Understanding Software Development Costs: A Complete Guide

Software development cost is the total expense incurred by a company during the development process from start to finish. This includes everything from developer fees to tools to licensing to maintenance. 

How much a software development project can cost? Well, a one-line answer to that question would be approximately $50,000 to $250,000. But if you seek a detailed overview of software development cost, this guide has all your answers.

We have curated everything you should know about software development costs, including the influencing factors, tools, techniques, strategies, and more. You’ll find everything here. 

Determining the development cost is essential as it will allow companies to understand the nuances and define the project scope. This knowledge will help them determine the budget before they begin the development journey. 

There’s a lot that goes into determining the software development cost. This includes the resources spent on digital tools, their integration, testing, and more. But before we go to that, let’s have a look at different kinds of development costs. 

Types of Software Development Costs

There are three types of software development costs: Direct, Indirect, and Hidden costs. 

Direct Costs 

These costs are directly linked to the software development process, like the developer’s salary, tool investment, licensing fees, etc. 

• Cost Of Hiring A Development Team

The first category under the direct cost is hiring costs. It can vary depending on the expertise, team size, and outsourcing destination. Companies today outsource software development services, which allows them to determine the cost relative to their currency.

Additionally, the size of the team also plays a significant role in determining software development costs; the larger the team size, the higher the cost incurred. 

An average in-house hiring can cost between $3000 – $4000. If there are multiple hires, the cost will significantly increase.  Also, the developer’s seniority level plays a huge role, as a junior developer might charge around $40/ hour. In contrast, a senior developer can go up to 3 times more, charging $100 – $120/ hour. 

• Cost Of Hardware And Software 

This is the cost of integrations during the development, choice of software, compatibility, kind of hardware and quality, durability, etc. These choices determine product quality and the final cost of development. 

Especially for those looking for customized software. Custom software development costs can go out of budget if not handled well initially. Also, the tech stack used can influence the price. Different technologies define the app’s complexity and, thereby, the total cost. 

While this can vary from company to company, a rough estimate of some basic integrations/ updates would be: 

1. Push Notifications – $600 – $800 (~25 – 30 hours)
2. Login Feature – $750 – $1100 (~30 – 45 hours)
3. Profile Editing – $1120 – $1500 (~50-60 hours)
4. Search Option – $300 – $500 (~20 hours)

When discussing the project with the service provider, many other intricate features can be added, and the overall software development cost can be determined.

• Licensing Fees 

Licensing is an agreement signed between the developer and the company. It is a crucial step as it allows the developers to monetize their hard work while making it more secure and reliable for the end user. 

The reason it’s a direct software development cost is because the company pays the licensing fee as compensation for the time, effort, and resources used by the developer while designing the software.  Using the licensed software, clients can enjoy reliable services and faster updates. 

• Training Expenses 

New software means training the employees to help them understand the technicalities for optimal utilization. It must be done well so employees feel secure after the integration. This ensures a smoother transition and better familiarity. 

However, it can get expensive and take up a major chunk of the software development cost. This is why planning a cost-effective way to design a training program that fulfills all the requirements without exceeding the budget is essential.

Here, the expense is not just about the money but also the time spent and planning. This is why one must prepare well and not just jump into software development.

Indirect Costs

These costs are non-monetary to software development. It includes infrastructure, management, documentation, etc.  

• Project Management

Effective project management is the key to a successful project, including software development. A well-managed project will fetch revenue and have a minimal impact on the final software development costs. 

Poorly managed projects will cause unnecessary delays, confusion, miscommunication, and financial loss. This will add to the software development costs in terms of funds and time. 

• Quality Assurance and Testing

While it may seem like a lot of time and effort, QA is needed to ensure that the solution meets the expectations. Doing so will help identify the gaps, bugs, or any other issues that can be resolved with minimal effort if detected in the initial stage. 

Also, regular assessments and maintenance checks will ensure the longevity of the solution. It can increase software development cost, but skipping this step would make the issue more complex and expensive. 

