A Detailed Guide for Estimating Cost of Custom Software Development

Avantika Shergil By Avantika Shergil  |  Aug 18, 2022  |  Outsourcing Software Development Web & Software Development
How to Estimate Cost of Custom Software Development?

As an entrepreneur, before you start any software development project, you will need to identify the project’s cost. In the end, it’s all about ROI (Return on Investment) in any business, and by estimating the cost of your custom software project development, you can generate a great ROI. Estimating the cost of a software project and staying within the budget is difficult, even for top software development companies, where the requirements are not clear and there are external factors that play a major role in defining them. Through this blog, we will ease this difficulty for you as decision-maker.

Estimating the Cost of Custom Software Development Based on Size and Type

Here are the two main ways to estimate the cost of custom software development.

Estimating Custom Software Development Costs Based on the Size of the Software

The size of the software is one of the biggest determinants of the cost of the custom software you want to build. As a thumb rule, the larger the software, the higher it will cost you. We have mentioned below a quick cost estimate based on the size of the software.

A small-sized software will cost around $15,000- $55,000 to build. It usually takes around 1-3 months to build such software, and a small skilled software development team is sufficient to build a small size software.

A medium-sized software build for mid-sized businesses can cost you $55,000-$450,000. A mid-sized software development team is required to build a medium-sized software, and it takes around 6-9 months on average to build a mid-sized software.

A large-sized software with multiple integrations intended to be used by millions of users speaking multiple languages and in different locations across the globe can cost anywhere in the pricing range of $550,000-$1,000,000. A large software development team will take around 1-2 years to deliver a large-sized software.

Estimating Custom Software Development Costs Based on the Type of the Software

There is a wide variety of software being developed today. The type of software you want to build has an overbearing effect on the development cost. Here is a brief overview of the software development price according to the type of software built.

  • SaaS product: $40,000 to $180,000
  • eCommerce software: $12,000 to $530,000
  • CMS software development: $8,000 to $52,000
  • CRM software development: $15,000 to $53,000

The crux of the matter is that the cost of developing a software depends on the features you want in your software, the size of the software and the level of customization required while developing the software.

Factors Affecting the Cost of Custom Software Development

Custom software development is costly is one of the top software development myths. By knowing the factors that affect your custom software development cost, you can get more clarity on their impact on the development cost of custom software. We will now see the most critical factors that impact the cost of your software development project.

Size of Software

The size of the software is one of the most significant factors that will affect the custom software development cost. As the size of the software increases, so does the expenses. The size of the software is interlinked with the number of intended users and the complexity of the project.

Software Development Approach

If you choose to work with an ideal software development company with a fast and reliable development approach, then the cost of your project will be less. Agile is one of the most popular software development approaches today. Agile helps reduce the number of hours spent on the project, thus helping to reduce the cost of software development.

Complexity of Software

Software is said to be more complex when it contains too many features and consumes a lot of processing power. A lot of experienced software developer hours need to be invested in building complex software, which increases the cost of the software development process.

The basic software development with a set of core features takes 1-2 months. The software with medium complexity encompassing advanced features integration, personalized UI/UX design, and device adaptation consumes around 2-6 months. The highly-complex software that is optimized for performance and hardware/software compatibility with complex development, design, and support incurs more than 6 months to develop.

Software Design Requirements

It is always a good idea to build an attractive design for your software, but an attractive design also comes with extra expenditure. More money needs to be spent on building elegant and attractive designs for your software as you need to invest more hours in building such designs.

Integration

Every software requires some third-party integrations to function according to the user’s requirements. As a rule of thumb, the more third-party systems you integrate into your software, the more the cost of developing the software will be. The software development price rises due to the compatibility issues that invariably arise due to integration.

Hiring Models for Software Development

The cost of custom software development depends greatly on the dedicated team you select to develop your custom software. Generally, the following are the basic team models which are used to hire finest software developers.

