Last Updated: March 20, 2024
Software Development Cost
Published On: February 03, 2024

Blog Summary: This blog is an in-depth analysis of all the important aspects of managing software development costs of custom projects. For CTOs and founders, it can serve as a checklist and roadmap to estimate their project budgets before they approach a software development company.

If you’re a founder, manager, or CTO, you must have had a lot of discussions in the sales meetings about the costs and duration of a software project. Especially when you’re building custom software, you need careful planning, design, architecture, and programming.

According to Statista, the software development market revenue is set to grow at a CAGR of 5.72% and reach USD 812.9 billion by 2027. However, a survey by GoodFirms shows that 10.81% of development companies can deliver quality software with maintenance within 4-6 months (we are one of them!).

software development market

Hence, when estimating software development costs, it’s crucial to differentiate between effort (hours of work) and time (duration from start to finish). In this detailed blog, we’ll be diving head-on to discover many such factors and hidden costs that would affect the average prices. But we also have some easy tips lined up to help you reduce your budget!

What is Software Development?

Software development is a process of activities that software developers of a software development company use to create computer software applications. The process involves the phases of creating, designing, deploying, testing, and maintaining throughout a cycle called the Software Development Lifecycle (SDLC).

Software Development

The main focus of building software is delivering an intuitive user experience. Developers aim to achieve this goal by providing high-end software development services with user-friendly mobile and web interfaces. They are independent of any hardware and are built on creating a hypothesis aimed at solving a specific problem.

The success of a software project depends on the following important aspects:

  • Identifying technical needs.
  • Researching the target audience base pain points.
  • Developing a roadmap to design prototypes, known as Minimum Viable Product (MVP).
  • Choosing the right methodology from Agile, DevOps, and Scrum.
  • A strong architecture for building a definitive storyboard that would plan out how data should be migrated.

The Importance of Software Development Cost Estimation

Cost management directly impacts the success of a project. Hence, it becomes important to monitor, control, and maintain software development closely. It also helps identify and address potential cost overruns before it’s too late.

A project manager’s most essential responsibility is to ensure that a software project is well within the stipulated time and budget. They also have to identify the specific areas of a software development lifecycle where costs can get higher than estimated.

Analyzing all these aspects can help organizations renegotiate their contracts or change the plan of action to bring costs under control. They can make better decisions regarding how they should allocate their resources by doing a detailed cost breakdown.

Cost estimation is also crucial with respect to keeping the stakeholders informed about the project’s progress. They can estimate all significant types of costs, including

  • Direct and indirect costs,
  • Fixed and variable costs
  • Capital and operating expenses,
  • Sunk costs

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Different Types of Software

Software development is primarily carried out by software developers, programmers, and engineers, with each role constantly overlapping with the others. Software programmers, also known as coders, develop the source code to write instructions for specific tasks. These include building libraries, managing and merging databases, and routing communications.

Similarly, engineers use modeling languages to discover solutions to problems by taking inspiration from real-world scenarios. However, if you choose to outsource software developers from an offshore or nearshore software development company, they are capable of building a bridge between both departments. They also manage development teams and processes and test the software.

Software Types

Software development is divided into four types:

1. System Software

If a computer system is a layered model, system software is the interface between hardware and user applications. The best example of system software is an operating system (OS), which manages all other programs on a computer. It keeps running in the background to maintain a computer’s basic functions and help users run higher-level applications.

Important features include:

  • It uses programming language, hence harder to manipulate
  • Must be written in a low-level language, easy to read by CPU
  • Must easily communicate between specialized hardware and higher-level applications

2. Application Software

Application software refers to computer programs that perform specific tasks when a user directly interacts with a piece of software. The sole purpose of application software is to assist users in performing specific tasks.

The main functions of application software include:

  • Information for data management
  • Document exchange systems
  • Visuals and video development 
  • Accounting, finance, and payroll management
  • Resource management like ERP and CRM systems

Some popular examples include Microsoft Excel, Word, and Google Chrome. Some mobile applications are also categorized in application software like WhatsApp for communication and games like Candy Crush Saga.

3. Embedded Software

Embedded software applications are specialized programs within non-PC devices. They work either as a microchip or as a part of another application sitting on top of the chip. They perform specific tasks; however, unlike PC apps, embedded software contains fixed hardware requirements. Hence, it’s created specifically for the particular device that it runs on.

Different types of embedded software development include Operating Systems, Firmware, Middleware, and Applications. Some notable examples include image processing units, aircraft control systems, motion detection systems, traffic control systems, and automation systems.

