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The cost of custom software development is something that interests everyone who’s looking to create their own digital solution. Unfortunately, it’s hard to give a precise estimate. Everything depends on a variety of factors and the goals you want to achieve.
The truth is, every development project is distinct. Businesses have different needs, budgets, and preferences. Not to mention, the term “software” embodies all kinds of solutions, which is why giving a straight answer might be complicated.
As a custom software development company, we often face specific requests from customers. With years of catering to client needs, we’ve come to know the main concerns that are typical for someone looking to build custom software.
Usually, you’ll come across the following questions:
- What kind of software do I want to develop?
- What factors affect development costs?
- What is the average cost of custom software like mine?
- How can I estimate the amount I’ll have to pay?
- Which engagement model best suits my needs?
- Where do I start?
Today, after analyzing our experience, we’d like to share the basic principles of how custom software development costs are formed. Hopefully, this piece will help you estimate budgets to set aside for software projects.
Reading Time: ~20 min
Watch our webinar to learn about the practical ways to evaluate your software project estimates.
Custom Software Development Cost
Custom software is tailor-made for a specific organization to cater to its unique business needs. As you can imagine, with any bespoke solution, there are quite a few things to consider.
You need to think about your business goals and identify the type of solution that will help achieve them. Only after that, you can start narrowing down the rates of custom software development based on the factors that influence it.
This is precisely what we are going to help you do in this article. Read on to get all the answers you need about custom software development pricing and find out how you can get started today.
Types of Software You Can Develop
The term “software” can actually mean a lot of different things. It can be a CRM platform for your sales and marketing departments or a fully-fledged call analytics solution for your contact center, a mobile dating app or an inventory management tool to enhance business functionalities. As you can see, there’s a variety of options.
Asking the average cost of custom software development is pretty much the same as asking, “What’s the average cost of a car?” Obviously, it depends on many factors like the manufacturer you prefer, the additional functions you desire, and even where you plan to purchase the car. Well, with the development of bespoke software the situation is the same.
In 2022, the global business software and services market size reached $474.61 billion. It is also expected to grow at a CAGR of 11.9% between 2023 and 2030. So, it’s best not to fall behind and swiftly leverage the opportunities custom software can bring.
The first step of figuring out the cost to build custom software is identifying the kind of solution you need. Is it a mobile app or a website? Do you need something with data science capabilities, cloud computing, or both?
Here are the most common types of software development. Take a look at the list below so that you can clearly identify what you need.
Probably one of the most common development types is building web applications. These solutions run through an internet browser and encompass both front-end and back-end development.
Web development is booming as businesses always need websites and portals, content management systems, or eCommerce platforms.
Mobile App Development
This one is, of course, a bit more recent than web development. With the first iPhone launching 16 years ago, it was the beginning of mobile app development that we know today.
The daily time spent on mobile apps has reached 2.22 hours per day in 2022. With people spending more time on their mobile devices, it’s no surprise businesses are eager to create apps that better cater to changing customer needs.
Mobile app development is basically creating applications for mobile devices. Games, travel apps, social media, solutions for professional online consultations and services — all fall under the mobile application development umbrella.
Learn How To Choose A Mobile App Development Company
SaaS solutions have become a quite popular model of digital product delivery across various industries. They allow users to easily access software functionality over the internet, usually with a subscription-based fee. For example, we all know platforms like Zoom, Netflix, or Adobe that offer their software as a service.
For business owners, building SaaS products provides multiple benefits, including predictable revenue, reduced customer acquisition costs, and data-driven insights about the users. So it’s no wonder that many companies decide to enter the SaaS market and pursue the development of these solutions.
Find out How to Develop New SaaS Software from Scratch
Applications that have data science capabilities let you find value in data. Data scientists focus on pulling out actionable insights and delivering them in a form that business leaders can quickly grasp.
These solutions can be for predicting demand, understanding customer behavior, or personalizing marketing campaigns. All of these activities require going through large amounts of data and drawing conclusions based on past performance.
AI and ML technologies are applied more and more here as they help machines learn from the data, adapt through experience, and operate in the most optimal way without human involvement.
Business Automation Software Tools Development
Business automation software benefits the entire value chain. Need to automate sales and marketing activities? There’s a CRM that can help you with that. Want to improve contact center performance? No problem — you can turn to call center analytics platforms at any time.