Hire Freelancers for Software Development

You can choose to hire freelancers to build your custom software. Hiring freelance software developers often proves to be a cost-effective option. The problem, however, with hiring freelance developers is that they can turn their backs on you at any time, leaving you and your software development project in trouble.

Hire In-house team for Software Development

As the name suggests in the in-house team model, you will need to hire software developers in-house to build your custom software. The in-house team model proves to be one of the costliest options as you will need to invest in office infrastructure and give salaries and other benefits to your in-house software developers.

Hire a Professional Company to Outsource Software Development

Outsourcing your custom software development project often proves to be the best option. Not only is it cost-effective compared to hurting in-house developers, but outsourcing is also more efficient and reliable than hiring freelancers. Outsource your custom software development to the best software development company which provides you with proper documents for software development and reduce the software development cost.

Location of the team

The location of the software development team also has an overbearing effect on the cost of custom software development solutions. When you choose to outsource your work to dedicated software developers located in Western Europe and North America, the cost to develop software will be higher than remote software developers residing in countries like India. The following is the per hour cost of hiring developers in various regions.

  • U.S.A- $90-$140
  • U.K.-$60-$90
  • India-$24-$45

Also Read: custom software vs off-the-shelf software

Size of the Software Development Team

The software development cost is directly proportional to the size of the team. In turn, the size of the team depends on the complexity of the project. For instance, if you want to build software that can run on multiple operating systems, has separate dashboards for different users, and has multiple new features, you will need to deploy a large software development team.

A small team would be sufficient if you want a simple customized software development solution with no complex features. Depending on the size of the team required, you will have to allocate your custom software development budget.

Engagement Models for Software Development

The engagement model of software development also plays an important role in deciding the final cost of software development. The following are the major engagement models used today to develop custom software.

Fixed-price model

In the fixed-price model, the scope of the project and the cost of the project is fixed. The fixed-price model works best when you have well-defined software project requirements, as, without a fixed scope, it is difficult to estimate the cost of the software development project.

The fixed-price model lets you monitor the project’s progress and release the payment accordingly. The fixed-price model for software development thus helps you to minimize the project risk. If there are significant changes in the project’s initial scope, then both parties need to approve the changes to revise the price of software development.

Time and material model

In most cases, businesses choose to go with the time and material model for their software development needs. This is because the scope of the custom software is rarely defined and keeps on evolving with the dynamic needs of the market.

Normally after studying the project’s scope, the vendor fixes an hourly rate for billing. The number of hours taken to build a project is then multiplied by the hourly rate, and the final software development cost is calculated.

One of the major advantages of the time and material model is that it provides flexibility. If there are any major changes in the scope of software development project, the software development agency needs to quote the extra number of hours that will be required to inculcate these changes.

Also Read: Custom Software Development is expensive, Really???

Approach to Software Development Cost Estimation

Top custom software development companies utilize certain methods for estimating the cost of custom software development. Basic knowledge of these budget estimation methods will help you assess whether the cost estimate you have received as the proposal is appropriate. The following are the various approaches for cost estimation.

Bottom-up estimation

The bottom-up cost estimation approach breaks down the cost of software development into small components. The components of the entire project are subdivided into several groups. These groups are then again divided into sprints. It is easy for the cost-effective software development firm to decode the cost of each sprint. The cost of individual sprints is then summed up to identify the total cost of the software development.

Analogous

The leading software development company segments software into several parts in the analogous cost estimation method. For large projects, the dedicated software developers launch the minimum viable product first and then estimate the cost of the other project components based on the price of the minimum viable product.

The analogous cost estimation relies on the data acquired from previous projects and historical data. This is why the analogous price estimation method is not considered a very accurate costing method, as it provides a rough cost estimate based on previous data and there are chances that the actual budget shoots way beyond than what was proposed in the proposal.

Parametric

You can hire best software developers who can benefit your business and provide certain methods for estimating the cost of custom software development.

Which questions do development companies ask for accurate software development cost estimation?