4. Web and Mobile Applications

These enable users to perform specific tasks and functions and access information through the Internet, web browsers, and mobile devices.

Web applications are accessible through web browsers and run on remote servers. They are device-agnostic and can be accessed from any device with an Internet connection. Examples include online shopping platforms, social networking sites, and email services.

Mobile applications are typically optimized for smaller screens and touch-friendly devices to leverage device-specific features like GPS and camera. Common examples include fitness apps, messaging apps, and weather apps.

Average Cost of Software Development

Time and effort are the most significant factors when determining where to start, what the ideal timeframe should be, and what the most reasonable hourly rate for hiring a developer should be.

Yet, there is no straightforward answer to decide the average cost. It could be as low as $10,000 and can go up to as high as $1,00,000 or even more.

Let’s have a detailed look at how the average cost gets affected in software development:

1. Industry Average Costs

For some software development companies, the cost estimates are based on the duration of the project. Some industries require projects that are spread over an extended development period. Hence, they split the project into smaller parts and charge a fixed cost for each phase.

Similarly, other industries base the estimation of software development costs on the number of persons required. This way, they can estimate the price of the project by multiplying the average cost per person for a period, like weeks or months, by the number of persons required.

Custom software can be as small as a calculator on your computer or smartphone or as big as a billing system for your enterprise. The number of screens will also include menu clicks, button clicks, and links.

A small app’s screens can range from 10-20 and will cost around $75,000 to $90,000. Similarly, a large app will have more than 40 screens and can cost around $2,50,000.

2. Variability in Software Development Costs

Projects go through many ups and downs that can affect the expected cost, and they often spend more than that. This can happen due to the complexity of features, architecture, and code logic.

Complex logic would require more time in coding and testing. If your project needs a lot of heavy analysis and number crunching, your resources need to have the perfect sauce of combinations and permutations.

Another aspect that would create cost variability is creative design. It can soon become confusing when you are stuck in selecting the right fonts, color palettes, and images.

Moreover, you also have to figure out custom illustrations and animations. A tentative cost with a few rounds of feedback and iterations would be around $15,000 to $20,000.

Lastly, integrations with other systems also form a significant part of software development. Sometimes, these are hassle-free, like payment integrations with PayPal, Equifax, or Experian. But other times, some lesser-known systems can increase the project cost.

3. Factors Affecting Averages

If you are building a complex app, back-end infrastructure is essential. To build an easy-to-use interface, you need clear navigation paths and some hidden processes that connect your users to the front end. A back-end is also important for data migration and protection, which has become a crucial part of today’s applications.

To connect and integrate your services with other systems, you also need to purchase APIs. In some cases, you may need to build custom ones, too. The development team, their location, and the hiring model you choose are some other factors that affect the software cost.

For example, If you choose an outsourced software development team, you can get access to niche talent, skills, and expertise where your in-house team might be lacking. However, if you want to expand your existing team, you have the flexibility to hire only those developers.

Here’s a comparative description of both hiring models:

In-house Development Team Outsourced Development Team
Costs Expensive model:

Includes equipment costs, taxes, and hiring costs

Affordable model:

Cost-effective, eliminate recruitment costs, large talent pool

Duration Long-term contract:

Readily available but might incur hidden costs

Long and short-term both:

Outsource a small task or hire a whole team for a bigger project

Communication It provides good communication through corporate channels and makes it easier to connect for any changes. Great communication is required as an account manager is assigned to handle all project-related communication.
Commitment Cultural and language similarities, better understanding, but costly in the US, UK, and Australia. Fully dedicated to the project, with rare coding expertise, multiple niche experiences, little upfront payments, and deeper insights.

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Factors That Make Up the Software Development Cost

Each organization has different goals. Hence, when identifying the solution for developing software for their custom requirements, many factors can come into play.

Software Development Cost Factors

Once they define their goals and the type of solution they want to develop, they can narrow down the costs depending on the factors affecting them.

Here are the factors that make up custom software development costs:

1. Labor Costs

While developing custom software, the development team has a huge responsibility. They have to bring a nascent concept to life and convert it into a working model.

Stagewise development will take more time and effort as the team has to work on one aspect. For example, they will be working on building an architecture before moving on to the next phase.

On the other hand, a simultaneous process will take more labor as there would be multiple developers working on developing and designing a part of the software. The latter method can be time-friendly but will consume more labor resources and expenses.

2. Infrastructure Costs

The infrastructure entails the functionality of the app, which is the most important part of maintaining the software. Organizations have to decide how they want to build the software depending on the materials used, the required expertise, and the time.

A simple application will require fewer resources, and a complex one will need more resources. For example, suppose you’re building software where each staff member needs to open their profile to carry out business activities.

