates of the smaller sprints or assignments. This can be done on an hourly rate basis or a total price quote. The bottom-up technique can be used in any industry. It helps more people to be actively involved in the task, take ownership of their work, and stick to individual deadlines effectively.

2. Top-down Estimating

In this form of software cost estimation, you have a specific budget and you work towards the allocation based on that. Simply put, you have to figure out how much can be done with the amount of money you’ve been allotted. Based on that, you can add functions, divide sprints, and involve other developmental tasks.

This Software Cost Estimation approach works best when you have a reference of similar projects or estimation by an expert about how much money is typically needed in this kind of project. Based on that fixed budget, you can determine the scope of the software and what features it should have.

Top-down estimating works best when the company sets a specific software cost for the project that you cannot exceed. This process needs inputs by managers or subject matter experts, be it in-house technical people or external developers.

3. Analogous Estimating

As the name suggests, this technique of software cost estimation depends on analogy. You can check the already completed tasks of the same project and create an estimation according to the results.

This way, you have a chance to arrive at a software development cost that will be similar to the final cost.

It can also work if you have some past information that helps you to calculate the duration or costs of your current tasks. Based on past trends, you can predict the project behavior quite accurately.

This software cost estimation technique helps when you have limited information about the project at hand but need to arrive at a projected cost for the company’s benefit. It is easy to implement and often gives good results.

4. Parametric Estimation

In parametric software cost estimation, you calculate the total development expense by scaling the features of other similar tasks from popular programs. This technique uses variables and the relationships among them to calculate the cost or duration of the current project.

In this method, you can determine the total cost of software by identifying the unit figure and calculating the number of units that might be required for this project. Based on statistics, this process uses historical data combined with other variables to reach an estimated figure for different parameters.

The software development cost breakdown in this method has higher levels of accuracy as the method of data aggregation and calculation is more sophisticated than most other methods.

You can apply parametric cost estimation to the project as a whole or to different segments after breaking them down from the entire task. It can also be applied in conjunction with other estimation methods for better results.

5. Three-point Estimating

Three-point estimation is generally used in management and information system applications to create an approximate probability distribution. This distribution can represent the result of future events, after analyzing the limited information you have.

In this technique, three figures are initially estimated for each required distribution. The estimation can be based on informed guesses or prior experiences. The three figures represent the best estimate, the negative estimate, and the optimistic estimate.

The best estimate refers to the average amount of work that the task might require, based on the figures reproduced if a team member performs the task 100 times. The negative estimate is the highest amount of work that can be required, including all the negative assumptions and risk factors taken into account.

The optimistic estimate is the amount of work that would be required if all the positive assumptions come true and none of the negative factors take effect. The best estimate can also be replaced by a random number based on the effective market price for such projects.

The total estimation will be a sum of all three numbers, divided by 3, to get the average value.

Summary

Determining the cost of a custom software development project majorly depends on various project management skills. With proper planning and estimation, it becomes easy to figure out a number that would be best suited to the company’s requirements from the software.

In any case, you can estimate the software development cost through a number of factors, as mentioned above. And the most important thing to remember in this case is that all custom softwares have different requirements.

Based on exactly what you want from the product, you can easily calculate the cost accurately. After going through all the steps of project planning, you must send a proposal to the software developer with your quotation. Based on the developer’s response, you can renegotiate some of the finer points of the project.

The function of the developer is crucial in any custom software development project. Their service rates, expertise, and number can create a major difference in the project, its cost, and its success.

In collaboration with the developer or development team, you can also zero in on an estimating technique. There are several experts on the internet as well, who can help you create a project plan for custom software development.

Since this task is significant and has a long-term impact on the business, you must be very clear on your requirements, priorities, and budgets before investing time and money into the developmental process. Documenting the process also helps for future reference.

Before evaluating software development costs and calculating an average number, make sure to do your research properly and gain a basic understanding of how the development process will work. If all goes well, you will end up with an efficient product that will address all your business needs and also be within your company budget.

Have an awesome idea, Let's Talk