Top 10+ factors affecting software development costs

The across-the-board advent of Industry 4.0 has propelled software solutions to the top of the most-wanted product list in the early third millennium. For modern businesses, operating only in the physical world without having a virtual footprint spells lagging irrevocably behind their digitally-powered competitors. As for the IT sector and e-commerce, enterprise solution and application development are mission-critical elements of their functioning.  

Relying on the brainchildren of IT software development, businesses include related expenditures as an indispensable item in their budgets. However, to allocate a certain sum, managers have to know the costs of software development. 

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Software development costs: What you should know first of all

Before you start your cost estimation, choose whether you opt for a ready-made solution or build custom software. Which is better? You will get no definite answer to this question.  

Option 1 — Ready-made software

Off-the-shelf software can be kicked into operation right after it is acquired and deployed. The vendor guarantees its security and updates, and the user community is always there to lend a helping hand. By the way, it is an expense-wise choice since out-of-the-box software is cheaper than the custom one. That is why it is what the doctor ordered for cash-strapped startups and small enterprises. 

However,  even when buying ready-made products, you may want to customize or integrate it. In this case, you will definitely need custom software development services.

Option 2 — Custom software

Bespoke software development cost is much higher. Why? Because you pay developers to build a one-off solution that will suit you to a tee. You can fill it with functionalities you need and forget about paying for features you will never use but get as a part of the bargain (like it happens with boxed software). Besides, you can consider scalability beforehand to enhance it in case your company outgrows its initial potential.  

Moreover, you don’t have to renew licenses or splurge on add-ons once you decide to upgrade it. Finally, you will be the sole owner of the application built to your order with the prospect of selling it to third parties. 

If you think that a custom product fits you better, go for it. But what about its cost?  

In case your organization has an in-house IT department, the solution you want to build will cost you nothing. However, you might need some additional resources, skills, and expertise to complete the project. You will just continue paying salary to your tech personnel and search for additional IT staff.  But even before this step, you should know what ultimately conditions bespoke software costs. 

The Discovery phase allows us to correctly estimate your project in terms of price and time. Learn more. 

Key 10 factors affecting custom software development costs

Having completed a hundred software projects, we are well aware of the aspects to consider while calculating software development costs. 

Factor 1 — Type of work done by the development team 

There are three basic tasks IT companies can perform for you. Each of them requires a different level of effort and amount of time (and consequently, dev pricing). Conventionally, custom software development is thought of as an endeavor called to produce a totally new solution from scratch.  

However, customers may have a legacy solution that needs upgrading and revamping. Migrating the on-premise software to the cloud may be considered a subtype of this modernization task. Lastly, clients can hire an IT team to integrate a new system into their existing environment or connect two or more solutions to work well with each other.  

Factor 2 — Type of solutions to build 

Many people equal software development with app building and thus, speak of application development costs as a benchmark. However, a mobile or web app is only one type of software product.  

Other solutions include:

• Content Management Systems (CMS)
• Enterprise Resource Planning (ERP) systems
• Customer Relationships Management (CRM) systems
• Websites (very often e-Commerce ones)
• Core banking systems
• Software as a Service (SaaS) products

Each of them involves various levels of software development expense — from the modest CMS and e-stores (between $20,000 and $50,000) to the big-ticket items like CRM and ERP (up to $600,000).  

Factor 3 — Project’s business domain  

The industry a solution will operate in is also an important factor affecting the cost calculation. The priciest items are developed for the banking and financial sphere (because of the high-profile security required for such solutions) as well as for healthcare, whereas the know-how in logistics and retail is generally more affordable.  

Factor 4 — Project’s complexity and scope  

The project’s scope and complexity are related to the number of functionalities, their intricacy, and customization level if it goes about building a new solution. In case the project involves upgrading legacy software, it means the gamut of changes it requires. When you deal with hydrating the cloud, you should realize the volume of data to be migrated. According to these criteria, custom solutions are divided into four types. 

Small

These are quick to accomplish since they boil down to introducing some minor tweaks to UI or fixing elementary bugs in existing solutions. As a rule, the client explains what they want, and in a stipulated time, they are presented with the results.  

