Andrew
Burak
CEO at Relevant

Guidelines for Software Development Cost Estimation

Outsourcing

“How much does it cost to develop a software application?” is one of the first questions clients ask when talking to a development team. But there is no single answer. You may need to build a one-feature product or an entire company’s internal system—and in both cases, times and costs to implement your idea might be the same. “How come?” you might wonder. 

Quite a few factors influence the total project budget: from the complexity of software, tech stack, and infrastructure to the level of expertise of your chosen vendor. Being in the software development arena for 8+ years, Relevant knows just how much time and resources it might take to implement projects of various types. So how to calculate software cost properly?

This article outlines the guidelines for estimating the cost of software engineering. It aims to shed light on factors, pricing model options, and the ins and outs of the estimation process. Keep on reading to find out more.

Do you have a vision of your software?

Developing a software project is similar to building a house. If you have a detailed architectural plan, design mockup, and vision of home decor—estimating the cost won’t be a problem. But if all you have is just a raw idea, an honest estimate you can get will be just a rough price range. So what should you do to get more specific numbers?

The Cone of Uncertainty, a concept described by Steve McConnell and Barry Boehm, perfectly illustrates how software estimation can stray from reality depending on the stage of development. In short, the more details you can share, the more accurate estimation you can expect. 

the cone of uncertainty in software projects

There’s a tricky question, though: how to estimate the budget for a software project when you are just at the outset? The answer is never to limit your product vision to a general concept description. The only way to get a specific estimate is to specify the project by preparing accurate project specifications, user flows, and UX/UI design.

However, those aren’t the only factors impacting the price. Let’s look at the software development cost breakdown to understand better what’s in the price.

Factors that impact software development costs

The final budget is always a crucial factor for any company trying to create a digital product. But there’s a catch: the software development process consists of many stages where every element can impact the software cost estimation. Here we put together a list of top factors influencing the price.

Platform

A website, a native mobile app, or a cross-platform solution—all of them come with a different price tag. Every platform has its specifics, tool kits, and libraries. Software developers’ rates also vary based on the technology they use. According to PayScale, hiring an Android or iOS developer is more expensive than, let’s say, a Unity expert. All these factors influence the software development budget. 

Scope of work

Software development cost estimation will also vary depending on:

  • The size of your project
  • The complexity of its features
  • The type of project (building from scratch or adding features to an existing solution)

These aspects will decide how many developers you need and how much time and effort it will take them to build your project. The table below shows the correlation between the project size, the scope of work, and the time required to complete it. 

Size of the projectSmallMediumLargeEnterprise
Development timeWeeksWeeksMonthsMonths
Software modification1-22-62-64+
Software development3-64-86-186+
Software integration2-62-66-126+
Building from scratch4-83-86-188+
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Technology stack

The choice of technology directly influences the software development budget. As we already mentioned, development rates differ depending on the programming language and the developers’ seniority level. When estimating a project, the development company will guide you on the required technologies and inform you whether they are open-source or come with a certain fee. 

On the plus side, modern programming languages offer many out-of-the-box tools and frameworks that speed up the process and cut development costs.

Infrastructure

Another factor contributing to the final development costs is the infrastructure model: on-premise or cloud. On-premise infrastructure is located at the company’s site, which requires additional maintenance expenses, not to mention hardware costs. 

Cloud infrastructure is usually a more cost-effective option. Most cloud providers offer flexible pricing plans depending on your load and needs.

UX/UI design

UX/UI design also contributes to the final price. The price tag depends on many factors, including hiring options (outsourcing design creation, working with a freelancer or in-house designer) and the overall design complexity. The price can vary greatly depending on whether you use ready-made templates, simple patterns, or a complex design with animations, custom illustrations, and transitions. The latter option can be quite costly and eat up your final software development budget.

Development

When it comes to development, there’s a whole range of options that can impact software cost estimation. Apart from the technologies, the final price will depend on the seniority of software developers and the team size. For instance, hiring more experienced senior developers will be costlier but can speed up the development and save time (and money). 

Depending on your project size, complexity, and deadline, you might need different structural roles in your team.

Management

You can manage the software development process on your side or let a vendor’s project manager do that for you—it all depends on how much you’d like to get involved in the project. The first option can save your management costs, while the second one saves you from headaches.

When you outsource mobile development for end-to-end services, it’s better to have a project manager guide the team’s work. But when hiring dedicated software development teams to boost your development capacity, management on your side might be your best bet.

Testing

Quality assurance is an essential part of developing stable bug-free software. Quality assurance and testing usually take up to 23% of an overall project budget but can vary depending on:

  • The complexity of your project
  • Testing approach (automated or manual testing)
  • Testing tools

It’s not recommended to scrimp on the testing budget, as it ensures the software product stability in the long run.

Security

Securing a software app is costly. Some security measures, for example, buying an SSL/TSL certificate to encrypt data in transit, come with a one-off fee. Others, like custom encryption, need a larger investment. Yet, these are the costs you must spend to ensure data protection.

This isn’t a complete list of aspects impacting the software development budget. There are some implicit ones, too, which could also affect the costs. Let’s take a closer look at them.

Other factors affecting the price

When it comes to software cost estimation, certain factors result directly from the decisions you make. Here’s a short rundown. 

External integrations

Today, you can hardly find a software product without any external integration. The market offers many third-party integrations that can boost your system’s capabilities, and each of them has its price tag. On top of that, integration of third-party solutions requires additional time, which might also drive up the overall software development budget.

