The custom software development market is projected to experience a robust annual compound annual growth rate (CAGR) of 20.3%, with estimates indicating it will surpass $85 Billion by the year 2028.
The demand for custom software development is clearly souring because it allows organizations to build solutions specific to their operations and customer needs. It offers more flexibility to build personalized experiences for customers, and more security as codes aren’t familiar to hackers.
However, when you consider the software costs, it’s easy to find yourself in a dilemma. On one hand, you incur more expenses compared to ready-made applications. On the other hand, estimating the cost to build one for your business isn’t as straightforward as you’d like. Wide estimations between as little as $5,000 to as much as $200,000 and even more tell you one thing — your costs are just as unique as the build or features of your custom software.
Want to know how to estimate the cost of developing custom software for your company? Take a look at our in-depth guide to know the factors to consider and how they affect how much you’ll spend. Let’s get right in.
Factors influencing custom software development cost
From the composition of the software development team to licensing fees, the project timeline, and the software development methodology utilized, here are the key elements you should consider when estimating the cost of custom software development.
1. Composition of the development team in terms of expert-level
The experience and expertise of the development team are major factors that affect the cost of custom software development, and it isn’t hard to see why.
The more experience and expertise developers possess, the more competition there is for their skills, the fewer mistakes they make during development, and the more efficient your software development life cycle is. This means their rates are quite on top there.
The levels of expertise with employable software development skills can be divided into three;
- Junior Software Developers
- Mid-Level Software Developers
- Senior Software Developers
With developers generally working an average of 40 hours per week, you can expect the following rates:
- $43 per hour for a junior software developer
- $55 per hour for a mid-level software developer
- $72 per hour for a senior software developer.
These costs can be higher or lower depending on the years of experience and even the industry.
For instance, using estimates from Glassdoor, a junior software developer with less than one year of experience would cost less than a developer with four years of experience. In the same vein, a junior developer with four to six years of experience building in the legal industry would cost less than a developer with the same level of experience in the healthcare industry.
2. Complexity of the custom software
Complexity relates to the amount of resources needed to code, debug, test, modify, deliver, and maintain the software. It is the difficulty level in carrying out the development tasks. And this difficulty is determined by two major factors; design complexity and code complexity.
Design complexity relates to the intricacy of the pre-implementation build. This pre-implementation build or design affects the number of resources, modules, methods, and attributes, among others, needed to build the software. It also affects how these resources are grouped, interconnected, and reused.
Code complexity relates to the difficulty of the source code needed to bring the design to life. The higher the complexity, the more expensive the software gets.
We can take a comparison of Food apps and the cost of building Telecoms OSS Systems in the US, as examples.
Food apps are majorly concerned with UI and UX design elements, where you find the perfect mix of navigation, color, CTA, content, and other user-facing elements to achieve success. Back-end designs will majorly focus on reducing latency and managing traffic to the app.
Telecoms OSS systems, on the other hand, require you to make resource considerations for Software-Defined Networking (SDN), network inventories, fault management, service provisioning, E2E service orchestration, and big data analytics, just to mention a few. This is why it is no surprise that, while a food app may cost you on average between $20,000 to $75,000, a telecoms OSS system will cost you between $100,000 to over $20 million.
The more complex your software program is, the higher the possibility for errors, the more time spent building and maintaining code, and, hence, the more expenses you accrue.
3. Integrations needed
Integration with third-party software programs is almost inevitable, given the requirements of the tech industry today.
From integrations for version control purposes to integrations for server management, and integrations for overall project management, connecting to and between pre-existing tools or software helps you save development time. Integrations also help avoid building new supporting solutions every time you build a new software product.
However, the number of integrations and type of integrations needed to power your software determine how much you spend eventually. With custom software development, the common types of integrations you would be most concerned with include:
- Point-to-point integrations
- Integrations through Enterprise Service Buses (ESBs)
- Integrations through Platform as a Service (iPaaS) providers.
Point-to-point integrations give you the most control. You write custom code to link third-party applications directly to your software program or development environment.
ESBs are middleware solutions that are used to connect on-premise applications.
iPaaS providers allow you to connect cloud-based third-party applications and manage them through the cloud.
Point-to-point integrations prove to be the most expensive due to the amount of development time needed to create and maintain integrations.