Medium

Here belong primitive apps or sites with a limited number of basic features. It is a project with weekly check-in sessions, milestones, and deliverables to be achieved. 

Large

Building solutions of this kind requires multiple integrations, dealing with a database component, and tackling security issues. Multi-platform apps are a great example of projects of such a type. In this case, the client-vendor interaction is more robust being conducted on a daily basis, as a rule.  

Enterprise

Commonly, these projects are grounded on an underlying framework and presuppose top-notch security measures, logging, and providing data integrity. For instance, a mobile app like Uber. They require a big team that would work on a solution for quite a long time, during which regular meetings with each group within the team are scheduled as well as monthly all-hands get-togethers. Naturally, such endeavors call for high-profile management.  

It goes without saying that the more complex the project is, the greater the average software development costs are.  

Factor 5 — Platform 

It comes into play when you are building a mobile app. Since there are two operating systems existing today (Android and iOS), you should choose which type of mobile device it will run on. Of course, you can make it available for both categories. In this case, you will have to create two apps. Why? Because each platform-reliant product must be built with different tools and programming languages. 

This pricey option of developing two native apps can be countered by cross-platform app development when you build one app to fit both systems. Being considerably cheaper, such apps can’t beat native ones in terms of performance, speed, and UX, though.  

For web apps, the choice of a system (Windows, Linux, or macOS) isn’t that critical since Python, JavaScript, and other programming languages utilized to build them are platform-independent. 

Factor 6 — UI/UX design 

Software products (especially mobile apps) should be user-friendly in functioning and attractive in appearance. Otherwise, people will abandon them almost at once. That is why customers pay much attention to buttons, colors, fonts, and icons their future solution will contain as well as to the foolproof navigation and no-sweat usage it should manifest. Taken to the highest possible level, all of these can add to the development cost significantly. 

Factor 7 — Back-end  

Architecture and know-how inside the gadgets are called to provide what was mentioned in the previous section. Besides, modern software seldom works in isolation, being connected to third-party resources and external environments (payment gateways, geolocation, mapping, EHR, etc.). To unite them all into one system, a range of APIs must be employed, and bespoke software is to be custom-built as well.  

Factor 8 – Integrations 

As mentioned above, often, software products are connected with other software solutions like APIs, payment gateways, various modules, etc. The need to integrate software also impacts the cost of development. Be sure to inform your vendor that you will need such integrations before the project starts.

Factor 9 — Tech stack used 

To appeal to a greater audience and upgrade task-solving potential, modern software makes extensive use of state-of-the-art technologies. If you want to include into it BI, AI, ML, blockchain, IoT, or any other latest know-how to enhance your product, you should be ready to pay a pretty penny for it. 

Factor 10 — Testing applied 

The more elaborate the testing procedure is, the surer you are that the solution will operate seamlessly and have no bugs. But the scope of testing undertaken by the QA team is in direct proportion to the sum you have to fork out for it. 

To assess the size of the budget to allocate for building a piece of software, you should perform a cost breakdown in the enumerated aspects. Yet, they are insufficient for an accurate estimate of the future project.  

Related article:

Custom development vs off-the-shelf software: What is the main difference?

Other important factors to consider when gauging software development costs

All the above-mentioned bullet points are project-related (internal) factors affecting the overall price tag. However, any cost estimation example would be incomplete without taking into account the following developer-related (external) issues. 

Team composition 

The number of people required to see the project through depends on the key internal factors (mainly on the scope of the project) as well as on the urgency of the undertaking. The core team includes a software developer, a UI/UX designer, a QA tester, and a project manager.  

More complex endeavors would necessitate increasing the number of these specialists (not one but two or three devs and designers) and/or enlisting the services of a DevOps engineer, a business analyst, a product manager, etc. In this case, the total number of employees on your payroll would grow from 3-4 to a dozen or even more.  

Solid outsourcers have an adequate roster of all those experts you can choose from depending on the rates charged. For instance, our team is transparent in software development pricing, offering to hire staff according to a seniority level matrix. The latter shows the position of the developer in the rate card that is conditioned by their skills and experience.  

