The Cost Of Developing A Software Product - The Basic Guide For Startups in 2022
So you have a product idea and decided to research the cost estimate of the needed technical skills to build it? Well - that's the first step.
When clients contact a software application development company, one of the first questions they ask is, "How much does it cost to develop an application?" However, there is no single response to this question. You can build a one-feature product or an entire organization's internal system - and in both cases, you might be required to spend the same amount of time and money to implement your concept.
In this guide, we will shed some light on the most critical factors to consider for a solid budget plan. Here is a quick rundown of the things we will cover in this article that have an impact on the startup product development cost:
- Platform & technology stack
- Scope of work
- UI/UX design
- Project Methodology
- Development team
- Testing & Quality assurance
- External integrations
After covering the topics mentioned above, we will discuss how software companies estimate software development costs using various pricing model options and how we do it at Pragmatic Coders.
If you're a startup owner knowing the cost estimation will help you get accurate and clear information that is needed in the decision-making process and give you an idea of the feasibility of your project.
But before we dive deeper into the subject and focus on the potential costs of developing your product, it's important to understand how a detailed product vision impacts our financial planning.
The importance of a software product vision
You may wonder how you can make a budget estimation for a software product if you are just starting out. It can be difficult for startups to figure out exactly how deep your pockets must be for a software project when you are just at the beginning of your journey. Yet presenting all of the details upfront, such as the time of delivery and the cost of our product, is often expected from sponsors. In many cases, this is simply not possible because the project will always change, and the variables will keep fluctuating throughout its duration; thus, all you can get is a rough estimation of the overall cost.
Have a clear set of goals
The answer is never to limit your product vision to a general concept description. By having a clear set of goals, you can learn to prioritize which features are the most important and how to market them. A product vision conveys purpose and helps you build a better product roadmap.
At Pragmatic Coders, we start every project with consultations with our startup clients. During the Product Discovery Workshops, we try to discover and plan the best product shape and understand the features necessary for the final users. Instead of simply blindly following the specifications, we proactively propose the most pragmatic and fastest solutions tailored to your needs to release the so-called "Minimum Viable Product". With this process, you will save time and money (more about our unique approach can be found here: Software Product Design).
As important as product vision is, we must not forget other elements to consider when determining the price. Let's take a look at the software development costs breakdown to see what they include.
The key factors determining software development costs
The final budget is always a key consideration for any business trying to develop a digital product. However, the product development process includes many stages where each component might influence the price estimate. To help you understand what elements to keep an eye out for, we've compiled a list of factors that influence the pricing. By taking them into account while planning, we can significantly reduce development costs.
Platform & technology stack
Some of the important aspects that you need to consider for your cost estimation are the tech stack and the platform you'll be using.
A tech stack, alternatively called a solution stack, is a combination of tools and applications companies use to build and maintain a project. And although many of these tools are free and open-source, hiring developers who specialize in this area is still necessary and can help you select the most suitable options.
There are various options for different platforms like websites, native mobile apps, and cross-platform solutions—all of which come with varying costs. Each of these platforms has its own features that require a different amount of time and effort, which of course, results in a different price range.
Another element that influences the overall development costs is the infrastructure model you choose for your company. As a startup introducing a new product, you often face the question of whether to select on-premises or cloud solutions. Deciding where to run your workload can be difficult, but being aware of the key differences between those two infrastructure models will help you take a step forward. So how do these variants differ?
On-premises infrastructure is situated at the company's location, and the software resides within the brick-and-mortar office. This means that any sensitive or important information is accessible only to your teams, and the IT staff has better control over server security and data.
One of the most significant benefits of on-premise storage is that it doesn't require an internet connection or any external factors to access data, meaning that if network problems occur, you don't have to worry about losing access to important data.
On the flip side, on-premises storage requires extra IT support, which could end up meaning you have to hire new staff members or spend more time training your current employees, which can cut into your company's budget.
You can also expect additional expenditures related to maintenance, ongoing repairs, replacements, and upgrades to keep everything running smoothly.
What is cloud computing? In simple terms, it refers to delivering various services over the internet. This includes remote servers for email, tools for data storage, networking, and other software programs.
With the growing popularity of the cloud, many companies are deciding to shift to this system and take advantage of its many benefits.
With cloud-based applications, you can scale easily and adjust the subscription plan to your needs, as most cloud storage providers can change their prices to match your budget, whether you're expanding or shrinking operations.
This sort of flexibility is ideal for businesses with a limited budget that are at the beginning of their journey and don't want to be trapped into paying for services they don't require.
One of the disadvantages of storing files online is that if your internet connection crashes, you will lose access to all stored data. Security may also be a concern when it comes to cloud-based environments. When you trust an outside party with your data, there can be a risk of it being accessed by unauthorized individuals as a result of breaches or hacking.
As you can see, both on-premise and cloud infrastructure have their perks and benefits, and to choose the appropriate option for your business, you have to be mindful of your needs. However, if your priority is keeping expenditures at bay, the cloud is generally the more budget-friendly option.
