How Much Does Custom Software Development Cost? Anatomy of Pricing for Custom Software Development
If you have unique requirements and your project requires specific features driven by the needs of your industry, then custom software development could be your solution.
A custom solution can meet client needs more effectively than off-the-shelf software and help your product stand out among competitors. But how much does custom software development cost?
This question is akin to "How much does a car cost?" - There is no single answer because the cost of software development depends on several factors.
The process of custom software development can be complex and requires a team of developers with specific expertise. If you don't have such specialists, you'll need to outsource the project to a software development company.
What is Complicated About Pricing Custom Software Development?
Many potential clients of software development don't know how much they should pay. You might be one of them. It can be difficult to understand what factors determine a given price, why it's higher or lower than expected, and how software development partners set it.
As a result, you may hesitate to commit to the collaboration from the start, even if the software development agency has only good intentions. They won't be able to align your expectations with the final price. That's why understanding the entire process is crucial for success.
What is the Average Cost of Custom Software Development?
It's fair to say that hundreds of factors influence the form and price of a project. For this reason, determining the average cost of software development is a challenging task.
But if we had to give a range, it would be from 5 million rubles to 25 million rubles depending on the complexity and type of project. The cost can increase or decrease based on development time, technologies used, and other individual aspects we'll cover in the following sections.
It should be noted that these figures refer to custom software solutions in 2023. Currently, it's difficult to forecast the cost of such a service in 2024 and beyond, as development speeds are constantly changing.
The price range offered by the chosen development firm is one thing, but there are many other factors to consider when determining software development costs.
What Factors Influence the Cost of Software Development?
Have you ever seen a family tree? We think so. Pricing for software development projects can follow the same principle. There are many branches that generate other branches, and pricing is determined in that way.
Type of Project
This factor influences other stages and at least provides a rough price estimate.
Different technical areas of each project can be listed. More precisely, each software development project consists of several core elements that generally require completely different skills. Typically, the larger the project, the more components are needed, especially if a back-end part is required.
First, determine whether the project is purely web development, mobile development, or both. There is no clear answer as to which is better or cheaper—it depends on business goals, requirements, and ultimately the budget.
Then, specify whether the project scope includes only back-end, front-end, or both. Below is a more detailed description of each part of the estimate.
Front-End Development
By "front-end development," we mean the visual part of a web application for end users or the UI/UX of the system's dashboard. Typically, we assume every site we create should be responsive (automatically scale when viewed on a mobile or tablet device). Under this assumption, the cost of software development usually increases by 10%. Additionally, your application can be optimized for mobile use, looking and behaving like a mobile app—here, progressive web applications come into play. The visual effects used, such as animations or custom transitions, as well as the complexity of communication protocols, also heavily influence the cost estimate.
Mobile Development
When developing a mobile app, ask your software development partner whether it will be built as a native or cross-platform project. The price can also depend on whether the project is in the development phase, not ready at all, or already completed. Additionally, possible integrations with external APIs—both in number and scope—can affect the final price.
Mobile app development can be simple or extremely complex and time-consuming.
That statement probably doesn't surprise you, but keep in mind that sometimes the cost of mobile apps can reach hundreds of thousands of dollars or more.
During the estimation process, the most important factor is the number of screens to be implemented. Each screen can add a small amount of work, which can eventually add up to significant time spent.
Android and iOS provide a large number of standard layouts and styles. If something custom is needed, additional effort is usually required.
As with front-end development, integration with the back-end is also necessary, as many communication protocols may be involved. There are also considerations such as push notifications and integration with external devices, typically via BLE (Bluetooth Low Energy). Developing a conceptually simple mobile app can turn out to be quite complex.
Back-End Development
Estimating the back-end part is especially difficult. Our recommendations can vary depending on the project. We typically recommend a serverless approach as it is the most scalable architecture for a back-end system.
The cloud solution provider is also very important. For example, both Amazon Web Services and Google Cloud Platform offer a significant number of ready-to-use components, which reduces development costs and potentially increases the solution's cost in the long run. Additionally, the price of external services connected to the system can affect the total—for typical service providers, we can propose our own implementation to lower overall project costs.
Projects run in the cloud are inherently more expensive because they require additional DevOps services (a team responsible for the technology itself, including deployment, monitoring, and ongoing product maintenance). This can increase the overall project cost by a fairly significant amount.
Thus, the chosen environment can also impact the final price. For example, how the back-end of a project must be defined may preclude implementation in the cloud. This can include the aforementioned AWS or GCP but is not limited to these technologies.
DevOps
Currently, DevOps activities are becoming increasingly important. When estimating a project, we consider these activities as an investment in future projects. DevOps can significantly reduce software development costs, especially for more complex projects requiring sophisticated back-end architecture.
The Configuration as Code approach allows you not to get lost in a multitude of configurations deployed across multiple hosts and not to worry about cloud provider configuration. The more complex the project, the higher the DevOps cost. On the other hand, you'll save more in the future, and maintenance costs will also decrease.
UI/UX Design
When it comes to designing the user interface and user experience, you need to ask yourself several questions:
- Do you have your own sketches or do you need a product designer on the team?
- Do you have a complete list of requirements and features needed for this project?
- How many different platforms are you targeting for your software?
- Is this a complex application? Specifically, how many different screens need to be prepared for the project?
- Does the application require animations or custom graphic solutions?
The answers to these questions will indicate whether a Product Workshop is needed to discuss technical details, the number of developers required for the project, and the amount of time needed to complete it. Naturally, all these factors will affect the final software cost.
Timeline and Deadline
There is a saying:
If it's fast and cheap, it's not good.
If it's good and cheap, it's not fast.
