Estimating the cost of software development: price factors and real-world estimates from our portfolio

In order to understand where the total cost of software development comes from and how it accumulates, let’s look at how software solutions work under the hood, what your hosting options are, and whether you can reduce the price by reusing third-party components.

A software solution typically consists of several parts:

Front-end development focuses on the user-facing side of a software solution and aims to maximize usability and user experience. It revolves around the design users see on the browser screen, such as colors, buttons, text style, and navigation. A front-end developer, in tandem with a UI/UX specialist, validates that users can have a pleasant experience navigating through the application and can easily find what they are looking for.

Typical front-end programming languages include JavaScript, CSS, and HTML wrapped in libraries, such as React, Angular, etc.

Back-end development deals with the server side of a software solution, builds its functionality and logic, and takes care of data aggregation, processing, and storage. Back-end developers are responsible for implementing operations, application programming interfaces (APIs), and databases. The back-end part remains behind the scenes, and it’s invisible to the users.

Some typical back-end programming languages include but are not limited to Java, PHP, and Python.

You always need hardware, as applications run on it, and it heavily influences software development pricing. Your software solution will use processing hardware, storage, input/output devices, etc.

If you are building a solution for a cyber-physical system that uses connected devices to accomplish its task, you will have to buy or build its hardware components. For example, an application that monitors food wastage in restaurants consists of a software solution, as well as an electronic weighing scale and a camera.

Keep in mind that some devices are rather hard to connect, and it can take several months to write driver software that can link them. In one of our projects, we needed a custom USB camera to operate on the Android operating system. This manufacturer didn’t supply the associated driver software, and we dedicated a programmer to write it from scratch for this purpose. It took him five months to accomplish the task, and the total costs amounted to approximately $40,000.

You can host your software solution in the cloud or on premises. The on-premises option introduces significant initial software development costs, while with the cloud you only pay for the computing resources you consume.

All the infrastructure is hosted in the cloud and off the premises of your organization. There is no need to make large upfront investments in infrastructure and maintain it on site. You just find a cloud provider and “rent” resources, such as storage and computing power. You pay as you go, based on your actual consumption, reducing the initial software development cost. If you want to scale, you request more resources, which will increase the payment while giving you the possibility to expand relatively fast.

Cloud vendors are also responsible for their product’s security and reliability. They hire highly qualified security experts and take care of backups and disaster recovery. If you’re looking to adopt cloud computing in healthcare or another highly regulated sector, you can search for a compliant cloud provider who is familiar with the specifics of your industry and will ensure compliance.

With this hosting option, your organization will acquire, install, and maintain the infrastructure needed to run the software product, including storage systems. This approach results in a higher total software cost, as you will need to set up and manage the infrastructure. You will also need physical space to install the components.

Hosting on premises will also make it harder for you to scale in the future. But you will not be reliant on internet connectivity, as you can access all the resources locally, which also improves performance and allows for customization. This is a great option for companies that handle sensitive data and prefer to secure it locally.

If you’re looking to streamline business processes with a software solution, you don’t always need to build an app from the ground up and pay the hefty price of custom software development efforts.

Actually, you’ve got four software development options to choose from:

Let’s see how these options stack up against each other and when you should pursue them.

SaaS development model stands for creating cloud-based applications that run on the cloud infrastructure. You only pay for the resources you consume without making large upfront investments. There is no need to install, configure, and maintain software locally, and everyone can access the application through the Internet.

SaaS tools allow you to build software fast, but they might not be able to cover all your needs or give your website a unique appearance. For example, you can set up a patient engagement portal using Wix or Hubspot in a matter of days. However, the licensing fees can be high, customization options rather limited, and the selected SaaS tool might lack some modules, such as supply chain management, that you will still have to build from scratch, which will impact your software development pricing.

No-code approach differs from high-code (or traditional) development, as it doesn’t require any coding experience. No-code platforms offer a visual development environment where users without a technical background can build basic apps by dragging and dropping UI elements into the development canvas. However, this development method is only suitable for applications with limited scope. Customization options are rather limited, and legacy systems can’t be involved.

This approach helps non-technical users create prototypes to convey their product vision to the technical personnel. It’s also possible to build full-blown applications for a relatively small audience.

Low-code development is the middle ground between no-code and traditional development. You can create a basic application using visual elements, but you can also customize and add complex functionality by accessing the source code. As a rule, low-code platform vendors provide extensive documentation and tutorials.

A library is a pre-written code that aims to solve a specific problem or provide functionality, such as user authentication or establishing connection with a server. Developers use libraries to add more functionality without actually writing the entire code for it, reducing software development costs.

Incorporating existing libraries will decrease the time and effort needed to build software applications. But libraries are third-party components written by someone else, and they might open security vulnerabilities in your solution if not tested properly.