When software companies cooperate with business clients and before the agreement is signed, the Business Analysis team sits with business stakeholders for a detailed meeting to demystify everything from software development goal analysis to its development purpose and key requirements. Here’s the brief of what the company would ask and as a business owner what information you should provide beforehand so that you can get proper cost estimation.

What’s the final goal of your project?

As a business, you should describe the main objective of your software development project requirement along with software advantages and unique features that will appeal to the target audience.

What exactly do you want in terms of software development?

You should specify your digital needs, whether it’s website development to build an online presence, mobile app development to mobilize the business offering, or creating an admin panel to centralize the management.

Do you want to build software from scratch or integrate it with the existing systems?

In the case of getting your software built from the scratch, you should specify third-party integrations that you want to serve with its purpose. When a part of an existing system needs to get built, it’s essential to mention the details of the existing systems with which the newly developed software interacts so that inter-compatibility is created accordingly for a seamless process of the system.

Which gaps are you trying to fill with software development?

As a business, you should disclose the idea after signing the NDA. You can highlight the voids in the market that makes the users suffer or basically the pain points of the targeted audience, which you can bridge with your custom build software for your business.

Describe the user-facing part of software development.

In B2C software, it’s essential to develop the features in an intuitive way with which users will interact. Provide a list of all the features and determine which features are accessed by the users. Accordingly, the same process will follow for the B2B software as well.

What will be your UI/UX design needs?

The business software UI design complexity when increases, it surges the development hours and resources, and thus the development cost is directly proportional to the complexity of UI design . If UI design needs are pre-determined it will help have sound process to follow for designing and determining the timeframe required.

“How much does custom software development cost?” is One of the top questions to ask when hiring a software development company for your project requirement.

Accurate Software Development Cost Estimation is Important

Cost estimation is one of the most critical components of the software development life cycle. Accurate cost estimation is essential to ensure that you can keep the software development budget under tight control. You can get the most value out of your money through accurate cost estimation by experts.

At TopDevelopers.co, we can help you identify proficient software development companies that will provide you with an accurate cost estimate and follows software development guide. The cost-efficient software development firms listed on TopDevelopers.co have highly experienced software developers at a low cost. You can save on infrastructure, IT costs, and employee benefits when you hire top software development companies listed on TopDevelopers.co.

Related Questions to Software Development Cost

The basic custom software development cost could range from $35,000-$50,000. When the complexity increases, the development price goes up. It entirely depends on the number of features required, UI/UX design complexity level, developers’ location, and seniority level of the team involved in the project.

For effective planning of a long-term software development project that’s dynamic needs to be built in an agile fashion. The planning starts with project analysis, requirement gathering, planning features development in various sprints, and then is followed by the development, designing, testing, and iterations. Prototyping when requested by businesses, then it also remains a part of project planning.

The basic software development with a set of core features takes 1-2 months. The software with medium complexity encompassing advanced features integration, personalized UI/UX design, and device adaptation consumes around 2-6 months. The highly-complex software that is optimized for performance and hardware/software compatibility with complex development, design, and support takes more than 6 months to develop.

Custom Software Development is considered expensive because the development team, design team, BA and research team, and marketing team with different experience levels are involved to make the software bring business benefits. However, the one-time investment pays off in the long run, in dividends. The forward-thinkers clearly understand the investment to profit ratio in software development equation and spend optimally in software development to make the business step in with customer expectations, keep up with the market trends, and leapfrog the competition.

Hiring cost of the software developers depends on multiple factors like location of the developers, experience level, niche and industry expertise. The cost to hire software developers depends on the Software Development Outsourcing Countries that you choose as well. Depending upon the country the hourly rate of developers differs. For instance, hiring developers for your software development requirement from Asian country like India will be more cheaper than USA.

Avantika Shergil Avantika Shergil   |  Aug 18, 2022

An enthusiastic Operations Manager at TopDevelopers.co, coordinating and managing the technical and functional areas. She is an adventure lover, passionate traveler, an admirer of nature, who believes that a cup of coffee is the prime source to feel rejuvenated. Researching and writing about technology keeps her boosted and enhances her professional journeying.

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