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What Does Custom Software Development Means & How Much Does Custom Software Development Cost?

When your business grows and starts to handle more customers, sales & data, you’ll likely find that the software you were using earlier isn’t as efficient or effective anymore. That’s where custom software development comes in.

Custom software development has a CAGR of 7.93% and a potential growth rate of $31.76 billion by 2025, as per Businesswire.

More businesses are trying their luck in bespoke digital solutions with an impressive market. However, it is a costly affair and requires thorough planning & investment.

To help you analyze the definition & cost of custom development, we will cover the following in this article:

  • What is custom software development?
  • 7 Stages of custom software development
  • What is the overall cost of custom software development? The Quick Answer:
  • Factors Affecting Software Development Price
  • Standard ways of Custom Software Development Charges Estimation

Let’s start with the first & foremost query.

What is Custom Software Development?

Custom software development means that your business can get a program specifically designed to do what you need it to do. Thus, it saves time and money while increasing efficiency and eliminating headaches down the road. Technically, custom software development is anything that isn’t off-the-shelf Software. But when we talk about custom software, we’re usually referring to custom code.

You see, there are two ways to buy Software. The first way is to buy a license for an existing code and use it in your product or business. This Software is created once and then sold multiple times as many people get their hands on it. Lucid examples include Adobe Acrobat, Microsoft Office, Canva, etc.

It is known as off-the-shelf Software because its primary reason for being created was so it could be readily available at any time. However, sometimes businesses need something specific — something they can’t find on their own — and have to look elsewhere.

That’s where custom software comes into play. A small amount of programming needs to be done just for them, or they can bring someone else to work on an already written piece. Custom software makes your life easier by reducing costs and allowing you to grow as your business does.

But what sets it apart from off-the-shelf solutions is its flexibility. Not only do you get to pick what features you want (and don’t want), but you also control how they work together — not some company thousands of miles away. Your new system will allow employees to collaborate better than ever before because it was made specifically for your company.

Here’s an infographic, have a look:

Source: CodersDaddy

Software development is often much more time-consuming than buying something ready-made — but if done correctly, its superior functionality can help you save time over time through increased efficiency and collaboration! In software development, the Software Development Life Cycle (SDLC) stages vary from company to company, but most industries and companies can agree upon seven primary steps.

It’s important to understand these steps, so you know what to expect during the process and can communicate with your team about it in more detail. It will help you better prepare for the results you want to achieve in your project.

Here are the 7 Stages of Custom Software Development

Stage-1: Idea Generation & Feasibility Study

When you come up with an idea for a new application, it’s easy to get caught up in its potential — and forget about whether anyone will use it. The first step in determining whether your concept is viable is to brainstorm and generate as many ideas for Software as possible. Because even bad ideas could be helpful later on, brainstorming allows you to think creatively without being limited by traditional notions of what Software should be.

Source: Statista- Time Spent on Research

Note: Idea Generation and Feasibility study is the most vital aspect of software development. Statista says experts spend as much as 17% of project time on the project’s idea research & feasibility study.

Stage-2: Planning

A software development company creates a detailed development plan and identifies the resources required to achieve each milestone. Startups spend most of their time planning, and it takes many months to reach a logical end-point. At this stage, startups set up timelines for each step with specific objectives and evaluate the risks involved. The main aim at this phase is to create a viable business model for success through software product development.

Stage-3: Design

Once you’ve developed your idea and written a business plan, it’s time to start designing your product. Whether you design your product with pen and paper or use a software package, ensure that you have a clear vision for what you’re creating. The more clearly defined your design is from day one, the easier it will be to create what you want. While it may feel great to dive into coding right away, resist! Use mockups or sketches to generate ideas and discussion before moving forward. Alternatively, you can also use wireframing tools to have a concrete idea about your Software.

Stage-4: Coding

The coding phase is what most software engineers are familiar with and is where you’ll spend most of your time. If a project isn’t coded correctly at first, all work after that will be for naught. In software development, time spent in coding and debugging can range from 40% to 70% or more, says Failory. It largely depends on whether you’re building from scratch, leveraging libraries & frameworks, or maintaining an existing product.