In this software development approach, an application is built from zero, and it is fully customized to the business needs at hand. One example of this method is building an online banking app, which is tailored to the requirements of the bank and its customers. This is an effort-intensive method with a higher cost of software development, but the resulting solution is likely to be reliable and lead to customer satisfaction as the solution would be designed to address their specific needs.

Creating an application — either using pre-configured components or from the ground up — is a process that spans several stages. The cost of software development will depend on the stage you’re currently at — and the version of an application you’re aiming to build.

Let’s explore.

A clickable prototype is an interactive representation of an application’s interface design. It contains the solution’s features and design elements that people can click on in order to navigate through different user stories. A clickable prototype can help you test the design and the layout of your solution, as well as evaluate how easy it is for users to navigate.

You can view mockups as visual drafts of a software solution where designers experiment with how different colors and shapes work together. The team can design several mockups to test different styles and present different concepts to stakeholders. However, mockups lack the interactivity of clickable prototypes.

A proof of concept is a small activity performed internally to validate the project’s idea, prove its potential, and demonstrate its viability.

The goal of PoC is to show whether it’s possible to develop the required functionality in the real world and reveal possible obstacles in the way. It also shows which technologies and budget you will need to build a full-fledged product. This phase is more about the idea rather than the actual product.

A minimum viable product is an early product version that implements all its core features. It’s good enough to be released to the market and elicit feedback from early adopters. The development team can use this feedback to further improve the solution.

This is the final software product with all its features and functionality. However, the process doesn’t end with the solution rollout. You will still need to maintain the software, gradually add new features, and issue updates.

Now you know what it takes to create a software solution. The question is, how much does software development cost? The answer is largely determined by these eight factors.

Businesses use B2B solutions either as internal applications or as a way to communicate with partner organizations. This software can serve a variety of purposes. For example, it can help with inventory management or automate some tasks and processes to increase, aggregate, and visualize data in real time. Salesforce and other data platforms are well-known examples of B2B applications.

B2B solutions focus on the core functionality, rather than on the app’s visual component. These applications can be packed with features, increasing their average software development costs.

B2C apps enable companies to interact with their customers and advertise and sell their products and services. B2C software’s key features include presenting companies’ offerings, providing customer support, publishing client reviews, etc. Netflix and Amazon are two famous examples of B2C solutions.

When building B2C products, the design and user experience matter as much as the functionality, because usability is key to success in this type of applications. User interface must be appealing, yet simple for everyone to navigate. This software type has a larger user base and faces more competition. You also will have to update it more frequently to keep up with trends and incorporate customer feedback.

Internal applications are used within one organization and address its internal issues. External solutions, on the other hand, are intended to serve the outside world.

To build an internal application, you need to conduct a rigorous analysis of your own business, which limits your research scope to your own company. With external products, the team performs market research, which widens the investigation scope. This market study covers more use cases. Based on the sheer analysis scope and possibly outsider expertise, external solutions tend to have higher costs of software development.

When comparing mobile and web applications, mobile apps have higher average software development costs as they are more complicated to build. It’s possible to develop a web application using a content management system (CMS), such as WordPress, even without much technical knowledge. Furthermore, you can reuse website plugins that are rather reliable and have many reviews for you to base your choice upon, while mobile plugins are relatively new and unstable.

Both mobile and web apps need back-end and front-end development. For web applications, both layers require similar technologies, while in mobile solutions both aspects use a distinct set of technologies.

When building mobile apps that include maps, GPS, and other detectors, mobile developers have to deal with more difficulties as they are writing code for RAM-constrained devices, limited processor power, battery, and often limited connectivity. Typically, mobile developers are more expensive than their web counterparts. Here is an average hourly rate comparison from Upwork, which is a platform for freelancers and their fees are typically lower than full-time company employees.

Embedded solutions are more complex on average than mobile and web apps. But they also vary in complexity from bare-metal firmware to proper operating systems capable of performing heavy computations. Embedded solutions introduce the following expenses:

Your software solution can also involve innovative technologies, such as AI, IoT, and RPA. These technologies enhance your app’s potential but simultaneously increase the cost of software development.

Each one of these technologies requires people with a specialized skill set, and niche professionals always cost more. If you are interested in RPA, you will need to recruit domain experts who will help the development team understand the processes to be automated. If you are looking to implement AI in business, you will hire someone who knows mathematics and understands how different machine learning models work.

Let’s take a closer look at the additional costs each of these technologies can introduce.

When we want to incorporate AI into a software solution, there are four possibilities, arranged from the cheapest to the most expensive.

For more information, check out our recent article on AI costs.

IoT will introduce extra software development costs related to hardware and infrastructure.

In the case of IoT development, a company will need to acquire devices — either consumer electronics devices or non-electronic objects enhanced with sensors. The non-electronic “things” may include legacy equipment upgraded using IoT retrofit kits or just consumer goods packaging enhanced with printed tags. It’s relatively inexpensive to create this type of equipment. But if we think of developing hardware from the ground up, it’s a different story with design, manufacturing, and extensive testing.

