How to Calculate Software Development Costs
One of the main questions that worries anyone who decided to develop a software product is how much it costs. It’s not surprising. Proper financial planning helps to avoid many problems, evaluate your capabilities, and forecast the next steps for bringing the product to the market. In this article, we will consider the basic aspects affecting the development price, and also make a plan on how to calculate the cost of your project.
Factors affecting software development cost
Ok, many factors determine the cost of software development. It’s impossible to set a fixed price for services, so the price is set based on the developer’s rate per hour and the number of hours spent on development. But these are not the only factors. Among other non-obvious aspects affecting how you should estimate software development costs are:
- Type of software and its complexity
Of course, the cost differs depending on the type of software product you want to create. Mobile app or website? Digital wallet or exchange? It will require a different number of hours and specialists to develop each of these types of products. Complexity is an even higher factor which directly depends on the requested functionality. To create a software product, you first need to build its architecture based on requirements. After that, it becomes clear how complicated the development is, how long the process will take, and which specialists will you need. Remember the simple rule: the bigger number of screens you have the more work will be performed before the release.
- Development time
The type and complexity of a product affect the development process time, which is fundamental in pricing. The lighter the project, the faster it’s completed, and the less it costs. Much depends on the technology needed to create a product. For example, you want to create a mobile application. It’s hard to say right away how much it will cost to develop because there are several types of mobile applications. So, if you want to create a native app for several operating systems, the development will take efforts multiplied by two because under iOS and Android it will be necessary to create two different apps. Or you can order the development of a cross-platform hybrid app that will work on different devices. In this case, you will spend less money but will have some limitations in functionality. As you can see, development time directly affects the price, but even more factors affect the time itself.
Read more about how to choose the type of mobile app in our article All You Should Know Before Developing an App.
- Location and the type of development team
The development cost also depends on the type of development team. If you want to hire an in-house developer, then you will need to provide him with a workplace, equipment, and a social package, and this is an additional cost. Therefore, outsourcing and outstaffing are so popular in the world, when you can either simply delegate a project to a third-party team or temporarily hire remote employees to work on your project.
Developer rates also vary by region. It’s well known that in Eastern Europe and Asia, development is cheaper than in Western Europe and America. Of course, sometimes a low price can mean low quality, but a high rate can also not be unambiguously called the key to success. You can significantly reduce the cost of software development by choosing developers from Ukraine, Poland, and Slovakia, who are considered the best regarding price and quality.
- The seniority of software developers
Different software products require specialists of different seniority levels. Traditionally, developers are divided into Junior, Middle, and Senior.
- Junior developer is a specialist with a minimum experience of up to 1 year who can develop simple products.
- Middle developer has 1–3 years of experience and can independently solve complex technical problems.
- Senior developer with 5+ years of experience thoroughly owns the development process, knows how to implement complex features, and works with large-scale projects.
If you have a project with simple functionality, then why do you need to involve a Senior specialist on it? The more experience the developer has, the more expensive his services.
- Additional services
You should understand that a software product development service includes code writing, such services as design, business analysis, testing are often offered by companies as additional ones. Even if you work with a full-cycle development company, the cost already includes the rates of individual specialists. If you have a designer, then you can create the design yourself or if there is no designer, you need to be prepared to pay for the work of a specialist, which will increase the total cost. Please note, we don’t advise you to refuse the services of a business analyst and tester, otherwise, your product may not meet your expectations.
How to create a budget for your custom software project
How companies estimate software development project
We examined the main factors on which the development cost depends, but each company offers its own model for estimating the project. Having decided to work with an outsourcing company, you will come across three models: fixed price, time-and-materials, and a dedicated team. Each model has its advantages and disadvantages.
Fixed price model. This model is great for projects with a predefined list of tasks. The requirements are described in detail, the deadlines and the cost of all work are pre-set. The outcome of the project on such a model is completely predictable and understandable. The disadvantages of the model include the lack of flexibility, which is sometimes necessary, especially if the project is developed from scratch.
Time-and-Materials model. This approach refers to the pay-as-you-go model when you pay specifically for the work done. This is the most common model in outsourcing, which is flexible in setting requirements and teamwork. The customer sees what kind of work he pays for, how many hours have been spent on developing this or that feature, and what the result is.
Dedicated Team. The most flexible development approach that helps expand the in-house development team. The model is perfect for those who have engineers and just need additional specialists. The development team works on the customer side, who himself sets the developers’ tasks and monitors the process of their implementation. The customer pays monthly for each specialist at the agreed rate. Choosing this model, you should have experience in managing a development team and an understanding of the process, otherwise, this approach is not for you.
Software Project Cost Forecasting Plan
Now that you know what affects the cost of software development, you can predict how much your project will cost. So, start planning.
- Define requirements and work scope
Start exploring your future product idea and write down requirements. What features should your product have? What path will your user take in using this product? Do you need an integration with other services? Try to think through all aspects, and draw up a detailed work plan that is easy to estimate.
2. Determine the type of team
How will you build a development team? Do you have in-house engineers or not? Do you want to create a team within the company or outsource the project? Is flexibility in setting requirements important to you? Answers to these questions will help you determine the model of cooperation with developers, which means entering the right price market.
Read our new article 7 Reasons Why Outsourcing Software Development
3. Explore market prices
When you know what you are looking for, one or two engineers or a software development company, you can begin to study the market. On the Internet, you will find a lot of sources with approximate rates of developers by technology and regions. So, you can make a preliminary calculation based on the volume of tasks and rates of specialists.
Read our new article How to Reduce Software Development Сosts
4. Create your budget
Now that you know the price range, it’s time to decide on your own capabilities. How much money are you willing to spend on developing your product? Make your own budget, taking into account how much you can spend per month, laying an extra percentage. This step will be decisive for calculating the cost of development on your part.
5. Find a development team
It’s better to look for software development companies on credible resources such as Linkedin, Clutch, Good Firms, Crunchbase. Build your search based on your budget, reviews about the company, and its projects. You can estimate your project in several companies to have more options.
It’s easy to get lost in so many companies on the market and make the wrong choice. Read our How to Choose a Software Development Company article to make no mistake.
5 tips to reduce software development costs
And finally, 5 tips on how you can reduce the cost of development. Performing these simple manipulations will help you not to overpay for the product.
- Switch to outsourcing
Outsourcing will always cost you less than an in-house team. Additionally, you will just evaluate the result instead of devoting yourself entirely to the product development process. You can significantly save on rates by choosing a development team from Eastern Europe. Warning: in pursuit of a lower price, do not get into a situation where the quality of your product will suffer! Always check the expertise of the company you intend to work with.
- Draw up clear requirements
Clear and understandable requirements will greatly simplify and speed up the development process. And it’s up to you. Spend time developing a detailed technical task to avoid misunderstandings and further improvements.
- Prioritize features
Don’t try to develop all the features of the product at once. Create an MVP (Minimum viable product), a list of features that will make your product ready for testing on users. Additional details can be created over time after you start using the product.
- Find a good development team
Once again, be responsible for choosing a software development team. It’s unlikely that you will be happy to give the correction code to another company and pay extra time. Try to find specialists with good expertise proved by delivered projects.
- Test
Testing is our everything. Be sure to include a tester in the project. If a product has flaws, it’s better to fix it right away than wait for the project to finish and find that everything is working incorrectly.
And one last tip: don’t hesitate to start a conversation with a software development company. If you need to calculate the cost of the project, contact us through the feedback form, it will be more effective than reading 5 more similar articles on different sites. Appreciate your time, it’s no less valuable than money.