Such software would need more scalability as the staff members keep growing. Since it would keep requiring constant upgrades, your organization needs more funding, too.

3. Tools and Licensing Costs

Building custom software would mean introducing a new product type in the market. Hence, your organization needs to obtain an operating license to carry out your business. Licensing fees are another factor that will affect your final development cost depending on what guidelines your certification would lay down.

Each country has different requirements that you have to follow. Your certification must entail all the materials used, resources, and the type of business you want to develop. It’s only after you send the proposal for approval that you can commence your business. Hence, you have to get your license and pay for it before you start your business.

4. Project Management Costs

Project management is an essential aspect to consider when estimating the costs of software development. It ensures that each phase of the project is properly managed and executed. It also defines how a project’s progress will be measured, its resources will be managed, and risks will be mitigated.

Hence, selecting the tools for managing projects will depend on the methodology that the development team selects. These include Agile, Scrum, and Kanban, which focus on iterative development that ensures frequent feedback throughout the project.

5. Testing and Quality Assurance Costs

Your software could be fit for iOS, Android, or both platforms. Before deploying it, it’s essential to take all these things into account, as each platform has a different number of devices. Depending on the devices you plan to deploy your app, the cost of software development will differ.

For example, Android has the biggest market and a higher number of devices compared to the other platforms. It would always be more expensive to deploy apps on Android. Similarly, if you plan to compete with popular apps in the market, your budget will considerably increase accordingly. 

6. Maintenance and Support Costs

Maintenance might be an extremely overlooked aspect because completing a project takes most of the time and effort. Even after completing the project, you would require minor upgrades, security enhancements, additional software features, and regular checkups to make sure the software keeps running smoothly.

When you partner with a software development company, their development teams often offer post-launch support. Sometimes, you would want to handle them yourself, too. Hence, software development costs would be affected depending on the option you choose for software maintenance.

4 Ways To Reduce Software Development Costs

You’ll always find some opportunities to reduce software development costs. To make the process cost-effective and cost-efficient, you can start by analyzing and estimating the costs. 

If you find it difficult to perform a cost analysis, a software development agency can help you perform a high-level initial scope. While your hunch can guide you, here are some recommended ways to reduce them:

1. Agile Development

Firstly, it’s ideal for making your organization adaptable to the changing needs of the project.

Secondly, it lets the team break down big, complex problems and components into smaller tasks called sprints. Dividing tasks into sprints makes the process easily manageable because it’s an iterative process. It works on continuous improvement by gathering and implementing feedback received from each stage before moving on to the next.

Hence, you can prioritize tasks as required and adjust these cycles accordingly to reduce the costly rework. It also allows you to stay focused on developing important features.

2. Prioritization

The discovery stage is a significant step where you research the business model, estimate its effect on costs, and understand technical requirements. Here, you can prioritize categorizing the size of your project from small, medium, and large-scale. For example, a small-scale project would only require a limited number of utilities and functionalities.

On the other hand, if you estimate it to be a large-scale project, it would require developing multiple interconnected databases, modules, and business logic. By practicing this tip, you can reduce the cost spent on creating features.

3. Regular Reporting

Keeping both the stakeholders and the team of outsourced software developers in the loop of communication will remove the chances of misinterpretation and misinformation. For example, if the UX/UI design doesn’t match your audience’s navigational patterns according to one of the involved parties – there are chances of miscommunication arising.

Having a change control system in place would assist you in identifying, documenting, analyzing, and authorizing changes as and when they occur in the cycle. This way, you can optimize and calculate the impact each change will have on the project.

4. Risk Management

To achieve organizational objectives, it’s essential to identify risks well in advance to ensure they can be mitigated in time. In software projects, the highest form of risk is mostly associated with overspending or costs being overrun.

When developing a large-scale enterprise-level project, reducing costs becomes essential to optimize both strategic and operational efficiencies. With a centralized source, organizations, and development teams can link these risks to actions and audit recommendations when things go wrong.

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Hidden Costs of Software Development  

Breaking down the software costs is a complex task that can often result in making wrong estimates. It happens either due to miscommunication, non-clarity of goals, or inability to convey them appropriately to the development teams. No two projects are the same, which can lead to a lot of hidden costs.

1. Understanding Hidden Costs

Many hidden costs can arise while calculating the expenses for maintaining software development projects. For example, license fees can sometimes become an obstacle. They could either be for business operations or for developers to ensure they complete their work properly.

Other times, you might have to buy or rent some servers, which can increase the final costs. Lastly, some projects require migrating existing data to integrated systems, which is an extremely complex job when you have large amounts of data to fit into new systems.