Even though there are plenty off-the-shelf automation solutions, custom-made ones can have a true impact on your operations. For instance, a CRM that was built for mass use won’t consider the specifications of your company. On the other hand, a CRM that is enhanced with custom plugins and features can propel your business forward and completely reimagine how you manage customer relationships.
Embedded Systems Development
Whenever you build a new product or device, you need to refine the integration of hardware, software, and programmable logic. With the rise of the Internet of Things, almost anything can be connected to the internet and leveraged. Hence, embedded systems development services has been in high demand.
Essentially, embedded systems are part of a complete device and are designed to perform a specific task. Typically, they are found in the industrial, automotive, medical, and telecommunication fields.
Finally, we’ve reached the last software development type we’ll cover today.
Cloud computing solutions are here to facilitate work amongst distributed teams, increase flexibility, enhance productivity, improve security, and reduce operational costs. Specifically, they use networks of remote servers over the internet, or “the cloud”, for data storage and data management instead of relying on a personal computer or local server.
Factors That Influence the Cost of Software Development
Now that you are familiar with the most common types of software, it’s time to look at the factors that actually influence the cost of custom software production.
The very first factor is, unsurprisingly, project size. Everything depends on the magnitude of your undertaking. The more user roles or number of modules, the more work is required to complete your custom development project. There are four typical sizes. Let’s explore them in more detail below.
A small project usually involves minor work or upgrades. Perhaps, a user interface or a simple plugin development. Usually, there isn’t very much interaction with the client. Instead, after understanding the goal, the development team quickly carries out the tasks and showcases results.
Medium projects call for additional time and effort. Typically, there is a more extensive scope of deliverables. There’s no need for complex integrations as solutions don’t usually require connectivity to a variety of other business apps.
An example can be a small mobile app or a web interface to an existing system. Often, this project size involves more developer-client interaction. As there’s more to cover, they might hold discussions about design, functionalities, check-ins, and milestone sign-offs.
Large development projects are intricate and complex. They often require integration with multiple systems and have to address security, scalability, and maintenance challenges.
An application that works across various platforms might fall into this category. As you can imagine, there’s a lot of client-developer interaction to ensure the team is always working on tasks that the client truly needs.
Enterprise projects might be even bigger than the large ones. Data security is imperative in these applications. The underlying infrastructure that supports the system is also much more complex and can usually handle a couple of malfunctions before a user feels any impact.
A ride-hailing mobile app like Uber can be an example. It involves a tight collaboration between business and IT teams.
Development Team Size
The second factor influencing the average cost for software development is the size of the team. Once you’ve identified what kind of solution you need and its probable size, it’s time to determine how many people you want to involve.
Generally, every project requires at least four roles — Project Manager, Business Analyst, Developer, and QA Engineer. However, in a small project, one person may have to fulfill two functions. For example, a Developer might also be a Tester.
It all depends on the software complexity and the resources available. We should also note that for large and enterprise projects, it’s best to have one person working only in one role for effective development.
Expanding a Team
Watch our webinar to unveil the tricks of onboarding a tech partner and incorporating it into the process to foster your product delivery.
If you want your new software to be enjoyed, you can’t ignore the user experience. Hence, UI/UX design is something you have to evaluate to determine the cost of custom software application development.
Learn about the Differences Between UI and UX Design
The result of a good designer’s work is an interface that simplifies the interaction and has intuitive navigation. Of course, the costs of a UI/UX designer vary depending on the experience and customization level needed. The more complex the design of an application — the more significant percentage of the budget it eats up.
Software development cost also varies depending on the deployment platform. If you’re dealing with a mobile app like Uber or Instagram, they need to be developed for all the major platforms.
If you require a cross-platform solution that supports all the popular operating systems, databases, and frameworks, be prepared for a software costing estimation more on the higher end of the scale.
Choosing a technology stack may not be entirely in your hands as it’s usually going to be whatever the development team deems appropriate for your unique solution. However, it’s still important for you to understand what we’re talking about here.
A technology stack is basically the collection of all the technology services that are to be used to build and run your software. Essentially, it covers how your application is going to be made. For ease of understanding, think of it as building materials for a house, but for IT projects. Programming languages, frameworks, web servers, or hosting tools all fall into the possible technology stack.
Find out about the Best Frontend Frameworks
You need to be aware that skilled developer costs vary based on the tech they work with. For example, the average salary of a Junior Software Developer in the United States is $63,000/year, while a Data Scientist’s is $115,000/year. That’s quite a big difference. Moreover, open-source technologies are usually cheaper, so when trying to be frugal — stick to them.
