October 01, 202014 Min Read

Custom software development cost and pricing models

Staying competitive in today's marketplace means being up to date with technological advancements. As the majority of business transactions happen via online platforms, companies that offer service or product have to keep their applications modern and innovative. It is the reason behind the increased popularity of custom software development. Startups, small businesses and big enterprises prefer to develop custom software to meet the growing demand of modern society. At the same time, express their brand identity, optimize the workflow, increase productivity and efficiency, provide better customer experience or offer innovative solutions. We can all agree on this. But, whenever the subject of developing a custom software arises, many companies ask the same question: What is the cost of custom software development?

The answer is - it depends. While you might get some idea about the costs based on the average hourly rates of different companies, in the end, it all comes to what kind of software you want to develop. In this article, we will discuss all you might want to know about how to estimate the cost of software development.

Average costs at different types of tech companies.
Key factors that affect the price of development.
Pricing models of development companies.

The average cost of software development

Companies provide their estimates considering the complexity of the project and the price of their expertise and time. To make a rough estimation of the costs you need to calculate the average hourly rate and time spent on development.

Average hourly rate

When you want to develop custom software, you have a handful of options:

Small tech companies
Middle-sized companies
Big businesses
Enterprises
Nearshore/offshore tech/outsourcing companies

The average cost of developing a software might range from $25 to more than $800 an hour. It depends on the size and class of the company.

Enterprise-class and big tech companies work with the government and huge businesses. They have hundreds of employees in offices all around the world. As you can guess, their expertise is not cheap at all. Such companies have the highest hourly rate and are not accessible for many.

Mid-sized and small companies have an hourly price range of $100 - $200. Small-sized ones often focus on one or two expertise, rather than the whole spectrum of software development. Thus, you will have to check if they will be able to handle the project you want to develop. At the same time, as they do not have enough human resources, the development process might take longer than what was estimated. As for the mid-sized companies, they might be a solid choice, yet before you start working with them, you need to check their success record and make sure that they have completed several projects successfully.

Cost of software development with nearshore and offshore developers might range from $25 to $70. It depends on the complexity of the project and the location of the vendor. They have lower rates, but it does not mean that they also have a lower quality. Nearshore and offshore companies work from developing countries such as Eastern Europe, Asian countries, and South America, where the costs are lower. Thus, they can provide high-quality service at a lower price.

Average duration

Based on the rough estimation, we can divide software projects into three categories: apps with simple functionalities, apps with medium complexity and complex software.

Basic applications that have simple functionalities might take up to 500 hours to develop.
Application with medium complexity that has more complicated features might take up to 1200 hours.
Applications with complex architecture, integrations, security etc. can take-up more than 1200 hours.

Knowing how complex your application is, you can roughly estimate the average cost of it. For example, the cost of developing the basic app with a small company would be approximately in the range of 50,000 - 75,000 USD. The same app might cost you around 12,500 - 35,000 USD in offshore companies.

Again, it is a very rough estimation as it does not imply any specifications of the project itself. Some big and small details can significantly change the cost of software development.

Factors that determine the cost of software development

Cost and time estimation is the trickiest part of estimating the project costs. And as the time and cost are often intertwined, the inaccurate cost estimation might set the project up to fail. Here are eight key factors that determine the final price.

Size of software

Size of the software depends on the number of screens. A screen in that context is every new page that appears when you push a button on the app. For example, if you open an app, click a menu button and a new window appears, it is a new screen. Similarly, sign up page and change the password page are two different screens. Accordingly, the more pages or screens the app has, the bigger the software is. The size of the software plays a huge role in the determination of the cost. More screens mean that the company should create more designs, dependencies, etc.

You can consider an app with up to 25 screens to be small. You can expect the cost of such software to be up to 75,000, but again it depends on the company who will develop it, and other specifications of the project.

The complexity of the project

Every project is different based on the complexity of it. It depends on the number and type of features the software has, as well as its logic. Although the two apps can have the same number of features, their complexity might be different. Hence, the implementation price varies too. One feature might need more complex coding, time, and thus cost more than another. For example, push notification and payments are two distinct features. Implementing payment options will take longer, and require more code writing than push notification and will cost more. The more features the software has, the more complex and hence expensive it is.

Supported platforms

When you have a project in mind, you should consider the platforms you want the app to work on. If you want to create a website for the brand-new business, you might want it to work on Android and iOS as well. In such a case, you might require cross-platform software. Or you might want to develop a mobile application for iOS or Android only. A desktop tool, iOS and Android apps or cross-platform software require different resources and have different nuances. Hence the cost of development is diverse too.

The design

You might create a perfectly-working software, but users will still evaluate it based on its design. Depending on the purpose of your software, a bad design might cost you a lot of present or future customers. Especially now, when the aesthetics only will not make your application stand out. Today it is all about having a user-friendly application that creates good user experience. Hence, UX/UI is one of the main components of software development and can considerably affect the cost of developing software.

The cost of it highly depends on the complexity of the design. If you want to bring in a lot of interactive elements the price will increase. Bear in mind, that it is rare to create a design that will not change in the process of the development. Which means there will be more hours of work and the cost can increase further.

Technology

The technology stacks companies use to develop software are not the same or equal. You can write software in one API. However, in many cases, back-end and front-end of the app are written in different programming languages. Sometimes even a single feature might add a completely different programming language to the software. They should merge well together and work seamlessly. It makes the project more complex, demands more time and expertise too. Hence, the technology stack can make your software more costly.