Source: Statista-Programming Tools

Stage-5: Testing

At each stage in development, it’s essential to verify that you haven’t introduced any bugs. It is especially true during software testing, which occurs once a new software product has been entirely coded. A professional tester will analyze every code during testing and validate that everything works as intended. If you don’t test your Software correctly, it could have disastrous consequences.

Stage-6: Deployment

Once your Software is ready for users, you need to ensure it can be easily deployed, either manually or automatically. It includes making specific all necessary supporting files are in place and that there’s documentation for updates. The developer’s team spends a lot of time on deployment — that doesn’t have to happen all at once, but it does have to happen eventually. So try to get ahead by thinking about and creating those deployment mechanisms now!

Stage-7: Maintenance

The maintenance stage refers to a software application after being released and deployed. If there are no bugs or issues, you can say that your Software is in maintenance mode. A couple of ways to address software maintenance include performance management, troubleshooting, upgrades, and adding new features/functionality.

What Does Custom Software Development Cost? The Quick Answer:

Software development costs depend on many factors, including how big a project is and how much complexity is involved. For example, developing a simple mobile app for iOS or Android or a simple software costs $5000 to 50,000 dollars depending on functionality. Whereas creating a complex enterprise-level system with many features may cost millions. Furthermore, fixed prices do not apply to most software development projects.

Here’s an Infographic that can help you estimate your project cost

Over time project cost usually becomes variable due to changing requirements and scope. Hence it is generally tricky to estimate software development costs accurately. Your project’s size, complexity, and novelty directly affect its cost, and additional hours you must work to meet an aggressive deadline may increase charges. The number of people working on a project and their skill level are also factors to consider. All these costs add up and can drive up software prices. If you want to get a good deal on custom software development, you’ll need to shop around for quotes from a few different providers or freelancers.

Since these factors vary widely based on each project, there’s no one-size-fits-all approach to pricing custom software projects; you need to think about your needs first, then research prices for similar projects when evaluating quotes.

Factors Affecting Software Development Cost

Functional features of the Software

The cost of custom software depends on factors, including how much functionality you want and need. To determine how much you should pay for custom software, you’ll have to decide how many features are required to meet your business needs. It may be helpful to outline these needs and use them as a guide for budgeting. If a feature is not mission-critical, consider cutting it from your requirements list until you have funding or resources in place to develop it. Make sure your software meets 90% of your needs before adding extras that will only drive up costs.

Complexity of the Software

As complexity increases, the cost goes up, and developers can complete a simple software project in a few months at a low price. In contrast, complex projects with multiple modules, the need for ongoing maintenance, and various platforms may take years to complete at an exorbitant cost. Also, bear in mind that complex Software requires experienced developers, and you will pay more for professional people than a novice developer. So work out how challenging your project will be before designing it.

In-House team v/s Outsourcing

In-house teams cost more as they have their infrastructure, i.e., office space, computers, tables, chairs, etc. In contrast, an outsourced development company saves you these costs because they do not have any infrastructure. Thus the overall price is lower when the project is outsourced to developers over in-house employees. But suppose your company already has a large number of employees. In that case, it’s better to use in-house developers because you can easily manage them and control their work as per your requirement without paying extra for it.

However, if you don’t have any permanent staff members and are looking for long-term development, go for an outsourcing strategy. So the overall cost factor depends on your requirements and market situation too.

Chosen Country for Development

The location will affect your cost because, as a general rule, it’s cheaper to develop Software in India and Eastern Europe. However, many companies are trying to challenge that standard and build up their in-house development team at a lower cost. “The United States costs more for a few reasons including, labor, living expenses, and tech infrastructure. As you move away from Silicon Valley or New York City, fewer software engineers are available who can do quality work at an affordable price”.

On top of that, U.S.-based companies have higher health insurance premiums than almost any other country. On the other hand, developing Asian nations like India & Indonesia are preferred offshoring nations owing to cheap development rates.

Total Hours Necessary for Development

The time it takes to develop custom software depends on several factors, such as how many features you want, whether you need help with business analysis and functional specification, and how technical your team is. There are always exceptions to general policies, but in general, most enterprises will have to budget up to six months for custom software development. In contrast, getting an app developed can take as little as two weeks if you’re only looking for a simple app without many bells & whistles.

