How much does software development cost? The anatomy of custom software development pricing

30 June 2021
Marcin Śpiewak
Marcin Śpiewak
CTO
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Contents

  • Intro

If you have individual demands and your project calls for tailored functionalities due to the requirements of the industry you operate in, then custom software development can be your answer.

A customized solution may address your customer’s needs more effectively than pre-packaged software would and allow your product to stand out from the competition. But how much does a custom software development cost?

This question is similar to “How much does a car cost?” – there is no one answer, as software development cost depends on several factors. 

The custom software development process can be intricate and may require a development team with certain know-how. If you do not have such experts on board you will have to outsource the project to a software development company

Hence, in this article, we will go into detail and break down custom software development pricing by detailing what elements contribute to it, how it may be structured, and what factors we take into consideration when putting a price tag here at CrustLab. 

What is tricky about custom software development pricing, then?

Many prospective software development clients are unsure of how much they should be paying. You may be one of them. It may be hard for you to understand what factors contribute to a certain price, why it is higher or lower than expected, and how the software development partners determine how much money to charge. 

As a result, you may be hesitant to fully commit to the overall partnership at the outset, even if a software development agency has nothing but good intentions. They are unable to reconcile your expectations with the price to be paid. This is the reason why understanding the complete process is crucial to success.

What is the average cost of custom software development?

That would be a fair statement if we said that hundreds of factors influence the shape and price of the project. For this reason, providing an average cost of software development appears to be a challenge. 

But if we were to specify a range, it would be something between $50,000 to $250,000, depending on the complexity and type of project. The cost may rise or fall based on the development time, used technologies, or other individual specifications that we closely discuss in the next sections of this article.

It is to be noted that these numbers apply to custom software solutions in 2022. At this point, it is difficult to predict the price of such a service in 2023 and further on, as development rates constantly vary.

The price range of the services offered by a selected software development company is one thing, but there are many other factors that software companies need to consider while establishing the software development cost.

What factors affect the cost of software development 

Have you ever seen a genealogical tree? We believe so. Pricing of software development projects may follow the same principle. There are many branches that give rise to other branches, and pricing is exactly defined in this way. 

When we estimate software development costs, we take into account the following key aspects of every area.

Elements of the custom software development pricing

Type of the delivered project

This factor influences other stages and enables at least some initial estimation in pricing. 

We could enumerate different technical areas of every project. To be more precise, we could say that every software development project consists of a few core elements that typically require a completely different skill set. Typically the bigger the project, the more necessary components it requires, especially when a back-end part is needed. 

First of all, it is essential to identify whether the project refers only to web development or mobile development, or maybe both. There is no straightforward answer to what is better, or what is more economical – it depends on the business goal, requirements, and budget at the end of the day. 

Then, it should be indicated whether the project scope refers only to the back-end, front-end, or both. Below you will find a more detailed description of each part of the estimation.

Front-end Development

By ‘front-end development’ we mean a visual part of a web application designed for the end-users of your system or related to the UI/UX of your system management panel. As a general rule, we assume that every website we create needs to be responsive (scales automatically when viewed on a mobile or tablet device). If this assumption is made, the software development cost is typically increased by 10%. In addition, your app might also be optimized for mobile use and look and behave like a mobile application – here is where Progressive Web Applications come into play. Additionally, estimations are strongly influenced by the visual effects used – animations or custom transitions – and by the complexity of communication protocols.

Mobile Development

For mobile app development, it should be specified with help of a software development partner whether it will be developed as a native app or as a cross-platform project. The price may also depend upon whether the designs are still under development, not ready at all, or already completed. Additionally, potential integrations with external APIs – both in terms of their number and size – can also have an impact on the final pricing. 

The development of mobile applications can be simple, yet it can also be extremely complex and time-consuming. 

Likely, the sentence did not shock you, but please note that sometimes mobile apps could cost even hundreds of thousands of dollars and more. 

During the estimation process, the most important thing that is noted is the number of screens that will be implemented. Every screen could add a little scope of work that could result in a substantial amount of time being spent.

Android and iOS provide a large number of default layouts and styles. If you need to create something of extraordinary value, additional effort is usually required. 

In the same way as the front-end development, integration with the back-end is also essential because multiple communication protocols may be involved. There are also considerations such as push notifications and integration with external devices, typically over the BLE (Bluetooth Low Energy). Developing a conceptually simple mobile application could prove to be a challenge, as you can imagine. 

Back-end Development

It is particularly challenging to estimate the back-end part. Our recommendations may vary depending on the project. Usually, we recommend a serverless approach because it is the most scalable architecture for the backend system. 