The QA and testing costs can escalate with the project’s complexity. However,  if we take an estimate,  it can be around 15 – 20% of the total budget.

• Documentation

This is like a bridge between the complicated codes and understanding those technicalities. As per its name, documentation records all the mandatory development-related information like the process, coding, and maintenance-related details. 

Not documenting the process will create major problems as this information is required for future scaling and updating of the app. It will increase the software development cost in the future and take up more time, making it a cumbersome process. 

A well-defined documentation will help developers and the company keep the software development as streamlined and budget-friendly as possible.  

• Communication and Collaboration Tools

Effective collaboration requires centralized communication systems. This implies investing in good communication tools. It is particularly vital if the company works with an offshore team of developers. 

This would further add price tags to the list of software development costs, but it is also a requirement for a fruitful product that offers years of uninterrupted services. 

Hidden Costs

These include maintenance, hosting, and iteration charges that are generally overlooked during the initial discussion but come up post-deployment. 

• Maintenance And Updates

No software is ready to function seamlessly forever. It requires regular maintenance and upgrades from time to time. This ensures that no operations are hampered due to the lack of resources. This might not come up immediately, but after a few years. 

Adding this to the list of software development costs would be beneficial so it does not come as a sudden expense afterward. Maintenance costs can go up to 15-20% of the original sum annually.

• Integration 

Today, all the applications are built with a Cloud or SaaS platform, which requires monthly fees for the hosting service by the Cloud or SaaS provider. That should also be considered during the budgeting to incorporate the same. 

Also, if one decides to go with cloud hosting, one must hire an expert to handle it, which adds another layer to already expensive software development costs. So, the budget must include the hosting cost to help the organization choose the right option. 

Cloud hosting can go from $50 – $1000 depending on the service provider, type of cloud selected, etc. Hosting on SaaS platforms can go anywhere from $1000 – $10,000. 

• Security Measures

The thing with all the digital integrations is that they need to be checked regularly for their security compliance. This is required to avoid any data breaches and vulnerabilities. Checking the system and adding the needed security integrations demands time and money. 

However, it again becomes another hidden cost that might not show up during the initial development phase but will eventually be required to ensure that the system is secure for both the organization and the clients. 

Factors Influencing Software Development Cost  

There are a lot of factors that influence how much a development project will cost. This is because people are looking for something other than off-the-shelf development solutions. 

They want the solutions to be unique to their business, i.e., custom development services.  Determining custom software development cost involves a lot of components. From the project scope to tech stack and methodologies to the size and origin of the team of experts, price depends on all these factors. 

Let us look at some of the factors that influence software development costs: 

1. Project Scope And Complexity

The app’s complexity is defined by the language, features, functionality, UI/UX, etc. Depending on all these things, the cost can be determined. The level of customization is also a major contributor to the software development cost. 

A simple app wouldn’t require any backend or modern tech stack, while the complicated ones would be loaded with features and contemporary integrations. The technically advanced features would require the experts on the team for seamless integration, which would further increase the development cost.  

Enterprise-level applications would require many integrations that increase the complexity of the overall process. It will make the process longer and will demand top-level skillsets and expertise. They require AI/ML-powered features and automation services to create a centralized system.

For instance, building a CRM platform would cost between $35,000 to $300,000, while a CMS platform can go up to $80,000. And an ERP system development would go from $50,000 to $300,000. These resources streamline the performance but would cost a fortune. 

On the other hand, a simple application with a singular functionality would have an easy-to-use interface, minimal features, and basic integrations. This can be done by a developer with a few years of experience, making the process easier and faster. 

Apart from the features and functionality, developers’ skillset also play an important role in determining the overall cost of the complete process. A highly skilled developer would charge more than someone just starting their career. 

2. Technology Stack 

The technology stack is the different combinations of technologies used for designing the software. And it can have a significant impact on the overall software development cost. 

Some tech stacks are expensive, and sometimes, there is a lack of expertise for the said technology.  For example, choosing a good cloud platform or API integration can be costly. However, in the case of Blockchain, the gap between the availability of experts and demand is what makes it pricey. 

Feature-intensive, complex applications are not stand-alone; they require elaborate integrations like backend databases, third-party integrations, APIs, and more. This advanced tech makes the end product excellent but expensive. 

A basic end product with minimal features will range from $5000 – $20,000, while a feature-rich solution will begin from $150,000. There are other mid-range options, which can be a good middle ground with something from both extremes; they can go from $30,000 to $ 100,000. 

This is why the tech stack must be determined in a way that fulfills the requirements without going over budget. It is also advised that, initially, one should start with the basic system and eventually integrate complex features based on demands. 

3. Development Methodology 

A person can use various development methodologies, including famous ones like waterfall, agile, prototype, etc. Choosing a suitable methodology is important because it can determine the software development costs. 

To explain them in one line – 

Waterfall – It is a linear approach, with every development phase split into a flowing chronological process. 

Agile – A big task is broken into smaller sprints to ensure regular testing and client feedback for a collaborative development project. 

Prototype – An archetype of the product is created, and then changes are made per the client’s requirements until it is perfect. After the prototype is perfected, the actual development begins.     

Every methodology comes with its pros and cons. The waterfall is easy to understand but is a rigid model that doesn’t allow testing till the development phase is complete. Conversely, Agile is the most popular and practical but lacks documentation or enough rigidity. 

Prototype is a fascinating option, ensuring the perfect result is attained in one go. However, the back-and-forth of creating a model product and making suggested improvements can prolong the development lifecycle. 

Depending upon the project requirements, the methodologies can either aid or hinder the process. So, deciding on one after thorough consideration and research is essential as it can drastically change the software development cost. 

4. Team Size And Skills 

The number of people onboard and their skills directly relate to the overall expense. The larger the team size or, more specific the expertise, the bigger the price. 

Ideally, a development team should have a developer, QA, and project manager. Depending on the project requirements, additional members, such as designers, database experts, business analysts, etc., can be added. 

The team size can be determined after the project’s outline and requirements are completed. This will help identify divisions in roles and thereby allow proper hiring. It is important to know that a bigger team size would imply more salaries and, thus, higher software development cost. 

This is why effective hiring is required for successful development and favorable outcomes. It will allow companies to benefit from expertly crafted solutions without burning holes in their pockets. 

Now that custom solutions are in demand, some might require a bigger team than others. Hiring more people or not recruiting enough can easily happen, whether on-site development or offshoring. The key is to understand and learn how to balance this thing out.

5. Geographical Location

With the help of outsourcing and offshoring, companies can now leverage the benefits of hiring from different time zones. This allows them to get quality software development services while staying within budget. 

This is because differences in geographical location will change the cost of living. Another aspect includes the availability of resources and talented professionals. 

Hiring from high-cost areas will make the process more expensive while hiring a similar talent pool from a low-cost area would significantly lower software development costs. This will have little impact on the quality of the product since the skills would be similar. 

For instance – Hiring a junior developer in America would cost $25 – $100 per hour, while in Europe, it would have a similar range between $30 – $75. However, the cost for the same in Africa would be $20 – $35.  The hiring cost is lowest in Asia, with $20 – $55 per hour for hiring senior developers. 

Another thing is the availability of recruits. In-house hiring is good but can be expensive. Also, there’s a chance that the desired skillset isn’t readily available. While in offshoring or outsourcing, no infrastructural or other hiring cost is involved. It also helps recruiters get the needed skillset with broader talent pool. 

Effective Strategies To Manage Software Development Costs

Now that all the possible ways of increasing the development price have been discussed, let’s understand how to manage them. With these strategies, the software development cost can be reduced significantly. 

So, the strategies for managing development costs are – 

Agile Development Practices

As seen in the section above, the development practice directly impacts software development cost. With Agile development practices like Scrum, the development team can break down the whole process into smaller parts. 

Combining it with Iterative Prototyping, an efficient methodology is ready to minimize cost, time, and effort. Since it allows developers to create and test the products in smaller sections, errors can be easily identified and resolved.

In Agile methodology, stand-up meetings are conducted between the development team and clients, so they are a part of the process through and through. Doing so will help clients have clarity about the end product and allow developers to easily incorporate any suggestions from the client’s end. 

Risk Assessment And Mitigation

With regular assessments, potential threats can be easily identified, which will further help in their rectification at an early stage. 

The risks are not just technical but can be related to methods, team practices, or cost estimation. When identified early, these risks can be resolved easily before becoming a bigger issue. 

Practicing these things will ensure a risk-free, streamlined development process. A reliable development service provider can help streamline this process. From risk management to appropriate mitigation measures, they can help with everything so that the clients enjoy a fantastic experience. 

Offshore Development and Outsourcing 

Outsourcing and offshoring is the concept of hiring a remote team of developers from a software development service provider, which helps lower the cost without compromising on the quality of the final product. 

Since the development team would be working remotely, the infrastructural, maintenance and other costs involved with in-house hiring would be eliminated. Offshore outsourcing offers additional perks; besides the benefits mentioned above, companies can also leverage the difference in cost of living. 

Offshoring is a good option for non-IT businesses as they can integrate digital solutions to match the market requirements without going for technical hiring. It is also suitable for small businesses as it allows them to expand without going overboard. 

Open Source Software And Frameworks

From reliability to flexibility and quicker development to simplified licensing, there’s much that open source has to offer. Open-source frameworks and software are a perfect solution for secure, budget-friendly development. 

Open-source means the software and frameworks are free, so development can begin immediately without any fee or money deposits. It also doesn’t have a vendor lock-in, thus giving more flexibility throughout the process. 

These resources are generally backed by a massive community of developers who regularly improve it through upgrades and updates. The active community often releases updates faster than other paid resources, ensuring the system is up-to-date. 

Additionally, since it is open source, the licensing is significantly simpler and cost-effective than other frameworks and software. These things reduce the software development cost, making it a perfect choice for those with a tight budget.

How To Estimate Software Development Costs 

Since software development can get very expensive, budgeting the whole process is essential. Estimating the total amount based on all the specifications and requirements helps provide clarity about the total expenditure. 

Doing so will help create a set investment plan and further help understand the total services against the returns. Various tools and methodologies can be used for estimating the software development cost. 

Some of these are: 

Using A Suitable Cost Estimation Model

Choosing the right model for estimating the cost is the first step for a successful project. Mainly when calculating custom software development cost.

• Empirical Estimation Techniques 

Empirical means something based on experience; the same is applied in this technique. Projects similar to the current proposals are taken up. Software development costs are assumed based on the relevant data and information.  

Then, using the estimation formulas, a rough cost is derived and provided during the planning stage. 

• Heuristic Estimation Technique 

Derived from a Greek word, Heuristic means “to discover.” And the technique takes the problem-solving approach. It establishes the relation between the different project parameters as a mathematical equation. 

This technique is especially beneficial in simplifying complex software projects. Understanding the relationship between different components helps provide a closer estimate of the total software development cost. 

• Analytical Estimation Technique

This estimation technique involves dividing the project into smaller parts and then deciding on a rough estimate based on the standardized valuation or past experiences. 

Based on the data, work is measured in the form of time. This estimation technique uses certain basic assumptions to derive the software development costs.   

Time Tracking

The time taken to complete a development project directly impacts the software development cost, i.e., the longer the duration, the higher the costs. 

This is why getting an accurate estimate of the required time is needed. These four steps can help calculate the total time required for a particular project. 

• Breakdown The Work

Breaking the whole project into smaller pieces will help get a clear picture of the time needed for every step. By doing so, everyone working on the project can clearly understand how much time is required for every step. 

The same can be allotted for a streamlined software development process. For example, an eight-hour project can be divided into smaller divisions of a few minutes or hours. This will help get a detailed view of how the project will flow. 

• Questions Over Assumptions 

Whenever a new project is assigned to a development team, asking questions about minute details is advised. Be it an in-house team or an outsourced one, getting things cleared at the initial stage of app development is always considered a better option than assuming everything is good. 

Things like how to proceed with the process, expectations, and estimated time should be discussed in the early stages of the project. This gives developers a clear direction to move forward. It also helps clients know precisely what they will receive as an end product. 

• Communicate 

The importance of communication cannot be emphasized enough. This can make or break a project. When offshoring, there’s a high chance that clients and the development team won’t be on the same page most of the time. 

This is why clear and consistent communication is essential. Making sure they have all the necessary information, are well aware of the requirements, and if they have any time constraints are some of the few basic questions that the clients can ask. 

• Discuss The Complete Process

Software development envelopes everything from initial planning to development and testing to deployment. Often, companies need to remember to discuss every stage step-by-step, and hidden costs come into play. 

A proper discussion, keeping everything in mind, will give clients a good understanding of an estimated timeframe and the software development cost. This is required to tackle the hidden costs in the initiation phase. 

Collaboration Platforms For Remote Teams

Hiring remote teams requires centralized collaborative platforms for communication, information sharing, and better management. It streamlines the process for everybody, including the development team and clients. 

Remote hiring is becoming increasingly popular amongst businesses for easy expansion and efficient processes. However, investing in industrial-level collaboration tools also requires financial investments. 

Easily accessible resources are needed to have a streamlined working environment among different remote teams and in-house resources. Various services offer numerous beneficial features in their paid plans specifically designed for businesses. 

Solutions like real-time conversations, online video conferencing, and a centralized messaging system are essential for managing remote teams. However, investing in these tools also requires thorough research. 

Gather information about all the necessary tools, which combinations would work best, and if their premium services are relevant to your goals, etc. Then, the company should invest in suitable remote team management tools for effective management and development. 

Future Trends And Software Development Costs

Every technological advancement becomes a catalyst for disrupting the business landscape, and software development is no exception. 

The growth of technology across varied industries and businesses is no news to anyone. Some are still the talk of the future, but the rest are right around the corner, ready to open new avenues for humanity. 

To match the speed of the ever-evolving business landscape, clients are looking for faster and more scalable solutions that can be easily incorporated into the system, which led to the rise of low-code development. Various features, including automation and countless coding solutions, also eliminate the need to hire experts. 

Emerging technologies like AI, IoT, cloud computing, etc., are transforming the whole software development methodology. These technologies make the process more efficient and help reduce software development costs through automation, smart suggestions, easy accessibility, and more. 

Everyone knows how AI has altered the business scenario with its intelligent tools. The technology is still evolving, and Generative AI proves it will continue to grow and transform many sectors and industries in the coming years.

| Bonus Read: Top 10 Profitable AI Business Ideas to Launch in 2024

These trends mentioned above will continue to reshape the digital landscape in innumerable ways, especially simplifying the nuances of development. This will directly impact software development costs, making these advanced solutions more accessible to everyone. 

Additionally, these futuristic solutions, centralized operating systems, and the rise of remote work culture are slowly becoming the foundations of a new digital era. Easy connectivity across continents and facilitated resource availability are beneficial upgrades for both companies and employees. 

Conclusion

Going into software development with a reliable partner is important. This ensures that all the financial and infrastructural investments yield fruitful results. 

And we at OpenXcell thrive exactly on this principle. Our client-oriented, detailed, and efficient software development solutions make us exceptional in the market. We provide varied software development models designed to suit various business models and requirements. 

From dedicated resources for long-term collaborations to a flexible model for incorporating changing requirements to a project-based fixed hiring model, there is an engagement model for every business. 

Connect on a free call with our experts to discuss your project and get a free estimate.