Discover the Basic Principles of Choosing the Right Technology Stack
Integrations are also a factor that influences software costing. Typically, most modern applications require some kind of integration with external third-party systems like CRMs, ERPs, or payment gateways.
Learn about Payment Gateway Integrations Basics
Some integrations are quick and easy to set up, but some can be more challenging and time-consuming. For example, you’ll face little problems with PayPal, but if you need to integrate some sort of third-party reporting system you may encounter more difficulties.
You should always try to account for additional fees when calculating custom software development costs. Sometimes, there will be charges not directly related to the developer’s hourly rates and levels of expertise.
You might need to pay for licenses of specific software that developers need to do their work properly. Additionally, if your project involves renting or buying servers, expect this cost to be added to your final invoice.
Moreover, if you need to migrate existing data, prepare for the pricing to reflect that. Migration is a complex job when you have large amounts of data to fit into a new system. So, keep this in mind when estimating the average cost of development.
It’s easy to forget about maintenance because people tend to focus on project completion instead of software upkeep. However, for your solution to be of actual value, maintenance is likely non-negotiable. You might need security updates, minor upgrades, additional features, and occasional checkups to ensure everything is running smoothly and efficiently.
Finally, the last factor that influences the cost of software development services is whether you want your team to provide support functions. Do you want them to be on standby for any potential bug fixes, or are you planning on handling it yourself?
Companies may offer reasonable prices for supporting the developed software solution, but you should still factor this cost into the lifetime budget of any tool you set out to build.
Watch our webinar to learn about the practical ways to evaluate your software project estimates.
Average Cost Of Software Development and How It Is Estimated
As we previously mentioned, it’s hard to give a straight answer about the cost of software engineering. However, we can provide you with a ballpark range.
A custom software development project can cost between $5,000 to $1,000,000, or more, depending on the elements discussed above.
The best way to get a closer estimate is to contact an experienced software development company and discuss your specific needs. They will give you an approximation based on either time or effort required to complete your product.
Time-based estimations consider the number of phases and the corresponding cost per phase. Effort-based approximations of software development cost, on the other hand, are based on the number of developers required and the rates of those developers per hour.
Software Development Cost Estimation Template
There are many charts and formulas that can help you with the estimation of your product development cost, but nothing will work better than asking your potential development partners directly.
However, below you will find a simplified template for a mobile app development project cost. It is a toned-down version that you can use to help wrap your head around the amount of money you might have to pay. A similar cost breakdown can also be made for other types of solutions.
There are four main processes of a software development cycle. Each of them takes a different amount of time. On average:
- Business Analysis: 10%
- UI/UX Design: 15%
- Project Management: 15%
- Development and QA: 60%
As you can see, each of the four components carries a different weight in the total estimation. From our experience, the elements have the following price ranges in the case of mobile app project:
- Business Analysis: $1,200 to $11,000
- UI/UX Design: $2,500 to $10,000
- Project Management: $1,200 to $12,000
- Development and QA: $2,000 to $60,000
Everything depends on the complexity, and the above template is a simple version of mobile app development. Yet, if you use these components and pricing ranges as a base, you can add them together to calculate the possible cost of a custom software project.
Business Analysis + UI/UX Design + Development and QA + Project Management = Total Cost of Custom Software Development
Why Are Most Software Project Estimates Wrong?
Most of the time, poor communication leads to conflict in software development. It’s easy for estimates to be wrong when clients don’t know their end goals or struggle to explain them. Only when the development team understands the problems you’re facing and the desired results, can it truly deliver what you expect and within the discussed price range.
Learn how to explain your project idea to the development team and avoid miscommunication
You already know that many variables come into play during custom software development projects — no two are the same. Hence, even a bit of messy communication can lead to wasted resources.
To avoid such problems, you need to be educated on the factors that influence software development. Moreover, projects shouldn’t be initiated if you can’t commit enough time to communicate with the project team and stay involved in the development process.
Miscommunication can cost you money and a lot of stress, so make sure you are clear about what you want and ask questions whenever you don’t understand something.
A Quick Checklist For Software Development Cost Estimation
Are you feeling overwhelmed by all the information we provided and want something quick and easy? We get you. Here’s a short checklist that serves as an excellent summary of everything we’ve discussed.
Project type: everything starts from determining what it is that you need. A mobile app or a web application? A solution to use internally or a tool for your customers? Hence, start with identifying the kind of software you’re looking to develop.