The cloud solution provider is also very important. For example, both Amazon Web Services and Google Cloud Platform provide a significant number of ready-to-use components that reduce the cost of development and potentially increase the cost of the solution in the long run. In addition, the price of external services connected to the system can also be affected – for some typical service providers, we can offer our implementation, reducing the project’s overall cost. 

Projects run in the cloud cost more by definition since it requires extra DevOps services (the team that is responsible for the technology itself, including implementation, monitoring, and ongoing maintenance of the product). This may increase the overall project pricing by quite a considerable amount of money. 

So, the selected environment might also have an impact on the final price. For example, the way the project’s back-end should be specified precludes the possibility of the project being a cloud-based one. This may include the implementation of the aforementioned AWS or GCP but is not limited to those technologies. 

DevOps

Nowadays, DevOps activities are becoming increasingly crucial. When estimating a project, we consider these activities as an investment for future cases. DevOps can significantly reduce software development costs, especially when it comes to more complex projects that require an advanced back-end architecture. 

The Configuration as a Code approach ensures that you will not get lost in the multitude of configurations deployed on multiple hosts, nor will you have to worry about the configuration of your cloud provider. The more complex the project, the higher the cost of DevOps. On the other hand, you will save more in the future, the maintenance costs will also be reduced.

UI/UX design

When it comes to User Interface and User Experience design, you need to ask yourself a couple of questions:

  • Do you have your designs or need a product designer on the team?
  • Do you have the complete list of requirements and features necessary for this project?
  • How many different platforms do you want your software to be designed for?
  • Is it a complex application? Namely, how many different screens do we have to prepare for the project?
  • Do you want your app to have animations or custom graphic solutions?

Answers to these questions will tell us if we have to organize Product Workshops to discuss the technical details, indicate the number of developers that should be engaged in the project, and specify the amount of time needed to complete it. As a matter of course, all of these factors will affect the final software cost.

Timeline and deadline

There’s this saying:

If it is quick and cheap, it isn’t good.
If it is good and cheap, it’s not quick.
If it’s quick and good then it’s not cheap.

This certainly applies to the development of custom software. 

Among the most important points to remember is that projects that are implemented “quickly” are also characterized by a lot of dynamic changes. This is especially evident in the startup environment, where the founders lack experience in creating IT projects.

It is important to note that processes are among the most important elements in any organization. A fast pace can delay the implementation of viable processes and methodologies.

This results in the client making irrational decisions, and the team not having time to implement appropriate recommendations and technical solutions, thereby wasting time making multi-layered changes.

Nevertheless, you should be aware that if your project must be delivered immediately, and you do not have time to research and test, the price may be considerably higher. If there is still enough time for development, those resources can be allocated responsibly and lead to long-term cost savings. Working with the team on the scope and deadline of the project will allow you to choose the most optimal solution.

Team

Another factor that dictates the cost of introducing software solutions is the team behind the development. The number of developers necessary to “deliver” the project is very important for its cost because even one extra developer can cause the price to vary significantly. Furthermore, there is an unequal distribution of developers, so the years of experience and specialization (programming language and technologies) should also be considered and determined for the pricing. It is important to take the changes into consideration, even if they may not be constant (may only relate to a specific stage) or seem small. 

What should be highlighted here, however, is the required set of skills.

The determining factor may be the programming language or the target technology that will be used to develop the application. Large projects require the contribution of a Software Architect, who sets technical guidelines and drafts technical project documentation. Also, we recommend an automated DevOps approach for projects, where each component of the architecture is configured and automated with only minimal human intervention, which increases the initial cost of the project but will ensure considerable savings in the future as well as a significant reduction in maintenance costs.

It is interesting to note that some clients choose to implement their own testers or seek to be excluded from the testing team in order to reduce costs. Savings that appear to be made at the preliminary stage can result in a significant increase in costs in the future if the verification process is flawed or nonexistent. CrustLab, as a supplier, is unable to provide a guarantee for the delivered products in such circumstances. This may result in a further increase in costs.

As well, it is extremely difficult to estimate the cost of a Project Manager or QA work since it is not an ongoing effort – it depends on the size of the team.

Our estimate for the Project Manager’s work time at CrustLab is 15% of the time reported by the programmers and designers who are part of the project team. Likewise, QA accounts for 15% of the total cost, but for cross-platform mobile projects, this ratio increases to 30%.

Another topic is the design – whether the client brings a pre-designed layout or whether it will need to be reworked, or created from scratch, by a product designer.

Complexity

There is no doubt that the lion’s share of software development pricing is determined by the functionalities within a given application or website. Functional requirements define the functions that an application or website must fulfill, and determine the final price.

