How To Calculate The Cost Of Software Development: A Guide

Cost estimation is crucial in software development because inaccurate (over or under) estimation can adversely impact profitability. Moreover, it can also lead to poor decision-making, and inefficient allocation and distribution of resources, directly affecting the project’s productivity.

Therefore, accurate software cost estimation is probably one of the most important aspects when it comes down to project development and also one of the hardest things to do. 

Understanding Different Types of Cost Estimations

• Rough Estimates: They give a generic or vague idea of the potential cost range needed for product implementation and completion. 
• Budget Estimates: It is an actual forecast of the capital required for executing project activities. In other words, it's the maximum amount of money the client is willing to spend on a project. 
• Statement of Work (SOW): SOW entails project-specific activities, deliverables, and project timelines. This makes the client crystal clear about the project requirements and, therefore, requests a vendor to provide an accurate estimate.

Factors Influencing the Software Development Cost

Feature & Design Complexity

Software development cost relies heavily on software architecture, multiple features, and business logic. Thus, your app or website’s functionality complexity is one of the crucial factors that affect the cost. 

If you are looking to build a highly functional MVP (Minimum Viable Product) for an initial release, you may only need to focus on the primary features and basic design elements, while, delaying the rest. In this case, a minimum budget is all you need to lift your product off the ground. 

Contrarily, if you decide to build an all-inclusive software product with complex features and logic and advanced UX/UI design, you might need a bigger budget for successful implementation.

In short, a comprehensive and complex feature set demands more skills and experience including thorough testing, stability, and security as well, thus influencing your cost in the process. 

Recommended: Secrets to Achieve a Fault-proof Software Development Process

Use-Case: Simple VS Complex Project Management Software Features

• Simple - Dashboard, task management, communication, search, filtering & sorting, document sharing, user roles
• Complex - Resource management, time tracking, project budgeting, billing & quotes, reporting, third-party integration with Slack, Google Calendar/Drive, DropBox or GitHub, Kanban boards

Team Composition

Software development pricing is also directly linked to the skill set and experience level of software developers involved in the project. Software engineers can be categorized into junior, mid-level, and senior employees. 

• Junior developers are at the start of their careers and depend greatly upon guidance from their peers. 
• Mid-level developers are comparatively autonomous with expertise in one or more frameworks and programming languages for software development and seldom require any guidance. 
• Last but not least, senior developers are masters of their domains. They have hands-on experience in almost all major frameworks which can accelerate the project development process. 

Therefore, the higher the experience level, the higher the cost of developing software. Because experienced developers offer domain-savvy insights and knowledge to gear up your projects. 

Resources Domain	Resource count
Team Lead/Project Manager	1
Front-end Developers	2
Back-end Developer	1
DevOps	1
UI/UX Designer	1
Security Engineer	1
Product Analyst	1
Quality Assurance Engineer	1

 

Technology Stack

The tech stack is yet another important software development cost-influencing factor in both web and app development. A front-end and back-end development kit is necessary for building a highly scalable product, something that would sustain.

Therefore, the tech stack always varies based on the client’s preference, scope, or requirements. And since every project is unique so realistically speaking there is no one size that fits all,  it is all about your end goals.

• For high levels of scalability, you may end up with an advanced tech stack such as Python and Javascript. 
• For a quicker time to market, you may consider using Ruby on Rails (RoR). 

If you are looking for easy maintenance, you have to choose one accordingly. Because your tech stack will dictate how challenging and/or costly it will be to maintain your app. 

That being said, an advanced tech stack would cost an inch more than basic frameworks. Complex architecture components such as UI Controller, ViewModel, Repository, RoomDatabase, etc. in the case of Android will also add to the software development costs. 

Third-Party Integrations

Third-party integrations enable you to quickly integrate features and tools into your product that might otherwise take months to develop from scratch.

There are a plethora of third-party integrations available out there such as project management tools or chatbot integrations that offer ample opportunities to both users and businesses alike and are thus, considered supremely useful.

Some Things to Consider

• Third-party API integration takes between 16 and 24 hours.
• Cost may vary from $500 to over $1,000, depending upon the complexity of integration and the time investment of developers.
• Building an API integration can easily cost over $10,000, as compared to pre-built APIs. 
• Third-party integrations require more thorough testing - meaning you will need to hire expert QA engineers to test the compatibility and connection between your app and the provider’s API. 
• Plus, they also demand constant maintenance. 