Complexity: how big will your project be? A lot depends on the magnitude of the endeavor. Is it an MVP with basic functionality, or an enterprise-scale project? Do you need complex integrations? Are maintenance and support something you want to keep doing after the project is finished? Once you get answers to these important questions, you will have a better idea of the costs you’ll have to put up with.
Hiring route: where are you located, and do you plan to develop in-house, onshore, nearshore, or offshore? Custom software development prices vary across the world. Hence, your location and the chosen outsourcing route play a role in development costs. Don’t worry, this can all be figured out. Just keep in mind the pitfalls you should avoid and everything will be fine.
Payment Models for Software Development
Client requirements vary, which is why software development companies offer multiple engagement options to choose from. Here, we’ll discuss the four main ones: fixed price model, time and materials model, dedicated team model, and a hybrid model.
Keep in mind that there may be variations of models. Some companies might name and approach them differently. However, these four are the most widespread and knowing them will certainly help you make the right decision when choosing a payment model.
Fixed Price Model
A fixed payment model is an excellent option for projects with well-defined requirements that are unlikely to change during the software development process. This model delivers a distinct set of functionality in the determined period frame and at an established cost. Hence, specifications, budget, and delivery date are all fixed here.
The downside of a fixed payment model is the difficulty in managing risks. The development team is responsible for the entire process, making your involvement minimal. Moreover, if you want to change something after the project has started, you will need to modify the contract. These modifications may result in new terms, new prices, and likely a different time frame.
Benefits of a fixed payment model:
- You pay for the exact work that is to be done
- There will be no sudden additional payments
- You don’t need to be highly involved in the development process
Downsides of a fixed payment model:
- It’s difficult to make changes to the project
- The team is focused on delivering the discussed features, not coming up with ideas to improve the software further
Time and Materials
This model allows a bit more flexibility than the previous one. With it, you’ll be more involved in the development process and have the ability to review deliverables and decide on a budget after each development phase is complete.
The time and materials model is great for small projects that don’t have a well-defined scope. Hence, the development process is split into phases, each of which has its fixed costs and time frames.
In this model, you’re charged for the number of hours the team spends on your project and the costs of the materials for building your software.
Pros of the time and materials model:
- Payments are settled within specified periods
- You can alter requirements and adapt the plan without incurring additional costs
- Thanks to your involvement in reviewing deliverables after each phase, there are higher chances of you getting exactly what you wanted
Cons of the time and materials model:
- Costs and timeframes may shift slightly depending on any changes you decide to make
- You need to commit some efforts to be involved in the development process and check deliverables at each stage
A dedicated team model is best for projects that might span several years. In this case, you pay for the time the team spends working for you. Typically, the price you pay is based on the hourly rates of your dedicated team members. In short, a software vendor provides his skilled developers for you to use in the long term.
This option is similar to building in-house capabilities but without paying for headhunting, holidays, or other HR-associated costs.
Advantages of a dedicated team model:
- You have a lot of control over the development process
- You don’t incur costs related to recruitment and HR management
- You can quickly scale your team up or down
Drawbacks of a dedicated team model:
- You need to be highly involved in the development and managing progress
- Budget can vary depending on the skills required and time needed to complete the project
The fourth payment model is probably the most flexible one. As the name suggests, you can choose multiple engagement options for your project with a hybrid model.
For example, you have a dedicated team working on your project, but suddenly there’s a spike in work because you have new requirements or want to speed up the process. Instead of expanding the dedicated team, you can engage additional workers on a fixed-price or time and material basis.
Benefits of a hybrid payment model:
- A lot of flexibility in terms of adjusting project scope and keeping expenses on track
- You can take benefit from the best parts of each engagement model
Disadvantages of a hybrid payment model:
- You need to handle and manage multiple engagement models
Want to Create Custom Software?
Seriously considering custom software development can be overwhelming at first. There are so many decisions to be made that influence speed to completion and the budget. Hopefully, you are now familiar with the factors that impact software product development costs and will be able to identify the type of software and engagement model that best suits your needs.
At Velvetech, we understand that trusting your software vendor is of utmost importance. Our developers have cross-functional expertise in custom software development and creating solutions that are tailored to your unique business case. We are always happy to take development work off your hands or collaborate closely together to achieve the results you’re looking for.
Don’t hesitate to contact us and share your development project idea so that we can start building a solution that will solve the challenges you are facing!