Each function has its own costs, since it requires writing functions, designing their interface, or installing, configuring, and training the system. The cost of each functionality differs, as do the combinations of functionalities or the complexity of their components. 

To be able to calculate the exact price and select the appropriate solutions, it is important to determine the functional needs. When it is evident that a particular software development project will be expanded and modified in the future, the solution can be chosen more accurately, thereby reducing the cost of foreseeable upgrades and modernizations.

Methodology

Project pricing is sensitive to the process and methodology used. Failure to use the correct process and methodology may result in a dramatic increase in project implementation costs.

For example, if the team performs the Agile Scrum methodology with the client’s Product Owner, the costs might be reduced.

The adoption of an agile methodology and a proper collaboration process between the Product Owner (possibly on the client side) and the team, usually represented by the Project Manager, may be instrumental in reducing project costs.

CrustLab prices all projects inclusively of a Project Manager, testers, programmers, and designers. It is a comprehensive team that works based on the agile methodology.

Earlier Waterfall approaches cause the process to be overly rigorously divided into stages, which increases the risk of time being wasted on things later found to be unnecessary or criticized by the end-user. If the project is developed using scrum, an extra amount of time is required for meetings, and this will reflect both in the cost and the duration of delivery. 

Furthermore, it is not possible to continuously make changes, which is crucial for many software development projects. This all impacts the potential price.

Possible billing models used in IT

There are several pricing methods that different software development companies use to perform a cost estimate of the product. Here we provide the three most commonly applied billing models.

Fixed-price

For this model, the price for the work is estimated in advance. At this stage of work on the project changes cannot be made to the project without renegotiating the terms of the contract. Moreover, due to the fact that the price for particular work is set in advance, it requires very clear specifications and details from the client.

This option is available for all projects whose value can be determined before the start of work. However, the project must be considered with careful preparation of its specifications, taking into account also its time of execution, its schedule, and its scope.

Time & Material

Time & material is the most popular and most convenient method of settling software development for both parties. It’s a billing method based on the time units actually worked by each employee in the project. The contract allows for a good deal of flexibility, as changes can be made during the development. 

In this model, the client is regularly informed about the state of the project and receives a detailed report on its progress. It uses this information to verify the state of the project and to make any changes that may be necessary. 

This model is preferred by customers who have a general idea of the final product but are unable to accurately describe the scope of work and the timeline. It has a clear advantage in reducing overhead since the client pays the software development cost per hour without any added risk costs.

FBSC: Fixed budget & scope controlled

That’s a little bit of a hybrid.

The goal is to have a good understanding of the project at the beginning of it, both on the client’s side and a software development partner’s side. By using input from clients and the experience of a software development partner, a responsible budget can be set, and a defined timeline can be determined. Thanks to this approach, the scope of the entire project is not set up front and can be altered by reprioritizing individual tasks without affecting deadlines or budgets.

Close cooperation with the client allows them to monitor the financial condition of the project, so they can make adjustments as they may see fit, making the product a better one.

Custom software development pricing models

How we tackle software cost estimation at CrustLab

This quote could say it best:

“When we are talking about pricing and project estimation with our potential customers, we always try to give great feedback. Clients often face the problem of having an extensive range of offers they receive. An adequate split of the scope and justification of the numbers is crucial, as well as an appropriate justification of technical solutions. We give a lot from the very beginning to make the difference – our estimation and pricing process is customer-oriented since this is something that brings the highest value at the end.”

At CrustLab, pricing for the development of custom software is relatively straightforward and can be illustrated by a simple equation.

custom software development pricing equation

PM, knowing exactly what the scope of the project is, writes it into user stories, for example, “as an application user, I would like to be able to view statistics regarding my activities”. Based on these stories, certain tasks are then assigned to specific people. The most experienced people with the deepest understanding of the project requirements are selected for the project. 

These tasks are then time-estimated, and the total hours of the engaged parties are multiplied by their respective hourly rates. Additionally, it is possible to extrapolate data from past work to build estimates for the current project if the current project is similar to a past one.

Let’s estimate your software development costs together! 

Pricing for custom software development may vary according to circumstances.

Depending on the nature of the project, its complexity, and the intricacy of the requirements established before the start of the development process, a suitable billing model and pricing are selected.

Sometimes you can opt out of some things, add others later, and you can also combine billing methods. In other instances, the result is entirely determined by how long it takes to perform the work and what the deadline is. These are very specific and individual arrangements that vary from project to project.

If you want to establish outsourcing software development costs, we are here for you. We will not only provide you with detailed cost estimations but also help you choose the most appropriate options for your project. Finally, we will take care of the whole product development process. Get in touch with us!

Contact us and get a free project estimation!

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