Project Size

Another main driver of software development cost estimation is the project size. It is self-explanatory, bigger projects require more manpower, tools, processes, and effort - affecting the final costs. 

• A small-sized software generally includes fewer features, say not more than 20. 
• A medium-sized application has over 20 features but a large application may have more than 40 feature pages.
• While enterprise-level projects are business-critical with a keen focus on data security and system integrity and therefore require more meticulous development processes, security protocols, infrastructure et al.

Additionally, enterprise-grade applications are expected to handle a huge influx of traffic and therefore, can not afford errors or failure. Enterprise software development involves thorough brainstorming sessions, full-fledged IT teams, higher-level involvement, and whatnot. 

So evidently, the bigger the size, the higher the cost. 

Development Timelines

Strategic time to market is of utmost importance because if you are too early or too late, you may fail to acquire new users. So in order to withstand the competition, a strategic market launch is crucial. Deadlines also tremendously affect your cost breakdown.

For features that require quick development and that too in a time crunch, you will have to expand resources to accommodate time restraints and may need an extended team of field experts. Eventually, the cost increases with the hours your team invests to meet the deadline. 

Action	Hrs
Project Setup, Database, and other efforts	43
Frontend development effort Mobile App	148
Frontend development effort Web App	116
Backend Development Effort	170
Support/Feedback/Fixes Hours	108
Estimated Total Time	585 hrs
Estimated Budget	$1000

How to Calculate the Cost of Software development [Infographic]

Use-Case: Software Development Cost Estimation at InvoZone

Every software solution is unique and thus requires a whole different set of features, all of which impacts the software development cost in one way or the other, but the steps somewhat remain the same:

Step 1: Requirement Analysis

Let’s say, you (the client) reach out to InvoZone either via call or email to get a quotation for software development be it a mobile app or a website, we try to gather as much information as possible. 

The grass-root level data makes it easier for experts at InvoZone to further analyze the requirements for an in-depth understanding of your idea, business goals, architecture, user journeys, wireframes, and/or what the MVP will look like. 

After which, you talk to our industry-specific software consultants who collaborate with you through a discovery session, making sure we are on the same page regarding your business anticipations. 

Step 2: Setting up a Team

This by far is the most important step. Because putting up an efficient team not only reduces the development time but also prevents or reduces the possibility of errors occurring during the project development phase. 

We carefully vet the team members based on their skills and experience ensuring they are the right fit for your project. A quick stand-up meeting to exchange questions and a call with you to clear doubts, and define the project scope - comes next. 

Step 3: Feature & Design Analysis

At this point, experts at InvoZone clearly identify the feature and design requirements before making cost and time estimations. By now, we have achieved enough clarity of your expectations and preferred technology stack. We then decide on the project architecture, programming language, UX/UI design, and other technical details. 

Along with that, we identify the platforms the software will run on and pin down various security protocols such as SSL traffic encryption, password protection, etc. to assure your product never becomes a victim of a cyber attack.

Project Initialization [Sample]
Description	Actor Responsible	Est. Hours Hybrid mobile (frontend)	Est. Hours Web (frontend)	Est. hours backend
Project Setup Setting up the project and workflows Setting up coding standards and listing rules	Team Lead	5	5	4
Database Design the basic architecture for migrations, scheduled jobs, configurations schema, loggers, trigger	Team Lead	3	0	6
Figma design for UI Setting up design components libraries Build up color swatches library Setting up a grid system for the web applications Setting up a design Guide for responsive UI	UI Engineer	4	4	0
UX Design and Analysis Break down the components and user experience  Improve the user experience Generate ease of usability report	UX Engineer, Product Analyst	N/A		N/A
Deployment Pipeline Building an automated deployment pipeline for new features and integrations	Team Lead, Dev Ops	N/A	6	6

Step 4: Cost Estimation

Our team puts together a brief or a technical proposal with a detailed breakdown of the cost. This is where we split the project into tasks and sub-tasks and set the foundation for our first development sprint. 

We estimate both the time (overall development hours) and the cost needed to develop each feature.  All the major stack-holders such as full-stack developers, front-end developers, and back-end developers are involved in the cost estimation process. 

