A Comprehensive Guide to Estimating Custom Software Development Costs

One of the most challenging aspects of custom software development is determining how long and how much it will take to deliver a new software product. But the question is, should it be so hard?

Software development cost estimation is inherently tricky, keeping “no projects are the same” in mind. Every product development is unique in what it sets out to achieve; unique in a myriad of parameters that form its existence. And, these parameters are what directly lead to affecting the cost of software development greatly.

To give you a rough idea, the software development project cost may vary from $35,000 to $300,000 depending on factors like the features used, complexity of the UI/UX design, the development company’s location, the hourly rates of developers, etc. Simply put, the higher complexity of the software is, the higher will be its overall cost.

Not just the cost range, we are sure you certainly have a hundred more questions about the custom software development cost estimation process. So let’s get started by quickly going through some prerequisites to estimate the software development cost.

But before this, you might want to look at the ultimate guide to software development for a thorough perspective.

Now, let us start with the prerequisites required for software cost estimation.

Prerequisites to Estimate the Software Development Cost

These prerequisites are discussed with the software development company during the scoping sessions. From explaining your project goals to discussing how you can monetize from software development, a professional organization like Appinventiv will help you every step of the way.

Project Goals

The first step to realizing custom software cost is to explain your project goals during the initial conversation. Highlighting a clear goal can help you design software worth the effort and cost. While at the same time, discussing the end goals can help the development team stay focused and aligned. Thus, the more well-defined the end goal is, the less time it takes to develop the software and offer better cost optimization.

Target Audience

Determining your target audience is one of the most vital steps for successful software development. The target audience usually includes people interested in your services or products. Conducting an in-depth competition analysis, market research, and identifying the latest trends can help you get a clear idea of your target audience. The total efforts and time taken to determine the target audience will ultimately affect the overall cost of the software.

Type of Software

Finalizing the type of software custom to your requirements is one of the most necessary steps to help you determine the time frame and cost of software development. The more features and complexity of software, the more time and cost associated with it. A well-integrated software with ample features to engage and retain users will help you gain a trajectory in the otherwise competitive business landscape.

Some popular software types and their cost estimates

Content Management Systems (CMS): A custom CMS caters to the specific user requirements while enabling businesses to create and update multiple types of content, including blogs, press releases, videos, etc.

Examples of famous content management systems include: WordPress, Joomla, Drupal, Magento, Squarespace, Wix, Ghost

Average Cost Estimates: $35,000 to $80,000

Customer Relationship Management (CRM) Systems: CRM systems are the type of software that allows businesses to track and manage customer relationships, attract new clients, and handle vendor and partner interactions. Custom CRM systems make a worthwhile investment for large organizations that want to manage a distinct target audience and handle their business operations effectively.

Examples of famous CRMs include: Salesforce, HubSpot, Zendesk, ZoHo

Cost Estimates: $35,000 to $300,000

[Also Read: How to build a custom CRM software?]

Enterprise Resource Planning (ERP) Systems: An ERP software empowers businesses to effectively handle and manage their daily business operations, such as procurement, inventory, supply chain, accounting, logistics, and risk management. By automating these tasks and centralizing the operations, custom ERP solutions guarantees enhanced productivity, improved decision-making, reduced errors while ensuring increased efficiency.

Examples of famous ERPs include: SAP ERP, Oracle ERP Cloud

Cost Estimates: $50,000 to $300,000

SaaS (Software-as-a-Service) Products: SaaS is a software distribution model that operates through the cloud. With SaaS, applications are hosted by a third-party cloud service provider and made available to users via the Internet.

Examples of famous SaaS products include: Slack, Asana, DropBox, MailChimp

Cost Estimates: $40,000 to $300,000

Also Read: How to Develop a Pharmacy Management Software – Features, Process, Costs

Sourcing Models for Software Development Projects

When planning a software development project, it’s essential to choose the right sourcing model to align with your budget, timeline, and quality standards. Here are the main options:

In-House Development

Building an internal team to handle all aspects of software development. This option provides greater control and smoother communication but can be costly and time-consuming due to the need for hiring specialized talent.

Outsourcing 

Outsourcing software development involves hiring external companies or freelancers. It can be divided into three categories: offshore development, which uses teams from distant countries for cost savings; nearshore development, which involves collaborating with companies in nearby countries to simplify communication. It also includes onshore development, where local firms are employed for better communication and cultural alignment, though it may be more expensive.

Staff Augmentation

Adding external experts to your existing in-house team to fill skill gaps or increase capacity as needed. This model provides flexibility in scaling resources based on project demands.

Dedicated Development Team

A hybrid model where an external team works exclusively on your project, integrating with your internal processes. This offers a balance between control and flexibility.

[Also Read: Software Development in the Middle East – Benefits, Use Cases, Process, Costs]

Factors That Affect Software Development Costs

If you are wondering how to estimate software development cost; understand that it majorly depends on three significant factors:

Let’s take a detailed look at these factors.

