01 What factors impact the costs of software development?
a 1. The development team you hire
b 2. Technical requirements of your project
If you're reading this article, you probably want to know how much it really costs to develop high-quality software in 2020. What are the critical factors that impact development costs? How to make sure you get quality code?
Pricing is a key issue for any business looking to build a digital product. While it's not easy to estimate the cost of software development because so many different factors shape it, there are still some things you can take into account to make an estimate.
Here's a comprehensive guide to the pricing of software development services to help you get the best value for your money.
What factors impact the costs of software development?
Numerous factors can influence the cost of software development, especially if you're building a custom solution. Here are three critical elements that we believe business owners should be aware of when making decisions towards developing custom software.
1. The development team you hire
Businesses that want to build custom solutions can basically choose from three different options:
- they can build an in-house team of software developers,
- hire freelancers,
- or outsource parts of or the entire process of building custom apps to a software development agency.
Let's take a closer look at each of these options to show you how this choice impacts the price you pay for custom development.
a. Hiring freelance software developers
There's no denying that this option is the cheapest one. But it comes with several disadvantages:
- First of all, freelancers can't give you any guarantees that they deliver your solution on time.
- It's also difficult to assure that the final product quality matches your expectations.
- If you choose this option, you're the one responsible for supervising the development process, and that might be difficult while you're trying to focus on growing your business.
- And what happens if you have absolutely no experience in managing software development teams? This is another hurdle you'd have to deal with when hiring software freelancers.
In the worst-case scenario, you might end up with a sometimes unfinished solution full of bugs and need to invest even more resources into fixing it.
b. Building an in-house development team
Hiring software developers and creating an internal team is a great idea if what you have in mind is a long-term project (and have the necessary resources!). The undeniable advantage of having an in-house team is that you have full control over the work and quality they deliver at all development stages.
However, here's the drawback: recruiting full-time developers who are up-to-date with recent technologies and have the expertise you need will be time-consuming and expensive. In some regions, it will be even more time-consuming and expensive than others.
This solution is the most expensive one because you not only have to pay the salaries of full-time developers but also a wide range of overhead costs such as hardware, taxes, holiday and sick leaves, or software licenses.
c. Outsourcing to a software development agency
The last option offers a balance between the two previous ones. By teaming up with a software development agency, you get access to vetted and experienced developers who have previously collaborated together and have solid processes in place to guarantee top quality.
Learn more: 3 software development models of collaboration you need to know
At the same time, outsourcing the process of creating custom apps to another company is more cost-effective because it doesn't force you to hire and maintain a full-time team.
Moreover, software engineers were part of such agencies that have experience in working on similar projects for other clients and can advise you about functionalities and business issues such as product monetization. A dedicated team of software developers can work on your solution full-time. And when your project needs change, you can easily scale the team up and down.
We believe that flexibility and high quality is what makes outsourcing such an attractive option for businesses.
To see how we provide scalable teams to our clients, read this case study: How our team built key product features for the employee performance tool 15Five
2. Technical requirements of your project
Another factor that influences the pricing of custom software development is the unique technical requirements of your project.
If your project requires the expertise of senior and mid-level developers who specialize in particular technologies like machine learning or data science, expect to pay more. These tasks aren't going to be the domain of junior developers who can only handle simple tasks.
Mid-level developers and senior developers know how to deal with complex technical problems and can provide you with the expertise you need, develop the architecture for your solution, and find a balance between the technical and business needs of your project.
However, they come at a higher price. So the more complicated and demanding your project is, the higher will be its cost.
The hourly rates rise together with the level of seniority of the software engineers you hire. And it doesn't matter whether you hire freelancers, build an in-house team, or outsource to a software development agency.
Finally, business owners should be aware that the rates of software developers vary a lot, depending on the geographical location. Where you hire software developers will also influence the final price of your project.
Some regions of the world are known to be very expensive – for example, Western Europe, the United States, and Australia. Others offer more cost-effective services – like India or China.
However, a good balance between the two is the outsourcing options available in Central and Eastern European countries. Companies choose to outsource to Poland or other countries because they can provide them with high-quality at local rates, which are still more advantageous than in other regions of the world.
Software development hourly rates
The hourly rates of professionals you hire will depend on their location and seniority. Hiring freelancers is often the cheapest option (note that freelance contractors in locations like London or NYC can be quite expensive, with rates like $100-150/h). Let's have a closer look at another option for custom software development – outsourcing to a software company.
The business model of such companies is also a key factor influencing the price of building your solution. Here's a brief overview of the hourly rates you can expect from agencies located in the most expensive regions of the world.
These are the largest players on the market that usually have hundreds or even thousands of developers and consultants on board. Most of the time, they work with Fortune 500 businesses and governments as these are the only ones who can afford their rates. The projects realized by such companies usually start at $500,000. Hourly rates range between $350-550.
Note that quality doesn't always come guaranteed with such a high price tag. Many enterprise-level companies don't have the patience to build a Minimum Viable Product and add additional features with new iterations. Instead, they prefer to develop the entire product upfront. This approach is risky because you'll be developing your custom software without exposing it to user feedback early on.
Such companies work with other large companies that aren't willing to pay the cost of engaging enterprise-class software agencies. Still, such companies usually count from 100 to 1000 software developers and operate in several offices around the world. The usual hourly rates range between $200-$300 per hour for projects that start from $125,000 and can reach several million.