Some Important Things We Keep in Mind

• Define highlighted tasks, and make sure they are not ruled out 
• Categorize each task based on priority, and assign them to the designated member 
• Set time against each task to assure it is completed within the time frame 
• Create milestones and deliverables for each task to measure success 

Before sending the cost estimation document to the client, our team rechecks the estimate to leave no room for errors. When everything is refined and ready, it’s time for you to send us an approval or request changes. Even though InvoZone's cost estimation experts make sure all the estimates are to the point, we are always open to negotiations. 

[The table below is just an example of the total time it may take to complete a milestone. Based on this, you can calculate the total cost.]

The first development sprint kicks off!?

 

Milestone	Details	Weeks
1st	Project initialization Project Setup Database Figma Design for UI UX Design and Analysis Deployment Pipeline	2 weeks
2nd	Cashier Client Subscriptions for SaaS Usage Authentication Login  Additional device Setting Checkout Items	2 weeks
3rd	Super Admin Authentication User Authentication Cashier Checkout Select items Split amount Language Integration	2 weeks
4th	Super Admin Dashboard Subscriptions Cashier Library Create items Create Discounts List of order	2 weeks
5th	Super Admin Reports Inventory Management Cashier List of favorites List of transactions Cashier report Settings Hardware	2 weeks

Prerequisites for Cost Estimation

• Project goals
• Target audience
• USP - Unique selling point
• Direct competitors
• Type of software (Mobile app or a website)
• Third-party integrations
• Important features 
• Requirements for user interface design
• Responsiveness 
• User journeys
• Monetization strategies (if any)

How Much Does it Cost to Develop Software?

Let’s divide the software into different categories for a ballpark figure:

Custom Software

Most custom software projects range between $40,000 to $300,000 because they are built from the ground up. If you are looking to develop medium-sized custom software with about 20 features, involving a small team of developers, over $50,000 is our best bet. 

Additionally, smaller custom software projects do not take long to finish and require fewer resources, and might only cost you an extra thousand bucks. 

Mobile Application

According to a survey conducted by Clutch, the average min. app development cost ranges between $5,000 to $10,000, only for the discovery phase. The overall costs are way more expensive with a median total app development cost of $171,450. 

On the other hand, according to GoodFirms, a basic app costs between $40,000 to $60,000, an app with medium complexity between $61,000 to $69,000, and a feature-rich app between $70,000 to $100,000.

Website Development

There are multiple factors to consider when thinking about website development such as web design, maintenance, marketing, in-house development, outsourcing, etc. All of these factors dictate the final website development cost. 

But let’s say, if you decide to outsource your website development project, then a basic website with basic functionality would cost you around $15,000.

Enterprise-Grade Solutions

Enterprise solutions require robust security standards, a thorough implementation, multiple system integrations, and whatnot. Here at InvoZone, these projects would range between $70,000 and $800,000, including design, development, and implementation.

Top Mistakes in Software Development Cost Estimation

Lapses in software development cost estimations can be detrimental to the entire development process. It can not only hinder the project in its tracks but also causes serious time and money problems. 

Unclear or changing project scope

Some changes in the project scope are inevitable. But if the client does not have a clear understanding of the scope, and requests excessive changes during development, that’s asking for additional costs. 

Vague Requirements

Similarly, if requirements are ill-defined at the initial stage, developers will have to start from scratch in case the requirements change. Therefore, implementing an agile methodology is recommended.

Imprecise Cost Estimates

Wrong cost estimation in one aspect (let’s say in the initial project setup) of a project can disturb the allocation of resources in another - leading to under or over-allocation which may result in misplaced priorities. 

No-Risk Awareness

Vendors need to have contingency plans in place and factor in risk when making cost estimations to avoid cost overruns. 

The Wrong Software Cost Estimation Team

We can’t stress enough the importance of having a qualified team (vendor) for cost estimation. Because if cost estimation is performed by those less experienced or qualified to do the job, you may end up paying more or less, depending upon the situation.

Read more: Understanding the Web App Development Cost

The Bottom Line

Determining how long and how much it will take to deliver a brand spanking new software product is anything but ‘as easy as falling off a log’. Having said that, building remarkable, and cutting-edge software solutions are cardinal to achieving company-specific goals.

Because if you want to establish yourself as a leading player in the market, speed and efficiency are everything and so is understanding cost estimations to spare yourself from the horrors of imprecise budgeting.

We hope this guide has given you ample insights into our software cost estimation process at InvoZone. Our process is designed to forge a relationship of trust with our clients and to be straightforward about the time and money it will take to develop your product. So, If you are for software product development services reach out to us.