1. Type of Software Project

From a high level, the typical custom software development arrangements tend to break down into the following details:

• New software development – New software, including custom software development
• Software modification – The process of enhancing existing business software
• Software integration – Adding a custom code to integrate existing software into other processes. This would include plugins and packages such as “Office” and manipulating data flowing between an inventory and an accounting system.
• Web development – Custom web-based software development

Each software development comes with a different team makeup and requires additional development effort.

Understanding your project’s software development type is the first step towards estimating development cost and categorizing software development cost breakdown. This comes in handy in the final estimation when you combine the type of your project with the size of the project development team.

Also read: IT infrastructure software development – The why’s and how’s

2. Size of the Project

The next critical factor in estimating the software development pricing is to determine the size of a project. The project size is typically correlated to the features and functionalities of the product you are building. This means the more complex your project is, the bigger the size of the project will be.

Small-sized development

A small software project usually needs minor changes, typically incur lower cost to develop software compared to more extensive projects. Typically, changes such as bug fixing and tweaks to the user interface fall under small-sized software development. Here, client interaction is usually limited.

Approximate Software development cost range – $10,000 – $50,000 based on the level of modifications.

Medium-sized development

Here the engagements are more substantial than just small tweaks and include a well-defined scope of deliverables. Typically, medium-sized software development deals with a single source of data. Projects like mobile application development with simple functionalities, enhancing the web interface to the existing inventory system, or upgrading the UI/UX interface of the current website or app would fall under this category. These factors also influence the overall cost to develop software.

One prominent example of medium-scaled software development can be Appinventiv redefining the UI/UX strategy for Domino’s to increase its mobile app conversion by 23%. Here, the external requirements for client interaction are more precise and robust.

The interaction would also include a few design sessions, milestone sign-offs, and weekly check-ins.

Approximate software development cost range – $30,000 – $100,000

Large-sized development

These solutions include complexity and depth. Large-sized software development asks for a broad database, integrating multiple systems, and addressing logging and security features. If your project has to be maintained and scaled in the future, two common steps would be designing an underlying framework and module-based systems.

On the other hand, multi-platform application development (Android, iOS, web) would also fall under the large software development category.

Below are a few prominent examples of large-sized development projects undertaken by our team:

We have helped expand KFC’s mobile presence globally by developing end-to-end apps that enabled real-time order tracking and doorstep delivery across seven countries.

Appinventiv has also helped Adidas, one of the largest sports merchandise brands, reach an extensive user base by expanding its web-centric services to mobile through a dedicated application.

The experts at Appinventiv have also developed Vyrb, an eyewear brand’s voice assistant application for social media that helps send and receive audio messages via Bluetooth wearables.

The client interaction here is super robust, that is, milestone agreements and extended design sessions, daily calls with the technical team, weekly status meetings, and more.

Approximate software development cost range – $80,000 – $200,000

Enterprise-sized development

Enterprise-sized software development is probably the most extensive and complex project, usually built on underlying frameworks. Since the entire enterprise process is digitally transformed, they have higher security, error handling, and more rigorous logging. Data integrity and security are paramount to such business-critical applications.

There is no exclusive exhibit; however, the support systems designed for enterprise-level development are resilient and can manage 2-3 concurrent faults in the core infrastructure without creating a user impact.

For client interaction, the process is fully integrated. Enterprises usually prefer outsourcing rather than having in-house teams to design and architect their business-aligned software due to deadlines and easily met requirements.

Approximate software development cost range – $100,000 – $300,000

Software Development Cost Estimation as per Technical Complexity:

3. Development Team Size (As per Project)

Once your project is defined in terms of type and size, the only substantial factor that can directly affect your software development cost is your development team size. Your development team requires at least three roles – a developer, a project manager, and a QA tester to perform certain tasks in software development. The hourly rate of developers will also affect the overall cost and will vary according to the geographical location of the software development team.

However, the requirements should be well aligned with your project. Below are the roles you can choose from according to your size and type of project:

• Project Manager
• Business Analyst
• UI/UX Designer
• Architect
• Database Expert
• Developer
• QA Tester

Here is a rough estimate of the hourly rates of developers based on multiple geographical areas:

Other Factors That Indirectly Impact the Software Development Cost

There are multiple other factors that can indirectly strike your software development budget, let us look at them in detail below:

UI/UX Design of the Software

Creating custom software with a clear UI/UX strategy is essential to gain traction in the market. A seamless software design can improve both user engagement and retention. However, meeting the unique needs of clients requires multiple testing procedures, which can affect the cost to build the software from scratch.

Development Team Type

The type of team you have hired for developing your custom software product also impacts the cost to develop the software. For instance, you can either choose between hiring freelancers, in-house development team or simply outsource your project to a dedicated software development agency. Let us look at the pros and cons of all three below:

THE AUTHOR

Sudeep Srivastava

Co-Founder and Director