A cost-benefit analysis by Infomentum shows us what to expect for 15 enterprise-level integrations with an addition of six integrations after each year. You save at least £100,000 ($125,000) in the first year and up to over £200,000 ($250,000) in the third year by opting for ESBs (specifically the Mule ESB) over P2P integrations.
Although ESBs and iPaaS platforms work similarly, ESBs are more expensive than cloud iPaaS integrations due to their more complex configuration requirements. For instance, the Mulesoft Composer, a no-code iPaaS, costs as high as $57,000 per year for its Plus plan, while the Mule ESB may set you back up to $161,000 per year.
4. Third-party licensing fees affect custom software development cost
Now, still on the topic of third-party engagements, the licensing fee through which you have access to third-party applications and environments also has an impact on the cost of software development.
For software integrations, licensing is typically split into two models;
- A perpetual licensing model, where you buy and own your software
- Software as a Service (SaaS) model, where you pay a subscription fee to access your integrated software.
While a perpetual license may be more expensive upfront, you don’t have to spend more money to use your software solution. Instead, you may only pay for access to updates and maintenance.
SaaS licenses, on the other hand, are less expensive upfront as you don’t have to pay for hardware and data centers. With managed SaaS, you also don’t have to hire IT staff to maintain application uptime. However, you always have to pay monthly fees — costs that build up over time.
For example, let’s look at ManageEngine’s Endpoint Central, a tool for endpoint data and security management.
To manage 100 endpoints, ManageEngine offers perpetual access to its on-premise product for a one-time fee of about $3,600. However, it has a cloud subscription alternative where you have to pay just $104 per month to manage these same 100 endpoints. Hence, you need to pay $104 for 38 months (3 years) before you spend $3,612. However, after three years, you continue spending $104 per month afterward without any ownership.
Our comparison means that if your overall software lifespan is expected to last for less than 3 years, or your need for the Endpoint Central tool will not last long after, working with little payments of $104 per month will be more beneficial. However, for more long-term purposes, you can choose to buy the $3,612 on-premise system upfront.
What’s more, subscription models are also provided through different plans and these plans come at different prices per month. Plans come with different numbers of features based on your requirements, and may also allow you to onboard different numbers of users.
For instance, Asana, a project management tool, offers its Basic subscription plan for free, its Premium plan for $10.99 per user per month, and its Business plan for $24.99 per user per month. The higher-priced business plan is the only plan that allows for time-tracking and portfolio management, which you may want to incorporate into your software development workflows. Hence, you spend more.
5. The tech stack required
A tech stack refers to the combination of tools needed to successfully develop and deliver your software product. It’s typically a combination of the following:
- Programming languages
- Version control tools
- Continuous Integration (CI) tools
- Continuous Delivery
- Project management tools
They all combine to create, deliver, and maintain the software.
The needs of your software development and supporting IT operations determine the composition of your tech stack. The aggregate cost of licensing tools in the stack and the cost of expertise to manage these tools then factor into the overall cost of custom software development.
You most probably know that MEAN (MongoDB, Express, Angular, and Node) and MERN (MongoDB, Express.js, React.js, and Nodejs) are the most common stacks.
6. Hiring model: In-House vs. Outsourcing
When hiring developers for a software project, there are two models you can go by; in-sourcing vs outsourcing.
- in-sourcing involves assigning development tasks to personnel already working as employees within your company. Where you don’t have employees with the skill required to build, in-sourcing also involves hiring new developers to work as in-house employees.
- Outsourcing, on the other hand, involves giving out tasks to an external actor. It involves designating a specific software development task, project, or role to a custom software development company with specialized skill and knowledge in it.
in-sourcing gives you full control over all development projects. However, with this full control comes increased responsibility and, hence, increased costs.
With in-sourcing, you need to have all the resources and tools needed to develop your software in-house. This means, for instance, if you need server management services for 50 servers in the test environment, you may need to perpetually purchase an on-premise ManageEngine Endpoint Central system for $3,998. What’s more, you may then incur additional costs of up to $14,000 to train your in-house employees or hire new staff with the right expertise, adding an extra $50/hour to your payroll.
With outsourcing, your third-party service provider already has the specialized expertise and adequate tools needed for the specific role or project. Although you lose full control over your development processes, you incur fewer costs, as you may, for instance, only pay as little as $22/month/server (i.e. $1,100 for 50 servers). You only pay for the specialized service rendered.
However, where you don’t need new hardware, new employees, or intense training, in-sourcing can be more cost-effective.
