How Much Does Software Development Cost?
Depending on your company’s needs, costs can vary significantly. Here’s a guide to help you decide if software development is worth doing in-house or if it’s best left to outside specialists.
As business owners, there are sometimes questions that come up surrounding the costs of doing business that we can answer pretty easily, as they are fairly straightforward. Especially when we rely on managed services providers and vendors with service-level agreements that are laid out in pretty clear terms. It costs us a certain amount every month to keep our computers up and running and our CRM system accessible. Our office supply list is fairly easy to forecast, and our data servers are maintained and secured by a third party. Many of these costs live on the controllables section in our P&L sheets.
However, as evolving client needs force B2B service providers to offer increasingly technical solutions, B2B service providers look for cost-effective paths to digital transformation in order to gain access to the bandwidth and resources necessary to offer clients access to complicated software solutions. This leads to extremely complicated answers to seemingly simple questions like, “what will it cost to have this software solution developed for my client?” While these services can similarly be accessed via an outsourced relationship with a software development firm, the nature of software development is such that the simplest answer is that, “It depends.”
What Type of Software Do You Need to Develop?
The complicated version of “It depends,” which is what this discussion intends to lay out in as much detail as possible, is that it’s largely impacted by the scope of the project and the type of software development company you decide to go with.
What Type of Software Do I Need?
One of the major questions you need to determine from your clients is what problem they are trying to solve, which will determine the type of software development team you need to seek out. For businesses, the scope of software development often falls within these five main categories:
These projects are tied to the client’s website and often entail the creation of targeted functionality across the site to support their operation. This can often include back-end development work, but the back end can also be seen as its own category of work depending on the project scope.
Mobile App Development
This is work surrounding the creation of mobile applications that can tie into the organization’s existing infrastructure and support eCommerce, client engagement, and other business functions.
It’s all about data these days, and it’s a realm that’s evolving faster than ever. This work supports the critical big data collection and processing for the organization.
These projects provide tools that support the operation. Oftentimes, these applications are used to help tie other third-party tools together.
Otherwise known as Application Programming Interface, API software allows multiple applications to communicate with one another.
What Type of Software Developer Do You Need to Support the Project?
Software development companies come in several layers, depending on what roles and functions they offer to clients. For this discussion, we focus on the pricing models used by startup developers, who are looking to create a branded product that solves a business problem for a targeted business demographic; and outsourcing companies, who work with clients contractually to create targeted business solutions.
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What Factors Impact Software Development Costs?
To properly look at costs, we can approach this from two perspectives. The first will be from the perspective of a software development startup to get an idea of how much it costs to execute the software development cycle in-house with your own resources.
The second approach, the more likely in the modern economy for established businesses looking to pivot, is the outsourced software development project model, which will provide a less concrete answer due to challenges in the planning and estimation process that exist in the outsourced software development relationship.
The Costs of Complexity
The startup landscape is fast-paced and forces businesses to operate at absolute cut-throat levels of efficiency to outpace the competition while still bringing an operational piece of software to the table at the end of the day. This highly competitive segment of the economy thrives on data, which gives us some amazingly insightful data as to the actual cost of development of a specific software application. In this section, we’ll talk about the different factors that impact the cost.
For small startups building software solutions towards a specific challenge require that the company go through at least a single round of funding in order to get the team built and acquire the necessary technical gear to bring their vision to life. With much of the funding going towards actual operating costs, data shows that on average, a v1.0 application, often a minimum viable built with limited functionality, will cost in a range of $140,000 to $210,000 in pure development costs.
This version is often used as proof of concept and to attract further funding and enhancement of the app to meet full target specifications. From these initial costs, the final cost of the application, not counting monthly maintenance costs, updates, and other fees, could fall into a range anywhere between $500,000 and $1,000,000 or more.
Many factors impact this final cost of building out an application, but the primary cost influence is the scope of the software. Software that is intended for use by an international organization with global reach and integrates complex interfaces and features will be a much more expensive build than a software solution intended for a local small business.
Outsourcing Costs and Mileage Vary
If you’re a B2B service provider looking to pivot and keep up with client needs by opening the door to software-based solutions via outsourcing, you’ll be saving yourself a bevy of costs by doing so. Aside from not taking on the capital costs of equipment purchases and the complexities of payroll, you’ll be saving other operational costs and creating a barrier between yourself and any risk associated with the lack of success of the software. However, the fees that are involved vary greatly depending on the reputation and size of the vendor providing services.
The Costs of Seeking Out Reputable Designers
When we talk about the costs of outsourcing to a software design agency, it should be assumed that there will be differences in the costs depending on the consultation firm’s reputation and its reach. This will of course be based on the size of your organization and the scope and scale of the software you’re looking to have built.