Scope of work
To understand how much a software project will cost, you have to figure out the scope of work. In order to do that, you need to think about the minimum number of features your product needs to have to be launched and receive customer feedback.
In a nutshell, the scope of work describes the core functionalities your product is expected to have before the launch.
The project size, scope of work, and time required to complete it are all deciding factors in how many developers you need for the task and how much time it will take them.
The scale of the project and the product complexity account for a significant portion of the software product development cost. Larger and more complex projects can be more expensive due to the increased time and effort required to complete them. In addition, particular features or functions may be more difficult or time-consuming to implement, which can also increase the cost of the product.
Most startups start by going small and creating the least expensive version of a product, called the MVP, which includes only the core features. Depending on the results you achieve, it can be later developed into a more complex product.
There is a good reason why Google's first rule in their "Ten Things" philosophy is "focus on the user, and all else will follow." The ultimate goal of UX design is to simplify complex information and ensure that the user feels confident using your product.
Therefore, the design of your app plays a crucial role in your product's success as it has an impact on user experience. Having a well-designed and intuitive interface is an absolute necessity when building a successful product - not only because it improves customer satisfaction but also lets you stand out from the competition and increase user engagement.
When budgeting for UI/UX design, consider the importance of this aspect of your product and allocate the necessary funds.
According to Forbes, every dollar invested in UX brings 100 in return. That’s an impressive number of 9,900% in terms of ROI. A valuable lesson that can be learned from this is not to decrease your product's chance for success by skimping on good design.
Product development costs can also be tied to the project management methodology used by your team or the software development company team. It's common for many startups to implement Agile in their teams as this is the best option to avoid costly mistakes.
Why you should choose agile software development
A project management methodology like the Waterfall approach tends to split the process into too many stages, increasing the risk of time being wasted on activities that later prove to be irrelevant or disliked by the end user.
Agile methodology, on the other hand, allows you to launch the MVP (Minimum Viable Product) faster to test it and make sure you're going in the right direction. Flexibility, frequent planning, and retrospectives are fundamental parts of the agile methodology. The same learn-by-doing principles apply to budget management, meaning that you can make changes when new circumstances arise.
At Pragmatic Coders, we give our customers a promise to develop MVP as fast as it is possible (usually up to 3 months). Our dedicated teams understand the value of collecting first user feedback as quickly as possible. That minimizes the waste and the risk of working on something that nobody will ever use.
When it comes to budget planning and cost estimation, putting together a development team is something you must take into account. This includes hiring not just the software developers themselves but also other team members such as a project manager, QA engineers, UI/UX designers, researchers, and everyone involved in creating your product.
The cost of putting together such a team will be determined by the skill level of its members and the team size. Hiring more experienced senior developers, for example, would be more expensive but can result in faster project completion.
Since the roles in your team depend on your project size, complexity, and deadlines, you might want to consider working with a software development company. It will deliver the needed abilities and technical skills to the project with more flexibility reducing the entire product development cost.
Development team type
What are the options for you two to choose from when it comes to team types for product development? When it comes to putting together a team, it usually comes down to choosing between the three basic recruitment models we have listed below.
If the budget is our top priority, then, in this case, the cheapest choice is to hire a freelance developer. However, even though this option is the most budget-friendly one, it's not the most reliable as there is no way for you to control the progress of work in the project. There is also no guarantee regarding the sufficient quality of the completed project.
In-house development can lead to tighter integration between the team and the rest of the company, which can be beneficial for collaboration and communication. It also gives us the benefit of fixing an issue on the spot if one arises. However, hiring an in-house developer can also bring extra costs, such as paying for the equipment, software tools, the social package, taxes, and a workplace.
Outsourcing is the most optimal choice in terms of money and services provided. Outsourcing product development means you don’t have to build a team from the ground up. Instead, you can work with a dedicated company that offers MVP development services and hires experienced professionals.
A competent outsourcing company will provide you with a team of experienced developers, full support, and access to the latest technology and tools, all for a reasonable price. Due to its flexibility and the possibility to adjust everything to your needs and budget, it comes as no surprise that this approach is what most startups go for.
The location of your team
No matter what type of product you're aiming to build, the product development cost will depend on the country where your experts are situated.
When you want to find developers for your project, comparing developer rates is beneficial since they vary depending on the region. It’s well known that in Eastern Europe and Asia, development is cheaper than in Western Europe and America. Of course, sometimes a low price can mean low quality, but a high rate can also not be unambiguously called the key to success.
You can significantly reduce the cost of software development by choosing developers from Ukraine, Poland, and Slovakia, who are considered the best in price and quality.
Below is a table presenting the average hourly rate of software engineers by country:
It's your call on whether you want to manage your software development process or have a vendor do it for you. The first option could save money by reducing overhead, while the second lets you rest assured that your team's work is in the hands of a professional.
The benefits of hiring a Product Owner
Reliable software companies usually hire experienced Product Owners who will work with you and support your vision of a product. Product owners help manage the product development process by defining and prioritizing requirements and can also be key liaisons between the startup and other stakeholders. At Pragmatic Coders, we believe that nobody can do it better than the PO. Our experienced Product Owners focus on your product (taking full ownership from you) and constantly optimize the development process.