Yet, there is another side of the coin—third-party integrations can also lower software development costs. For instance, instead of building a secure payment system from scratch, it’s much easier to integrate one of the existing trustworthy third-party platforms. The fee you’ll have to pay will be much lower, even in the long run, and will save your budget for other high-priority features.

Recruitment models

The software development market offers three basic recruitment models to choose from:

  • Freelance developers
  • Outsourcing development companies
  • In-house teams

Each option has its pros and cons. If we look from the budget perspective, the cheapest option is hiring a freelance developer. But it’s also the least reliable one. Hiring in-house developers involves additional costs like paid sick leaves, vacations, taxes, etc. Outsourcing here is the best choice in terms of money and services. Like with any other option, there are some software outsourcing challenges you might face. But you can easily solve them by choosing a reliable outsourcing partner.

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Location

Your software project budget will also greatly depend on the development rates of the country you choose. According to PayScale, the most expensive software development services are in North America and Western Europe. At the same time, Eastern European and Asian countries are considered the best countries to outsource software development to in terms of costs and quality.

RegionJunior DeveloperMiddle DeveloperSenior Developer
North America$95-100$120-127$140-148
South America$25-53$45-67$57-82
Western Europe$35-45$45-55$60-90
Eastern Europe$25-35$30-40$40-70
Asia$20-30$25-35$25-35

Outsourcing to Ukraine is an excellent option if you want to get high-quality development services for a reasonable price. But what are the costs of software engineering in Ukraine? And how to calculate software project cost when you plan to hire Ukrainian developers? 

At Relevant, we get these questions every day. So let’s look now at our company’s estimation process and our pricing models.

How do we estimate software development cost at Relevant? 

As a client, you might want to do software development cost analysis before starting cooperation. It’s what people usually do when they buy something. But software development differs from purchasing ready-made products. Just like any other intellectual activity, software development relies on the skills and expertise of developers.

So how to estimate the budget for a software project? At Relevant, we use a two-step framework that includes rough and detailed estimation. 

Rough estimation

It’s a first-stage estimation we provide when a potential client contacts us with a request to build a software product. The primary purpose of the rough estimate is to show preliminary budget boundaries and outline the possible development stages. 

To provide you with a rough estimate, we need to understand your project vision. Our specialists create a list of features for the first version of the product (MVP) and calculate the time required to implement them. 

A rough project estimation can only be from 25% to 75% accurate. It usually consists of two numbers indicating best and worst-case scenarios for each service, be it business analysis or front-end development. Here is an example of how it looks.

rough estimation at Relevant

As a rule, it takes only a couple of days for us to give you a rough estimate.

Detailed estimation

Once we agree on the preliminary scope of work, we can prepare a detailed project estimation. You can also consider it as a planning stage. It’s a period when our business analyst discusses everything with a client, gathers all the requirements, and turns them into specifications or a project plan. This document will inform designers and developers on your project’s technical and non-technical aspects, be it mandatory fields needed to log in or formulas used to calculate salaries. 

In the end, you get a finalized specification document with a detailed time and cost breakdown. This step can take from a few days to two weeks. It all depends on the details you’re ready to provide and the size of your project.

Engagement models at Relevant

To get the most of your cooperation with a software development company, you need to choose the best-fitting pricing model. Depending on your requirements, we at Relevant can offer you three pricing models to choose from—hiring a dedicated team, outsourcing your product development to us, or safely testing your idea. Here is how they differ.

engagement models

Dedicated team

Hiring dedicated software development teams is the best option if you want to quickly scale up your team and be in charge of the development process. It also allows you to avoid a lengthy hiring process and administration.

A dedicated development team is best suited for:

  • Companies that want to extend their team capacity
  • Businesses with tight deadlines
  • Startups that need to scale fast

When choosing a dedicated development team model, Relevant gives you access to a pool of professionals that meet your requirements (level of seniority, skills, expertise, etc.), and you can hand-pick candidates from this pool. Once the team is formed, you manage them directly, communicating daily through audio and video tools. Overall, it feels exactly like an in-house team, only in another office. 

Product development

When you are just at the onset of software product development, and you need tech expertise and a team to fulfill your project vision—product development is your option of choice.

It’s best suited for:

  • Early-stage startups without a tech team
  • Businesses that launch their product
  • Companies that want to digitize

We can offer full-cycle software product development services tailored to your needs—from market research and business analysis to design, development, deployment, and maintenance.

Idea validation

Idea validation is a perfect choice when your concept is still raw, or you want to scale your business, but you aren’t sure how to make it.

It’s best suited for:

  • Fresh startups that want to test their product concept
  • Companies that want to check how feasible their ideas are
  • Entrepreneurs that would like to visualize how their future product will function

At this stage, we can help you validate your idea and create prototypes, build an MVP, or conduct user testing.

The choice of the pricing model depends on the goals you pursue, the scope of details you’re ready to provide, and the stage of your software project.

Summary

The cost of software development depends on a range of factors. Some of them are quite obvious, while others come up only when you go deep into the software development process. In any case, the estimation will be more accurate if you think through the details instead of just providing the dev company with a general concept. You can also reduce the risks if you validate your idea before building a full-fledged product.

Relevant has wide expertise in developing software products from the ground up and scaling the existing ones. So if you have a software product idea but don’t know where to start, our team will be happy to safely test it, do market research and proof of concept, or develop your first product prototype. Сontact us for a free idea validation workshop, and we’ll be happy to bring your project to life together.

FAQ

Written by
Andrew Burak
CEO at Relevant
My company has helped hundreds of companies scale engineering teams and build software products from scratch. Let's connect.

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