- What is meant by software cost estimation?
- What software do you want to develop?
- What affects the software development estimate?
- The average cost of software development based on our experience
The agile development methodology is the most flexible and cost-effective approach to software creation, especially when it is combined with Lean software development (LSD). However, the cost to build any software is not cheap.
That’s why most aspiring startup owners are concerned with the price of project development and the right approach to estimating costs. To come up with this software cost estimation guide, we asked our in-house technical experts to share their hands-on insights on how to accurately estimate project development costs.
What is meant by software cost estimation?
Software cost estimation involves the use of business and technical analysis techniques to come up with an approximate price to develop a specific project. There are dozens of factors that influence the cost, and that’s why there are different approaches to estimating that take the project’s specifics, business environment, and the complexity of the solution into account.
Software cost estimation techniques
- Top-Down. This approach is often used by software development teams that already have practical experience in creating solutions from the same industry. For example, if you want to create a taxi application, you can hire a development company that created a competitive solution and use their experience. What’s more, they will be able to provide you with a more accurate software development cost estimate since they know the specifics of this solution and the potential pitfalls.
- Bottom-Up. In this case, the development process is broken down into modules, which are divided into subtasks to come up with a holistic picture of the final cost by summing up the time and price to create each part of the solution.
- Three Points Estimate. This approach to cost assessment is used in agile software development when there is a risky or innovative project. With this method, the development team evaluates the cost based on three scenarios: optimistic, pessimistic, and the most probable solution. While estimating your project development cost according to this methodology, it makes sense to keep risks in mind, develop response strategies and do some financial planning to deal with risks if they can’t be avoided.
What software do you want to develop?
Whether you choose agile development or the waterfall methodology for your project, there are three major things that directly affect the cost.
- Industry. The industry you are going to develop your project for is the core factor influencing the price. For example, eCommerce websites and apps are one of the most expensive solutions to create since there is a lot of work involved, and these kinds of projects are in a highly competitive market. Business-specific solutions like automation software, customer relationship management (CRM), or enterprise resource planning (ERP) systems can also have a high price tag since they are tailored to specific business needs. In contrast, simpler projects like fitness, yoga, or nutrition apps can be much more affordable.
- Platform. The platform your application will be running on also matters. Generally, iOS development is a little pricier compared to app creation for Android since the App Store sets a lot of technical and design requirements that need to be followed by the developers. However, some Android solutions may also have a higher price compared to iOS ones because of their complexity and specifics. Also, if you are going to create two native apps for iOS and Android, be prepared to pay for double the work. Kotlin multi-platform development may decrease the app development price without sacrificing quality.
- Technology. The technology you use in your agile development process is another important factor. For example, using web technologies like Hypertext Markup Language (HTML)/Cascading Style Sheets (CSS) is the most affordable option, while power your app with artificial intelligence (AI), machine learning (ML), or blockchain may significantly increase the cost to create custom software.
What affects the software development estimate?
Agile processes differ from waterfall development significantly, and that’s why both of these methodologies approach software development cost estimation differently. With waterfall development, it’s possible to come up with a highly accurate price estimate since nothing is going to change in the development course. On the other hand, the agile development model has room for flexibility, so the price may change to a higher or lower figure than what was initially estimated. However, there are also some crucial factors that affect the software development price using these methodologies.
- Software size. The more features you need to create, the higher the price will be since the cost is calculated based on an hourly development rate.
- Software complexity. The more complex features you want to create, the more time your software development team will spend building it, and the price will be higher.
- Software design. An application that needs a lot of custom design elements, animations, and other added features will always have a higher price compared to a solution with a semi-customized design since creating the mockups and layouts from scratch is a difficult and creative task. Keeping an intuitive user interface and providing the best user experience is essential in any solution development.
- Integrations. The issue of integrations is very tricky since it may affect the cost to develop your software. For example, you may use Google Maps or weather widget application program interfaces (APIs) and save a lot of time since this functionality is already created. However, if there is a need to integrate your solution with ones you are already using in your business processes (for example, ERP or CRM systems), it will require a lot of time to set this up and migrate data.
- Possible risks. Developing any startup can be risky, however, if there is also a risky business environment, you should have an allocated budget for dealing with risks as well. We, at Archer Software, identify risk at the business analysis stage, since it gives a better picture of how the software should be created in order to avoid risks or deal with them more easily.
- The type of contract. If you want to create your project according to the agile software development model while outsourcing it to a third-party development vendor, there are two types of contracts you can choose from:
- Time and materials contract. This type of contract allows the product owner to pay for work completed, according to cost reports provided by the software development team. Time and materials contracts are a good choice when there can be some pitfalls or bottlenecks that require more work than initially estimated.
- Dedicated development team contract. This type of contract is a classic one in the agile methodology process since it allows you to hire a ready-made team that will develop your software according to the best principles of Lean and agile development including flexibility, adaptivity, and effective communication. This type of contract is believed to be the most expensive, but it allows you to create really outstanding solutions that are in demand.
Software development cost estimation template
Despite the fact that there are a lot of factors affecting the final cost to develop custom software, our practical experience allows us to come up with a specific and accurate formula that may be used for initial cost estimation.
Our estimation formula: 67% (Development) + 17% (Quality Assurance) + 8% (Project Management) + 4% (Business Analysis) +4% (DevOps) = Total Cost of Software Development
The average cost of software development based on our experience
It’s possible to use the formula above for almost any software cost estimation, but the final price will still likely be different. For example, creating a fitness and nutrition application can cost approximately $20,000, while a social media application price may reach $50,000. The cost to create an eCommerce application that will have competitive potential starts at $70,000 and the cost to create a smart parking solution will be nearly $90,000 according to our estimates. The cost to create business-specific software, for example, cloud finance or marketing automation solutions, may reach $100,000 or more.
Archer Software is an agile software development company that uses a very accurate approach in the estimation process. We are well aware of the value of each dollar for aspiring and established businesses, so we do our best to come up with a precise estimate for each of our customers. You are welcome to get in touch with us to find out the cost of developing your project and get more insights into the process!