It is said that organizations end up wasting 12% of their resources due to ineffective project management. This goes to show the importance of project management in product development and how, if done correctly, it can help you save resources and spend money more effectively.
Testing & Quality Assurance
Quality assurance is an essential factor to consider when creating your budget plan. After all, you want to ensure that your product works flawlessly and provides a great user experience for your clients.
To guarantee that each component delivers the desired results, it must be tested thoroughly. This prevents future issues that might need patching later on. QA engineers aim to help create quality products by preventing defects during every release and mitigating the risk of costly mistakes in a final product. On average, testing and quality assurance can take around 23% of the project's budget, but this might vary based on the size and complexity of your project.
Though your software may be excellent in every other way, if it is lacking in security, users will not want to use it. Data security is a top worry for many people nowadays. Keeping users' information safe should be one of your highest priorities when it comes to the development and maintenance of your software.
Considering the fact that cyberattacks and security issues are not uncommon these days, it's paramount to build a secure product where the information is stored safely. It's better to be safe than sorry, so a good practice would be to minimize any vulnerabilities in your code early in the development process when the costs are lower.
Nowadays, it's rare to find a software product that doesn't offer external integration. There are many external integrations available on the market that can enhance your system's capabilities, but each of them comes at a price. In addition, integrating third-party solutions requires additional time and effort, which could increase your overall software development budget.
However, in many cases, third-party integrations can lead to cost savings. For example, let's say you need a secure payment system for your website. It would be much easier (and cheaper) to integrate an existing platform rather than building one from scratch. The fee you pay for the integration will be lower than if you had built the system yourself, and this could free up your budget for other high-priority features, so it can surely be a worthy investment.
How do software companies estimate software development costs?
We examined the main factors on which the development cost depends, but each company offers its own model for doing the cost estimation of the project. Having decided to work with a software development company, you will come across three models: fixed price, time-and-materials, and a dedicated team.
Fixed price model
This model is great for projects with a predefined list of tasks. The requirements and specifications are described in detail, and the deadlines, as well as the cost of all work, are all defined in advance. The outcome of the project on such a model is completely predictable and understandable.
The disadvantages of the model include the lack of flexibility, which is sometimes necessary, especially if the project is developed from scratch (like most startup projects).
The time and material model is the most popular pricing model for software development. In this model, settling the potential cost is based on the amount of time that was needed to finish the project rather than paying a fixed sum upfront.
This model is a good solution when you can't put a number to the required time and expenses of a project. Needless to say, this approach is preferred by customers who have a basic idea of what they want to achieve but cannot accurately describe the scope of work.
The Dedicated Team model is a collaboration between the client (e.g. a startup company) and service provider (software development company), in which the latter provides software development professionals to the client on a long-term basis.
All dedicated team members work only for you, just like your in-house teams. They take full ownership of the development process and success of a final product.
This model uses a straightforward and transparent pricing structure where monthly payments are dependent on the size of the team. The payment is made up of members' salaries, as well as service provider fees, which include administrative costs.
How do we work with our clients at Pragmatic Coders?
Our preferred method of cooperation with our clients is based on the Dedicated Team model. This means that one of our top squads is selected to work exclusively on your product. You are provided with a world-class Product Owner - which we think is crucial for every team and extremely hard to fill in startup companies.
This type of approach mitigates the risks and speeds up the entire development process - saving our clients a lot of time and money. Apart from that, we believe that this allows us to form a true partnership based on trust and shared goals.
Our clients value this type of approach also after the product is finished. Many of them have been cooperating with us for years and refer us to other projects. (check out our case studies)
What does the product development process look like at Pragmatic Coders?
At Pragmatic Coders, we usually start with a consultancy call and a Product Discovery Workshop. This way, our experts will be able to define the true scope possible to be delivered in a given budget. You'll also get a lot of advice regarding business and technical issues. We will always tell you the truth, no matter the size of your budget.
Next, our UX experts will help you uncover valuable insights about your potential customers, understand their needs and goals, prepare a prototype of your solution, test it and make it visually appealing.
If the survey outcome is positive, your product is moved into the development phase to create an MVP. During this stage, your product will also be constantly tested by users.
After several iterations, your final product will finally be launched. You'll then decide about the next steps, like scaling, adding new features and modules, or integrating them with other products.
Some clients prefer to maintain our support or ask us to help them build their own team of professionals to take care of the product scaling - that is why we have a second company dedicated to this purpose: NxTide.
Several things will affect the total cost of developing software. Some of these factors are quite obvious, while others only come up once you dive deeper into the process. In any case, your cost estimate will be more accurate if you consider all the details rather than just sticking to a general idea.
Are you looking for a way to validate your product idea and create a development cost estimation as well as a successful business strategy? At Pragmatic Coders, we fully understand how much time and resources it takes to develop a perfect software product after having spent 8+ years in the software development business.
Our team of experts can help you clarify your business goals and clear any doubts you may have regarding product development costs. Don't hesitate to reach out to us with any questions you may have!