Integration with other systems

You might want to integrate your new software with external applications. Depending on what are those external applications, it might be an easy job or on the contrary, demanding and time-consuming task. For example, integration with PayPal or other basic payment providers can be easy. However, integration with some other apps might require a lot of effort and time. Thus, the cost of software development will fluctuate based on the number of integration and the external apps you want your software to integrate.

Migration of data

It is relevant for you if you want to develop a new application and move large sets of data from the existing app. If you have very little data, the migration process can be manual. However, it is unlikely. The data migration process itself is not very difficult. But to take data from the old system and move it to the new software developer should set rules of translation as the data should be reshaped before the migration to fit the new app. The developer should create a custom script and start the migration process, during which he or she should run tests and adjustments to ensure the proper migration. It will affect the cost of development.

Support and maintenance

Companies often need ongoing support and maintenance once the development of software is complete. It increases the cost of developing software. Needless to say, that the project might finish, but you might want to add or change some features, which adds up extra costs.

Different pricing models of software development

While estimating software development costs, you need to consider which pricing model to choose. Based on your project specifications, some pricing models can be more suitable for you than others. Usually, software development companies or outsourcing vendors make several options available for you. At the same time, once you provide requirements for the project, they will advise you the model accordingly. However, it is reasonable for you to know your options upfront.

Three most popular pricing models are:

Dedicated development team
Fixed-price
Time & material

All of these pricing models have advantages and disadvantages. The choice depends on the specifications and needs of your project.

The dedicated development team model

The dedicated development team model works the following way. When you want to build software, instead of hiring the company to create it, you hire the team through the outsourcing vendor. The team works a similar way as the in-house development team. Based on the specifications of your project, the outsourcing company is creating the profiles of the experts and recruits them. While the outsourcing vendor takes care of administrative tasks, your company is accountable for managing the team members. This model brings you more control and flexibility. You can set tasks, and re-arrange them as you need during the development. The cost of developing software with this model includes monthly salaries of the developers and extra charge for the administrative tasks the outsourcing company handles for you. These charges are specified in the contract, and you know the monthly cost of your software or project exactly.

This pricing model is suitable for companies that want to develop a sizable and complex software. It is also beneficial when you know that some specifications of the project might change during development. When you have a dedicated team, you can painlessly change tasks and priorities as you have more flexibility. You can hire a dedicated development team for as much time, as your project requires.

How is the cost of software development calculated with the dedicated development team model?

The outsourcing vendor calculates hourly/monthly salaries of the developers based on your requirements and their expertise. Adds up the administrative charges and offers a monthly fee for the full service.

The final cost of your software depends on the arrangement of the team, and the time you will take to complete the project.

Fixed-price model

As the name suggests in this model specifications of the project is fixed. The company you hire for software development provides estimates based on the specifications you provide for your project. The budget, specifications and the time of delivery are fixed. You know what exactly you will get, when and for how much.

This model might come with different variations. For example, you might have a set deadline but be more flexible with the other terms, such as budget and some of the functionalities. It is often the case when companies hurry to release new software. Similarly, you might have a sensitive budget and be more flexible with the time of delivery. In such a case, the company will focus on creating the best possible application for the set budget.

This pricing model is great for you if you know what kind of software you want to develop exactly. You have a limited budget, limited time, or both. Since this pricing model is less flexible, you will not have many possibilities to change the functionalities of the project without it affecting the budget and timeline. Thus, it is always better to use this model when you have decided on specifications and have the documentation of the project.

How is the cost of software development calculated with the fixed-price pricing model?

The company that is responsible for developing the software calculates the time needed for each functionality. They calculate the hourly rate for designing and developing the software considering the complexity of it. Also taking into consideration the other factors we have discussed above. As a result, you have a calculation and timeline for the project. You know the software development cost and date of delivery.

Time and material model

In the time and material model, companies charge you for the hours and cost of materials spent on your project. The cost of materials includes the cost of everything related to the development of the software. The main advantage of this model is that it gives you the flexibility to change some of the specifications of the project, without incurring high extra costs. It is the best model for modern agile methodologies.

While you still have the estimated budget and time for your project, it is still flexible. You agree on costs not only at the beginning of the project but after set intervals, for example, after each month of development. It gives you the possibility to painlessly change the requirements or add some new functionalities.

This model is most suitable for you if your project is more complex and takes up to several months to develop. Also, when the project requirements and specifications are changing during development.

How is the cost of software development calculated with the time and material pricing model?

The company you hire for the development calculates the price of developing specific functionalities and tasks. You know what tasks will the company complete in the set interval, as well as the cost of the development. Hence, after the intervals, you pay for the completed tasks.

The total cost of developing software might not match the initial estimation as you might add or change the functionalities during the development. However, you will know the monthly cost exactly.

Our approach to software development costs

At Flat Rock Outsourcing, we offer different types of pricing models. We work closely with our clients to create a tailored strategy and estimation that reflects the needs of the projects and is in compliance with the business goals of our customers.

Our dedicated development team pricing model is transparent and clear. We dedicate our time to find the tech-experts of the industry and recruiting them to form the highly-efficient team of developers for your project. When we work with the fixed-price or time and material model, we carefully estimate the cost of developing software. After hearing the initial specifications from the client, our team creates an initial high-level scope based on the vision and objectives the company has.

Do you have a project you want to develop? Contact us for a free consultation! Our consultants will let you find the right pricing model and provide the estimation for your new software.

Have Questions?

Whether it's about this article or your next project, our experts are here to help.

Similar Blogs

View All