App pricing is usually much lower than custom software because there’s less overhead (no upfront investment), so keep that in mind when thinking about software development.

Chosen Engagement Models

Outsourcing can be an exciting and cost-effective way to develop your custom software, but choosing a platform is complicated. Many factors affect the cost, but one aspect gets often overlooked: Engagement models. Each model comes with different benefits, and it’s critical to understand what those benefits are before you commit to a company. For example, some platforms charge based on hours spent developing, while others charge by task. Make sure you comprehensively analyze your options to choose a platform that best fits your needs. The popular engagement models include the following three:

Staff Augmentation Model:

Only critical skills get outsourced while development activities such as requirements gathering, design, coding, and testing are performed by your employees. It results in reduced cost and improved agility since the offshore team works on projects assigned by you.

Dedicated Team Model:

This model requires you to pay more for development than working with a freelancer. Additionally, a dedicated team has its in-house skills and specialized processes. It leads to an established workflow and increased management oversight, but each developer also has their specific area of expertise that they are an expert in. It helps avoid issues where multiple developers work on different parts of a project but do not have any knowledge or experience related to other aspects.

Hourly Model:

Many business owners don’t realize that offshore software development providers (India) use an hourly billing model. That means they charge by the hour, which can be misleading to small businesses using a fixed-cost estimate. When you get an estimate for building custom software for your business, you might think about it in terms of cost per month or even year.

However, in reality, you will have to pay for each hour that a developer spends working on your project. Answering the question of how much a software project will cost is never easy, whether you’re the manager or the developer. There are many different ways to estimate the costs of your project, each with its advantages and disadvantages.

To help you analyze which method works best, here’s an overview of some common approaches to software cost estimation.

Analogy Based Estimation:

It lets create an analogy between your project and another similar project. These are just guesses at best, but in some cases, they can help get a rough estimate — and even then, only if you’re familiar with both projects and can make relevant comparisons.

Top-down Estimation:

This is also called order-of-magnitude estimation. It requires an educated guess about how many functions or features will be in each iteration and multiplying them by their respective estimates. For example, if there are 12 features, and it takes three weeks to develop one part, it will take 36 weeks (12*3) to complete all 12.

Bottom-up Estimation:

In bottom-up estimation, you will break down all your project’s activities into their most minor possible components and then estimate their costs. A simple example: If you plan on hiring a software engineer, you will have to account for their time at $20/hour. You can also apply bottom-up estimation if you know that it will take ten person-hours to finish any given activity.

Parametric Estimation:

To create a parametric estimate, you make estimates for each project phase and then extrapolate them based on your assumptions about how long each activity will take. The only data point needed for creating these estimates is how much time it took to do one task. If you think something will take twice as long, add two hours; if you think it’ll be half as long, divide by two.

Three-point Estimation: The Three-Point estimate is a straightforward method that considers three factors and multiplies them together. These factors are:

1) The best-case scenario,

2) The worst-case scenario, and

3) A mid-point between 1 and 2.

Depending on preference, the midpoint may get chosen as 25% above or below either number. Finally, these numbers are multiplied together.

Final Words

The most reliable method for software cost estimation is a parametric estimation, where engineers analyze an actual project they have already worked on. The following best is top-down or bottom-up estimates. In contrast, analogy-based and three-point estimates are inaccurate due to insufficient data. But these methods still can be used as one part of an overall cost estimate process in customized software development.

I hope the article helps you analyze your project development cost. Alternatively, you can connect with a custom software development company for an accurate project cost analysis with zero consultation charges.


Question: Which is the most preferred cost estimation method?

Answer: Top-down is the most preferred cost estimation method, followed by parametric estimation.

Question: Which is the top offshoring nation worldwide?

Answer: As per Statista, the top five offshoring nation includes the following:

  • India
  • China
  • Malaysia
  • Indonesia
  • Brazil

Question: Which are the best SDLC Models?

Answer: There are tons of SDLC models. However, the most used ones include the following:

  • DevOps
  • Agile
  • Waterfall
  • Scrum
  • Kanban

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Ajay Kapoor

Ajay Kapoor

Hey, I’m Ajay, a tech blogger working with PixelCrayons who loves to share his extensive tech-related knowledge with like-minded people.