Large service providers with deep-pocketed clients can go to one of the Big 4, where the cost of building an application starts at around eight figures. Aside from an enterprise-level client willing to pay more than $10 million for a single piece of software, you’re likely looking more at creative agencies or smaller shops, where app costs will range anywhere between $30,000 and $2.5 million, depending on scope, complexity, and functionality.
Keeping it Local or Going International, Rates Will Vary
Bringing the conversation to an international stage, you’ll see that there’s a cost versus quality consideration when considering outsourcing within the United States or beyond. While custom software development breaks down to a rough hourly rate of around $150 for a senior developer in the United States, there are alternatives on an international level.
HackerRank, one of the industry’s most popular sources for these discussions, pushes Eastern Europe (specifically Poland) as an international community offering a strong mix of value versus quality of code. In fact, Europe is said to have some of the most talented and skilled programmers and their work is considered to be some of the cleanest and best-documented code in the industry.
Estimate the Cost: Additional Questions to Ask
At the beginning of the article, we started with the general premise that the answer to the question of how much does it cost to develop software is that, “it depends.” While we have some general ranges of costs from the entrepreneurs and some vague hourly rates from software developers themselves, the truth is that every number discussed before the application is considered ready to launch is an estimate and an estimate that doesn’t include ongoing maintenance, upkeep and upgrades, data management, and other associated “secret costs” of software development.
The goal then, as a B2B service provider seeking out a software developer, is to find an agency that you can trust and then proceed to go through the estimation process for the project that you have at hand, ensuring that you follow a number of key steps in the process.
Which Stakeholders Need to be Involved In the Planning?
The client who wants the software solution created and controls the funding and determines the final deliverable timeline must be involved throughout all planning meetings throughout the project. The goal is that with all stakeholders involved, a true scope of work can be established at the start and it will minimize scope creep later in the process.
Remember that the client is the product owner, and you’re facilitating through the software developer a deliverable that meets that product owner’s needs. Allow their guidance to set the tone of the project.
What Project Management Approach Does the Vendor Use?
Nothing will drive up the costs of a software development project like inefficient execution and poor oversight methods. Determine which project management method is in play and ensure that it’s in line with industry standards and fits the scope of the project and the expertise of the team performing the work. Whatever the project management approach, your concern should be that your outsourced business partner is enforcing its use throughout the process.
How Can We Prevent Scope Creep Throughout the Project?
Work with the vendor to translate your client’s must-have features into design specifications from the start. Ensure that the plan from the beginning is fully fleshed out and allows room for later iteration and improvements. Building on this roadmap at the start keeps the project lean and efficient, with no wasted cost on work that doesn’t support the product goals.
This also requires an understanding of the scope of the client’s application from the beginning so that the software development partner has a clear understanding of the staff that will need to be dedicated to completing the work efficiently and on budget. This allows the vendor to scale their own resources ahead of time as needed.
How Do We Know If the Project Is On Budget and On Schedule?
Identify the metrics from the start that will be used to track the project’s progress and adherence to the intended timeline and budget for delivery. Clear metrics upfront will help the team avoid surprises throughout the build process.
It should be immediately clear to the development team and stakeholders during meetings that the project is either on schedule and budget or that there are problems with either so that concerns can be immediately addressed. This will help the stakeholder make crucial decisions as to whether or not changes in scope or timeline are acceptable to their own business requirements.
Embrace Outsourcing Your Software Development Needs
While we included the entrepreneurial model to provide insight into the software development process, it’s not the approach we expect many of you to take. It’s a grueling and intense process that leaves little time within the operation for anything unrelated to the development of the application itself.
In fact, if you’re working as part of a start-up and you’re reading this, your lunch break is about over and it’s time to dive back into the programming. However, if you’re a B2B service provider looking to have your own software solution built or you need to expand your scope of services to include the ability to deliver digital solutions, then it’s important to understand the costs behind the scenes so you can price your own services out appropriately.
The key to the outsourcing process is that software design agencies already have the teams and equipment in place to execute extremely complex software projects, and they do so in bulk. The savings they can pass on to their clients make the software design process much more accessible to the average business. But you can’t just lay it at their doorstep and check back in six months.
Remember that the software development process is collaborative and requires input and involvement from all stakeholders from the planning stages through to the final deliverable and ongoing maintenance. As long as you and your clients are prepared to get your hands dirty, then your client will surely be satisfied with the outcome.
About the author
David J. Brin
Having recently escaped a 20-year career in Food & Beverage operations management, David is now a Facility Director for a Code Ninjas franchise, a STEM-education concept that uses game development to teach children how to code in various programming languages. David got his start writing professionally as a communications assistant for the Federal Reserve Bank of Richmond, and has been a freelance copywriter providing white-label services to clients since 2016. His clients operate in industries ranging from managed IT services and software development to marketing and advertising.