2. Common Hidden Costs

A good rule of thumb is to keep the budget for maintaining software development at least twice the initial project expenses. These would cover email subscriptions, web hosting, domain name certificates, and technical support from front-end, back-end, and DevOps developers.

For the most cost-efficient software marketing, it is recommended to keep aside a budget of at least thrice the initial development budget. These would be spread across social media, off-site and on-site SEO, content marketing, paid campaigns, press releases, and marketing team recruitment.

Some other costs include recurring costs related to cloud and third-party integrations, code refactoring, technical debt, and providers raising their costs unexpectedly.

3. Strategies to Manage Hidden Costs

Organizations can follow a few strategies to manage and offset hidden costs:

  • Try to achieve a balance between your in-house team and outsourced team to manage costs arising from recruitment and onboarding.
  • When you face unexpected resignations, staff augmentation is a good way to get quick access to qualified professionals, reducing employee turnover.
  • To manage increasing cloud costs, it’s best to identify areas for optimization and implement robust monitoring to track third-party usage regularly.
  • Introducing code reviews and pair programming can aid in identifying potential code refactoring opportunities to reduce technical debt.
  • Investing in automated testing and continuous integration can help in version control. 

Moon Technolabs Cost Estimation

Estimating project costs involves multiplying project resource costs by project time. However, we at Moon Technolabs also understand that complexities may arise as some resources may have multiple roles and only work part-time.

While it may seem inefficient to pay for a full-time outsourced team, costs are averaged based on individual work percentages. This approach allows access to diverse skill sets at a lower overall cost. Hence, we have put together this digestible version of cost estimation. It can also be used for any other type of project.

Type of Project

Mobile Application

Project Size Medium
Estimated cost $50,000 to $65,000
Time frame 3 to 4 months
Type New software: standalone for Android or iOS,
Moderate data collection, location features, cloud integration, push notifications, and administrative portal.
Hourly rates for developers $800 per day per developer
$8,000 per week for a team
Business Analysis  – 15% $1,000 to $10,000
UI/UX Design – 20% $1,200 to $8,500
Project Management – 15% $1,000 to $11,500
Development and QA – 50% $1,500 to $35,000
Total team 6 to 8

This formula provides a foundational framework for calculating software development costs:

Business Analysis + UI/UX Design + Development and QA + Project Management = Total Cost of Custom Software Development

Conclusion

Financial security is important in each aspect of our lives. Software projects also fall in the same category if organizations and development teams implement effective cost-management strategies. Forming the core of successful software projects, effective financial planning strategies always result in better on-time completion.

In the corporate world, where outcomes hold more importance than resources, careful management of expenses will always lead to better decisions. Better budgeting is the secret to achieving client satisfaction and user trust, as compared to projects with inadequate cost estimation planning.

FAQs

Outsourcing software development varies according to the development team’s location, expertise, onboarding, and offboarding expenses. Moon Technolabs has different outsourcing models to choose from: offshore, nearshore, and onshore. We also offer options for expanding your in-house teams. Depending on your custom requirements, hiring our team can cost you anywhere from USD 50,000 to USD 1,00,000. For precise estimates, you can get on a call with our experts for a FREE consultation.

A software project’s duration heavily depends on the type of software you want to develop. The prices vary for simple, medium, and complex or large projects accordingly. Industry and niche markets also come into play. However, for custom software, the timeline depends on your unique demands, the number of team members, and the scalability of your project. A typical timeline for a small-scale software project would range from 2 to 3 months.

The success rate of any software project depends highly on the budget. Many projects face budget overruns because they don’t plan their costs effectively. It’s highly essential to keep aside proper budgets for each phase of the project, risk management, and, most importantly, maintenance. Partnering with a software development company can help you navigate through all these areas smoothly to ensure your project becomes a success.

Yes, software project maintenance is a lot more complex than merely completing it. Usually, a project starts by creating the simplest version of the prototype, known as the Minimum Viable Product (MVP). As it gets launched in the market and receives user feedback, development teams incorporate the feedback to align with their interests. Maintenance and upgrades are a huge part of post-launch support, to which Moon Technolabs ensures strict adherence.
ceo image
Jayanti Katariya

Jayanti Katariya is the CEO of Moon Technolabs, a fast-growing IT solutions provider, with 18+ years of experience in the industry. Passionate about developing creative apps from a young age, he pursued an engineering degree to further this interest. Under his leadership, Moon Technolabs has helped numerous brands establish their online presence and he has also launched an invoicing software that assists businesses to streamline their financial operations.

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