IT staffing services are much more than just hiring the required developers. It’s a complex service that brings lots of added value.  

Project duration 

It seems obvious that the longer the project takes to complete, the greater sum you will have to shell out. However, finding the golden mean in terms of terms (the pun is intentional) is essential. On the one hand, you should see to it that the vendor doesn’t stretch the project deliberately to prolong the payment period. On the other hand, spurring the developers to finish the work on short notice may result in the poor quality of deliverables and prove the truth of the statement “sooner done costs more.” These overheads will have to be covered to remedy the inadequacies.  

Engagement model 

There are two key engagement schemes providing maximum flexibility both for the customer and the development team.  

• Time and material model. It works perfectly when the customer isn’t sure about the scope of the project, and the final list of features is still a moot point. So, the client pays for the number of materials and hours developers require to accomplish the task. If they come up with some new idea as to the software piece to be created or some initial plans appear to be unachievable, the alterations are introduced on the hoof and are charged for correspondingly.  
• Dedicated team model. This scheme gives the customer greater control of the project implementation because, in this case, you don’t outsource the work but rather recruit IT staff. Then you pay them on a monthly basis and employ their skills at your discretion.  

Being quite distinct in application mode, these cooperation patterns aren’t that unlike in software pricing. In fact, the chosen model affects not the overall sum charged but payment frequency. 

Hiring options 

Here you will also face a dilemma whether to delegate the entire development mission to the outsourcer or hire only those IT specialists whom your in-house personnel lack. The latter option is known as outstaffing or staff augmentation, and it is relevant for high-tech companies or large-size businesses with an IT department of their own.  

Location 

Properly speaking, it is not about geography but about the hourly rates charged by companies from different countries. These rates differ because of several aspects that characterize economies and living standards of respected countries, including salary level, purchasing power (aka the cost of living), tax regime, office maintenance expenditures, auxiliary services (accountants, HR, etc.) expenditures. According to them, the globe is divided into several regions within which the hourly rates are more or less equal. 

Australia, Western Europe, and North America

The high level of development of the countries located here determines exorbitant hourly rates of specialists (around $100). That is why customers from these places typically hunt for outsourcers elsewhere. 

Latin America

Located in the same time zone as the USA and Canada and offering IT service for $35-55 per hour, this area is a perfect nearshore place for clients from the north of the continent. 

Africa and South Asia

With its more than affordable $15-25 per hour on average, these two locations would be a good outsourcing destination if not for the questionable quality of coding they are notorious for. 

Eastern Europe

Having a huge competent talent pool and minimal time difference from the countries of Old Europe, this region is now turning into an IT hub. Why? Because its moderate hourly rates ($25-50) and excellence of performance make it ideal as far as the price/quality ratio of software development is concerned. Ukraine, Poland, Romania, Hungary, and the Czech Republic stand out among the rest, offering a broad gamut of services by qualified developers fluent in English. 

Choosing between countries of this region to outsource your software project, make sure to give Russia and Belarus a wide birth. Since their joint aggression against Ukraine, they have been subject to drastic international sanctions that caused severing all ties with perpetrators and triggered a massive exodus of tech brains. The consequences of these major upheavals are likely to spell the imminent degradation, if not the demise of the IT sector in these two countries and colossal risks for international customers who would dare to cooperate with them.  

How to estimate software development costs

Many sites offer a cost calculator for custom software development. In our view, trying to use it to fathom your expenditure down to a penny is a bad mistake. Firstly, every project is unique with too many variables to consider. So, embarking on a calculation endeavor, you will arrive at a ballpark figure at best, which will undergo considerable correction (usually upwards).  

Secondly, it makes sense to get down to numbers only when you have selected a vendor. And any solid IT outsourcer would embark on your project with a discovery phase. At this vital preliminary stage, experts map out the number of hours to develop various elements of the solution and thus enable accurate estimation of the future product’s price tag. 

Key takeaways

Custom software products can be a game-changer in the fierce competition that exists in most digitally-driven industries today. To calculate the costs, you should heed many factors pertaining both to the product you are going to commission and the outsourcer who will implement it. The hourly rates it charges are the benchmark for making any overall cost estimations.  

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