7. The custom software development methodology
Software development methodologies are structured frameworks or processes through which the software is built. The common frameworks include:
- Waterfall methodologies, which involve one-way progression between development phases
- Agile methodologies with change management and collaboration across cross-functional teams.
- Rapid Application Development (RAD) methodologies like DevOps which focus on delivering products as fast and as efficiently as possible.
Just like with every other factor, the specific software development requirements determine the methodology you choose, and the methodology affects the overall custom software development cost.
Here is a quick comparison of Agile methodologies and DevOps methodologies.
Agile methodologies typically estimate a budget before the project begins and work to stay within the budget. A burn rate is used to monitor that the cost of iterations stays within the budget. With a budget of $150,000, for instance, you will monitor a cost of $12,931 per one-week iteration.
Since agile methodologies involve frequent change management, this budget is frequently reviewed to fit new requirements, and processes are reviewed to manage expenses. Hence, Agile expenses depend on the pre-estimated costs and changing budgeting needs.
The DevOps methodology, on the other hand, involves more fixed estimations. It is more advanced in implementation, and, hence, requires more upfront investment. With high-velocity infrastructures, automation playbooks, continuous integration, and continuous delivery architectures during development, you may expect to spend as high as $100,000 to $500,000, and even more upfront on tools and technologies. However, due to its focus on improving development efficiency, DevOps is often likely to be relatively cost-effective as the years go by.
8. Geographical location of the custom software development team
The geographical location of the software development team plays a very crucial role in determining labor costs.
Here are some examples;
- On the lowers side, software developers in the US earn an average of $105,000 per year ($50 per hour for 40-hour weeks)
- Developers in India earn an average of $10,900 per year ($5 per hour)
- Developers in European countries like, say, Poland, earn an average of $59,460 per year ($28 per hour).
Cheaper labor is seldom the best option, and trying to save money by hiring low-cost developers can mean more harm than good for your custom software project. However, finding a balance, like hiring developers from mid-priced geographical locations, can help you save costs without risking quality.
9. Project timeline
The projected length of the software development timeline also determines how much you eventually spend. This is where the per-hour costs of hiring developers, as well as the costs of renewing licenses, come in.
For instance, expect to spend around $47,000 if your licensing fees cost $1,000 per month and your software is developed within 3 months by two junior developers in the US ($43 per hour). With two senior developers, this cost goes as high as $75,000 with the same licensing costs. There’s even more.
Strenuous development deadlines also increase the overall costs of custom software development. This is because developers typically charge more for express work, or you may have to hire more individuals into your team to meet tight deadlines.
10. Maintenance & Support
Custom software development, especially for continuous methodologies like Agile and DevOps, doesn’t just stop at software delivery. You also need to consider the support operations required to keep the application up and running throughout its lifecycle.
Maintenance operations may involve:
- Continuously analyzing data
- Implementing security workflows to protect data and infrastructural integrity
- Gathering feedback from users
- Using software and user-generated insights to make changes to deployed software versions.
These changes may either be corrective (to fix bugs), adaptive (to implement emerging technology), perfective (to maintain demand for the product), or preventative (to maintain utmost uptime).
Studies have shown that the software maintenance phase takes up 67% of the total cost of the software development lifecycle.
Of course, software maintenance expenses are ultimately determined by the labor cost of hiring continuous development personnel. Other expenses may also include the cost of integrating additional third-party software to scale as business needs grow.
Conclusion: How to ensure you get what you pay for
Custom software development can prove daunting, particularly for business owners or managers with limited technical experience in software development. We have seen so many cases of money getting lost and lots of time wasted. You can avoid this.
There are essential strategies to help you choose the right custom software development company and receive what you pay for.
Firstly, thorough research is critical. Engage in extensive exploration to comprehend your specific software requirements and the involved technologies. This will enable you to make well-informed decisions throughout the development process.
Secondly, define your software requirements in detail. Clearly outline and document all your specific needs. A comprehensive specification will help developers understand your expectations and deliver accordingly. It’s also crucial to establish clear deliverables and deadlines for the project. Setting distinct milestones and timeframes ensures that progress is measurable and keeps the development on track.
Thirdly, prioritize user acceptance testing (UAT). This involves having end-users or clients validate the software’s functionality and usability. UAT helps identify any discrepancies and ensures the software meets its intended purpose.
Finally, please pay attention to these characteristics of a great software development company.