How Much Does Software Development Cost?

Naveen Joshi

September 1, 2020

How Much Does Software Development Cost?

Understanding how much it will cost to develop a new software can be a confusing thing. Budgeting and pricing software projects depends on understanding the cost of software development, and there are a number of factors to consider when pricing a project.

Expectations

Managing expectations and communicating clearly is key when it comes to pricing a project and predicting just where your money will go as your software is developed. If you go into a project with a vague idea of what you are looking for, you will probably spend a lot of time and money without any concrete results

To accurately estimate the cost of a project, you have to fully understand the problem you are trying to solve and have a clear vision of how the software will help find the solution. Having a grasp on, formulas, workflows, and other core architectural issues at the start of a project will help you project costs, find places for saving money and avoid going over budget. Discuss pricing with your developer, prioritize a list of must-have and could-live-without features, and work with your team to understand where your money is going and what road bumps could lead to spending more as the project progresses. There are many technologies available and understanding at is right for your project will eliminate extraneous costs and guessing games. There are unscrupulous developers out there who would like to build you a java applet when a few lines of JavaScript would do, and if you don’t understand the difference between the two, it is likely you will pay more than you need to for development. 

An unfortunate reality in software development is also the “ask a barber if you need a haircut” phenomenon. Every developer has their favorite tools, databases, and they like to use them. When you ask a developer for advice on what tools to use, they often respond with their favorite, which are not necessarily the correct or most cost-effective ones for your project. When you are aware of the different technologies available, and make the choice yourself what to use rather than letting the developer decide, you have a much higher probability of a swift and budget-friendly outcome. If it helps, ask your developer to recommend multiple tools for your project and research which of those will meet your needs at a low cost, and which are worth splurging on for the long-term success of your development.  

At the end of the day, knowledge is power, and the more information and understanding you have about your project, the better it will turn out and the closer to on-budget it will be.

Types of Project and Costs

There are different types of software development work agreements, each of which is appropriate for different situations. 

Fixed-price contracts​ typically have an agreed-upon price and pre-determined milestones. These are beneficial because the developer absorbs the risk of time delays and unknown issues regarding how long your development will take. If there ends up being more work than expected, or the developer isn’t certain how long it will take to do something, this is a good choice. 

The cost of fixed-price software development work can range from a few dollars on sites like Upwork, to millions of dollars. Generally, the more money that becomes involved, the stricter the contract, and more concrete the deadlines. It is often possible to get very good value for your money with fixed-price contracts. 

Fixed-price projects are also the most complicated way to hire. It can be difficult to regulate the hours worked on a project. If a developer is motivated and everything goes well, it can turn out nicely but it is also possible that the developer has other, better-paying, or hourly work that will be prioritized. Because you are not getting a timesheet or invoice, it is very difficult to make any demands or control the number of hours worked. Another thing to keep in mind is that a fixed price job gone wrong can put a developer in financial trouble. If the amount of work is vastly more than expected, while you think you are getting a good deal, the developer is actually becoming financially unstable and could either face bankruptcy or just disappear. This can leave you with a half-finished project and no developer. So, while initially driving a hard bargain for a fixed price job with a developer seems like good business, it can backfire. 

Hourly contracts​ are the most common type of contract work used for software development. Hiring someone hourly sets upfront expectations about not only the price of the work but the number of hours they can commit to the project. 

It is also easy to get an estimate of how much per hour a specific software development task will cost. You can get quotes from multiple developers without committing to hiring someone. 

In general, as with so many other things, you get what you pay for. Lowball offers from offshore developers may seem tempting, but developers who can command higher rates are charging higher rates. 

By choosing to pay hourly, it is easy to understand how many hours are being worked on your project and make demands regarding the pace of the work. If you have a concrete deadline and you need to be sure the work is done by a certain date, an hourly contract will help make sure that the hours needed to finish the project are being worked. 

Disadvantages of hourly contracts are usually felt when things take longer than expected. If the project ends up taking a lot longer than anticipated, or there are scope changes, the project can get more expensive than originally budgeted. 

If you believe your project will require full-time work from one or several developers, ​hiring someone​ could be the best solution. With a new hire, you negotiate salary and other benefits up front, and both parties are obligated to stick to that agreement. 

Obviously, a hire of one or more people will only be possible for the more wellfunded employers but a long term project that requires 40 or more hours of work per week will often be best suited to full-time employees. You could certainly pay a contractor or an agency for a full-time commitment, but having someone on your payroll has a number of advantages in terms of being able to control the project.  

Doing it yourself​. While this solution may not be for everyone, doing it yourself is the way to go for some development projects. If you develop your own software, the only cost is time and development overhead. 

As more and more people learn to code, it is common that small projects are done in house. Before you hire someone to do software development for you, it might be worth considering if this is a task you can manage yourself with a bit of learning.  

Other Costs

There can be other costs besides labor to consider when it comes to software development, usually related to servers, hosting, domain registration, email, cloud computing fees, and office space. It is common for developers to do work on their own workstation and deliver the code via a service such as Github. Sometimes, however, there is the more complicated infrastructure required for the development process. If you anticipate a need for a physical development environment for your project, it should be agreed with the developer in advance who will pay for it. 

A typical development server should not cost more than $20 per month, and anything over $100 per month should start to set off alarm bells. Software that is in development does not need the same level of infrastructure as a production system, so most cases should not require expensive development environments.

Pitfalls

Things that can create problems for a software project and cause it to come in late or over budget are not all necessarily unique to the software industry, but there are a few things that commonly create problems. 

One common issue is the lack of documentation. When software is poorly documented or commented on, it is difficult for others to understand. This creates a time burden for anyone who comes later and needs to understand or work on the code. Poorly commented code becomes more expensive over time. 

Another common issue is unmaintainable code. Code that is not easily upgradeable and maintainable will inevitably cost more money in the long run as the amount of labor required to keep up with the progress of the industry grows. 

Inefficient code can also, in the long run, become more expensive due to the costs of operating the infrastructure it runs on. Certainly, efficient code costs less in the long run, although there is a break-even between hardware costs and labor. 

Good code that is maintainable, efficient, and well documented will always be cheaper in the long run. 

Conclusion

When it comes to the cost of software development there are no simple answers. There are many factors to consider, and the more information you have, the more likely you are to have a good outcome.