Key advantage: Such companies tend to be popular in software development communities so they can attract top talent and build skilled teams. However, signing with such a company comes with high rates and potentially project minimums.
Such companies offer the absolute best balance between quality and cost. Most of the time, they count between 10 and 100 employees and work for small- and mid-size businesses. Occasionally, they team up with Fortune 500 companies for smaller projects like Proof of Concept. They're hourly rates range from $75 to $175/hour, and projects range in size from $50,000-$300,000.
Boutique custom development shops
Such companies employ a handful of people to keep their expenses low. They employ from 2 to 20 employees and tend to work with small or mid-sized businesses. Their rates are similar to mid-level class companies.
Usually, such small agencies specialize in one specific area, such as e-commerce solutions or mobile app development. Sometimes they also choose a programming language or framework such as React Native or Node.js.
If you need help in such an area, this could be the right choice for you. For example, if you need to build an application in Python because of your existing ecosystem or project requirements, hire a Python development company.
Freelance developers rates
The rates of freelance developers depend on their experience. Junior developers are much cheaper to hire than senior developers. However, it's only mid-level and senior developers who have the experience coming from working on dozens of custom software projects. They can advise you on the best technology choices and solve complex problems. Still, most of the time, they specialize in one area that like frontend or backend development – or a specific technology. Relying on their limited expertise might cause you to miss out on cost-effective solutions or smarter technology choices.
Offshore and nearshore development companies
Outsourcing providers come in different forms. They can be even large organizations with a great number of staff spread across the entire world. Their rates will be significantly lower than the software companies located in regions like the United States or Western Europe, with nearshore agencies usually slightly more expensive.
Outsourcing the development of custom software to such a company comes with some risks. However, experienced providers have strategies in place to mitigate them and focus on what matters: the cost-efficiency and expertise that comes with such collaborations.
When outsourcing your project, you get a chance to tap into talents located all over the world. Just beware of tactics like quoting very low hourly rates but overstaffing the project with redundant resources.
Here's how it works:
A medium-sized project outsourced to such an agency often includes five full-time professionals: a frontend developer, a backend developer, a project manager, a business consultant, and quality assurance (QA) professionals. But the truth is, you can easily get away with a project manager and QA specialist hired part-time and no business consultant on board.
At Sunscrapers, we believe that building the right dedicated to team up for our customers is the first step to successful collaboration. It depends not only on our experience but also the project requirements supplied by our clients before we begin collaborating.
We prepared a guide to help businesses prepare for outsourcing: Software development outsourcing – How to prepare an outsourcing plan in 4 steps
So how much does it cost to build a software solution?
Given the above, you can probably tell that answering this question is very difficult because so many variables will affect the final price of your project.
Your project size and complexity, unique project needs, application features, as well as the three factors mentioned above all influence the final price. We know that software estimation can be tricky, but here is some information just to give you a sense of how much it costs to develop custom software.
- Basic applications – such apps usually take a team 500-700 hours and cost anything between $20,000 and $80,000. This model works for simple mobile applications that have a well-defined and limited set of features.
- Medium-complexity applications – they take approximately 700-1200 hours to build because of their more complicated features. They cost from $80,000 to $150,000. For example, it can be a customer-facing server application or an enterprise app that offers web and mobile functionalities.
- Complex applications – such applications take 1200+ hours to complete and often require complex architecture design, multiple integrations, and high security. Enterprise software that features complex business logic or sophisticated reporting apps is a good example.
Why is building custom software so expensive? Mainly because it requires more than just software developers. It's a combined effort of many skilled and talented people, such as data analysts, project managers, UX/UI designers, and QA analysts.
Fortunately, businesses can use a few methods to reduce the software development cost – read this article: Software development costs – here's how to reduce them
How to estimate software development costs?
First, accept that your estimate isn't going to be 100% accurate. Software developers will estimate the cost and timeline of projects in many different ways.
Here are some best practices we use for estimating projects:
- Involve all the business stakeholders in the software estimation process. Make sure to do it early on to understand what is important in the software development cycle. This enables business leaders and the technology team to share the understanding of the project.
- Define your project requirements and then document them. Poor requirement definition is the most common reason why software estimation projects fail.
- Break the requirements down. That’s how you enable the team to build each requirement in a short amount of time. If you stumble upon a requirement that seem to be impossible to break down, it's possible that you don't understand them very well or not well enough for accurate estimation.
- Pay attention to leadership. If team leaders don't know how to explain in the objectives or business drivers behind the software during estimation sessions, prepare for trouble. It's impossible for developers to write quality code when they're not sure about a particular requirement.
- Be sure to provide the team with all the details upfront. That type of transparency usually shortens the process of software estimation.
- Invest in building an effective QA testing plan.Come up with metrics you need to measure the progress of your project.
- Your team needs to test early and often. A QA process will help everyone identify problems while the code is still fresh in developers' minds.
So how much should you pay for quality code in 2020? We hope that all the questions we've answered the above help you see that while it's impossible to estimate the software development cost accurately, you can still get a general sense of the price you're likely to pay for custom software.
If you have any questions, feel free to reach out to our consultants. We're skilled in estimating software projects and can work with your team to help you develop software requirements before entering the development phase.