If it's fast and good, it's not cheap.
This certainly applies to custom software development.
It's important to remember that projects done "quickly" also involve a large number of dynamic changes. This is especially true in startup environments where founders lack experience in building IT projects.
It's worth noting that processes are one of the most critical elements of any organization. A fast pace can delay the implementation of viable processes and methodologies.
This leads to clients making irrational decisions and the team failing to implement appropriate recommendations and technical solutions, losing time on multi-level changes.
Nevertheless, it should be understood that if a project needs to be delivered immediately and you don't have time for research and testing, the price can be significantly higher. If there is more time for development, these resources can be allocated responsibly, leading to long-term cost savings. Collaborating with the team on project scope and timeline will allow you to choose the most optimal solution.
Team
Another factor determining the cost of implementing software solutions is the development team. The number of developers needed to "deliver" the project greatly impacts its cost, as even one extra developer can significantly change the price. Additionally, there is uneven distribution among developers, so experience and specialization (programming language and technologies) must also be considered and defined for pricing. It's important to account for changes, even if they are not permanent (may apply only to a specific phase) or seem minor.
However, the required skill set should be noted here.
A determining factor could be the programming language or target technology on which the application will be developed. Large projects require the involvement of a software architect who sets technical benchmarks and develops the project's technical documentation. We also recommend using an automated DevOps approach in projects, where each architecture component is configured and automated with minimal human intervention, increasing the initial project cost but providing significant savings in the future, as well as a substantial reduction in maintenance costs.
It's interesting to note that some clients, aiming to reduce costs, prefer to bring their own testers or exclude them from the testing team. The savings apparent at the preliminary stage can turn into significant cost increases in the future if the verification process turns out to be imperfect or completely absent.
Additionally, it's extremely difficult to estimate the cost of a project manager or QA, as it's not a fixed job—it depends on the team size.
By our estimates, the time spent by a project manager is 15% of the time spent by the programmers and designers on the project team. Similarly, QA accounts for 15% of the total cost, but for cross-platform mobile projects, this ratio increases to 30%.
Another topic is design—does the client bring a pre-designed mockup, or will it need to be redone or created from scratch by a product designer?
Complexity
Undoubtedly, the lion's share of software development prices is determined by the functionality of the application or website. Functional requirements define what the application or site must do and ultimately set the final price.
Each function has its own cost because it requires writing functions, developing their interface, installation, configuration, and staff training. The cost of each function varies, as do combinations of functions or the complexity of their components.
To accurately calculate the cost and choose appropriate solutions, you need to determine functional needs. If it's clear that a specific software development project will expand and be modified in the future, you can choose the solution more precisely, thereby reducing the cost of projected updates and upgrades.
Methodology
Project pricing depends on the process and methodology used. Using the wrong process and methodology can lead to a sharp increase in project implementation costs.
For example, if the team works using the Agile Scrum methodology with a client product owner, costs can be reduced.
Adopting an agile methodology and maintaining a correct interaction process between the product owner (possibly on the client side) and the team (usually represented by a project manager) can play a significant role in reducing project costs.
Earlier waterfall approaches lead to an overly rigid division of the process into stages, increasing the risk of wasting time on what later proves unnecessary or draws criticism from end users. If the project is developed using Scrum, additional time is required for meetings, which affects both cost and delivery time.
Moreover, changes cannot be made continuously, which is critical for many software development projects. All this affects the potential price.
Possible Pricing Models Used in IT
There are several pricing methods that different software development companies use to estimate product cost. Here we list three most commonly applied pricing models.
Fixed Price
Under this model, the price of work is estimated upfront. At this stage, changes cannot be made to the project without renegotiating the contract. Furthermore, because the price for specific work is set in advance, it requires very clear specifications and details from the client.
This option is possible for all projects whose cost can be determined before work begins. However, the project specification must be carefully developed, considering also the timeline, schedule, and scope of work.
Time and Material
The "Time and Material" method is the most popular and convenient way for both parties to calculate software development costs. It is a method based on actual time units worked by each employee on the project. The contract allows significant flexibility since changes can be made during development.
In this model, the client is regularly informed about the project status and receives a detailed progress report. They use this information to check the project status and make necessary changes.
This model is preferable for clients who have a general idea of the final product but cannot accurately describe the scope and timeline. Its advantage is lower overhead, as the client pays for the hourly cost of software development without additional risk costs.
FBSC: Fixed Budget and Controlled Scope
This is a somewhat hybrid option.
The goal is to have a good understanding of the project from both the client and the software development partner's sides from the very beginning. Using the client's input and the partner's experience, a responsible budget and timeline can be determined. With this approach, the overall project scope is not set in advance and can be changed by reordering individual tasks without compromising the timeline and budget.
Close collaboration with the client allows tracking the project's financial health, making it possible to adjust at will and improve product quality.
How We Solve the Software Cost Estimation Problem
The following quote best explains it:
"When we discuss pricing and project estimation with our potential clients, we always try to provide extensive feedback. Clients often face the issue of a wide range of proposals they receive. Adequate scope breakdown and justification of numbers, along with proper justification of technical solutions, are very important. We provide a lot upfront to make the difference - our estimation and pricing process is client-oriented because that brings the most value in the end."
PM, knowing the project scope exactly, writes it into user stories, for example, "as an app user, I would like to view statistics related to my activity." Then, based on these stories, specific tasks are assigned to specific people. The most experienced individuals with the deepest understanding of project requirements are selected for the project.
These tasks are then estimated in terms of time, and the total hours of the assigned people are multiplied by their hourly rate. Additionally, data from past work can be extrapolated to build an estimate for the current project if it is similar to a previous one.