Regarding infrastructure, you will need to find a hosting platform that is best suited to your needs and pay hosting fees. Popular infrastructure solutions include AWS IoT Platform, Microsoft Azure IoT Suite, and Google Cloud IoT Platform. They have different pricing options and offer some free perks. For example, Google grants $300 free credit to its new customers.

For more information, you can read our blog post on how much IoT costs.

RPA system implementation creates the following additional costs of software development:

The type of industry that your solution will serve also affects software development prices. Products designed for heavily regulated industries, such as healthcare and military, must be compliant with the sector’s regulations. Here is how this works.

Compliance implies the presence of standards that every software needs to abide by. There is an extensive list of rules an expert will read and make sure that your software development team honors them at every stage — requirements specification, design, and coding. These subject matter experts are rather expensive to hire, and you might need to employ several professionals. Based on their expertise, these people know where compliance holes might occur and can fix the issue before it escalates.

Also, the engineers and developers working on such projects need to understand how to design and implement the solution in a compliant way. With all these precautions, you will still need to conduct regular internal product audits to verify compliance at every development stage, which will also increase costs.

Finally, to build a product for regulated industries, you might have to obtain governmental approval, which means hiring even more niche experts who can take over the paperwork and communicate with governmental officers. These experts will also interact with your development team and interrupt their working routine. Sometimes the development team might even need to adapt and reiterate some deliverables if it does not satisfy the compliance rules, increasing the time and costs of software development.

There are three main project types, each one requires a different amount of effort, and hence, has its own software development costs range.

Another factor that influences software development pricing is the size of the project. It can be classified as follows:

The composition, seniority, and location of software development team members will also impact the total costs of software development.

In every software development project, there are at least three roles — project manager, developer, and QA engineer. Other roles include business analysts, designers, architects, etc. For small projects, the same person can act as a developer and QA, or as a manager and business analyst. For larger projects, one role might require several people.

Team members’ experience and seniority level is another factor affecting the costs of software development. Developers are typically divided into three seniority levels:

The hourly rate of different professionals depends on their location, as the costs of living and salary expectations in some countries are considerably higher than in others. For comparison, you can see the table below compiled from Accelerance’s 2023 Global Software Outsourcing Trends and Rates Guide. It showcases the average hourly rate of software developers in different geographical locations.

It seems tempting to opt for the cheapest workforce, but be mindful of time zone and cultural differences. It’s also a safer option to choose team members who can understand and speak your language, even if it increases software development costs.

When working with a software engineering company, you have three engagement models to choose from. These include fixed price, time and materials (T&M), and a dedicated team. Please note that the choice of an engagement model will directly impact the costs of software development.

Let’s see how different engagement models compare to each other:

You may consider partnering with freelancers, which will significantly reduce software development costs but will introduce other risks along the way. For example, you might not be able to verify the freelancers’ credentials and skills; a lack of expertise, meanwhile, could lead to higher project failure rates.

In the table below, you’ll find a breakdown of freelancer, software vendor, and in-house software engineering teams’ rates. This information has been taken from the Accelerance survey cited in the previous section.

The last factor affecting the total cost of software development is the number of integrations. It’s likely that your software solution will not operate in isolation. Engineers will integrate it with external services, such as payment gateways, and with other applications used in your organization.

When speaking of integrating with external services, some of them provide a convenient API that is easy to use, such as the PayPal payment portal. While other older systems make it challenging to connect with them, requiring more development time and effort.

When you build an application for internal use, you want it to work with the other systems in your organization. For instance, your company might use human resources software to identify best-performing employees and a financial compensation program to reimburse employees for work-related traveling. Any new internal application will need to seamlessly share data with those.

Simply put, the more integrations you have, the more costly the implementation process will become. But sometimes even one integration can have a noticeable impact on software development costs, such as legacy systems and portals that lack technical documentation.

Now that you know which factors affect the cost of custom software development, it’s time we give you some numbers so that you can understand how much your application might cost.

When a potential client gets in touch with us, we go through a standard set of procedures to help them with estimating software development costs. Here is what we do:

If the client comes with just a mere idea of what they want and without a detailed understanding of the software they need to build, we strongly recommend going through a discovery phase to identify the requirements and conceptualize the solution. The discovery phase will help you form a better understanding of what you need and communicate it clearly to the implementation team.

We approach the discovery phase in two different ways, depending on the project at hand.

During the discovery phase, we provide a set of deliverables, according to the industry’s standards. Our team will rely on this material during the implementation phase. The client can benefit from this documentation internally, and show it to external platform providers, such as Google and Microsoft.

To produce a software development cost estimate, we follow the expert judgment method and give a range of worst-case and best-case scenario estimates. Here are the steps we take to come up with a price tag.

When determining the hourly rate for every professional, we take the following factors into consideration: