According to research gathered by Entreprenuer.com, one of the leading reasons that companies outsource software development is because of how much it can reduce operational costs related to IT services, with some statistics showing an average of 30% cost-reduction.
If cost reduction is such a huge factor in outsourcing, the bigger question comes to this:
How much does software development cost?
The real cost of software development varies based on several factors, including the complexity and size of the project, the type of software being developed, your timeline, and how many technical resources are needed to complete the project.
Let’s break down each of these factors.
Software Development Cost: Complexity of Project
When trying to determine the cost of software development, project complexity is probably the biggest factor. Most developers will tell you that the more complex the project the more expensive it will be, which makes perfect sense.
Complex projects require more hours to determine what needs to be built, what it will do, how it will work, and how it will be incorporated within a business.
But if you’re not familiar with software development, how do you gauge complexity?
You can look at complexity in a few different ways:
- Complexity by project type
- Complexity by project size
There are three main project types, including modifications, integrations, and full cycle development.
For software development modifications, companies are asking software developers to make enhancements or changes to existing software. This could include such things as updating old code, adding in newer system modules, or modifying an app’s user interface (UI). With certain exceptions, software development modifications are generally less complex comparatively and take less time.
That said, tech debt, (ex., loads of poorly written code that doesn’t scale), is one of those exceptions. In these cases, think of your tech debt like an unwieldy knot tying up your entire system. Sometimes you can pull the knot apart and fix how everything connects, but other times you may have to cut and start fresh, which may involve building from the ground up.
Software integrations can involve creating or leveraging existing Application Programming Interfaces (APIs). These tools allow existing software to communicate with other programs or work within certain processes. Depending on the type of integrations, this is a more complex software development project as compared to modifying code or a UI. Some software integrations require developers to create brand-new code, perform extensive testing, and plan for long-term maintenance.
Full cycle software development usually means building from scratch and creating custom software. In terms of complexity, full cycle software development is the most complex because there are a lot of unknowns involved. These types of projects can take longer and may cost more. To control the budget, it is highly recommended to participate in an in-depth discovery process. Doing so can establish the goals and outcomes of the build, uncover any unknowns, and derisk the entire project.
When looking at complexity in terms of the size of the build, definitions are less precise as size is subjective. Nevertheless, some general size guidelines may help you verify the size of your project.
Small software development projects tend only to involve minor modifications or changes. Examples could include bug fixes or minor UI changes. Most software development modification projects fall within this smaller-sized category.
In comparison, medium software development projects have a somewhat more well-defined scope of features and deliverables. Software integrations would certainly fall within medium-sized projects. Other example projects may include some simplistic mobile apps, web app interfaces that communicate with inventory management systems, or the like. Clients can expect to be more involved with a project of this size, as they will need to verify information related to design, milestone sign-offs, and so forth.
Large software development projects are often the most complex and usually involve a variety of database components, multiple software systems, and making changes to the underlying framework. For larger projects, scalability and long-term maintenance are often top of mind. Clients will spend more time with software developers for these large projects, and there will be a significant level of project management involved to keep everything on track and on budget from week to week.
An example of a larger project may include something like a mobile or web app that has enhanced capabilities. For instance, Consumer Cellular Inc. (CCI) wanted to improve the overall customer experience, especially with billing. CCI reached out to AltSource, and together we built them a mobile app and customer portal that could be integrated into CCI’s customer service department and billing software. You can read more about it by visiting this case study.
Believe it or not, there is one level above large projects, and that includes enterprise software development projects. Think of these as everything involved in a large software project magnified 10 times!
At the enterprise level, the complexity and required technical resources go through the roof as these types of projects require in-depth security protocols, error handling, logging, and data integrity checks. Support and maintenance protocols must be put in place to maintain such sizable systems. Creating in-depth technology roadmaps is vital for enterprise-level projects, as there are so many moving parts, and a dedicated plan keeps everyone on track companywide.
An example of an enterprise-level app may include something like what AltSource built for Merchants Acceptance Corporation (MAC).
When MAC approached AltSource, they were facing a decision of whether they should re-up an expensive support package for a rapidly depreciating legacy solution or invest in a custom software solution to streamline business operations. Recognizing that the support package would only solve some of their immediate problems, they opted for a custom enterprise-level solution that would scale with them.
You can go here to view more about how AltSource’s team of business analysts and solution developers built a full-service loan origination and servicing platform with a custom accounting package for MAC.
Software Development Cost: Timeline Impact
After you consider the size and complexity of your software development project, your next question might be related to the timeline. Recognize there are two main timeline considerations:
- Your company’s timeline of when they want the project done.
- The software developers’ timeline of when the project can be done.
With these considerations, you have the reality check of what a developer can do versus what and when you want it done. If you need something rushed, some software development companies are capable of doing that, but you will pay for such a service.
To give you an idea of how long certain projects take, let’s refer back to our complexity and size categories from the previous section.
- Small projects = 1-4 weeks
- Medium projects = 2-8 weeks
- Large projects = 2-10 months
- Enterprise projects = 4+ months
- Small projects = 2-8 weeks
- Medium projects = 2-12 weeks
- Large projects = 6-18 months
- Enterprise projects = 9+ months
Full Cycle Software Development:
- Small projects = 4-12 weeks
- Medium projects = 4-16 weeks
- Large projects = 6-24 months
- Enterprise projects = 10+ months
Note that these timelines are estimates only. They also only reflect the time when developers are working on your projects. As you set out to hire a software development company, remember that it will take you time to find the right software developer for your needs. That will add additional time to when your software project will reach the completion stage.
Software Development Cost: Team Members
The number of team members needed for a project varies significantly based on the complexity and the size. The more team members you need, especially if they are highly specialized in their skill set, may also increase the price of the overall build.
While there are many different types of team members associated with software development projects, the typical roles include the following:
- Systems architect
- Database management
- Software developers
- QA tester
- Business analyst
- Product manager
Regardless of the size or complexity of your project, there should always be a product manager involved, as this person acts as your main point of contact and the liaison between yourself and the software development company.
Additionally, every software development project will require a certain number of developers and QA testers, as these individuals write and test the code that makes your software project functional.
Realize that some of these team members may not be located within the United States. While this may make for some communication difficulties, especially working with offshore developers who are 9+ hours behind or ahead of you, there are some significant cost benefits with offshore and nearshore software development team members.
Since offshore (i.e., Europe, Asia) and nearshore (i.e. South and Central America) workers generally earn a lower wage compared to their US counterparts, there is an economy of scales savings that is often passed on to the client. Provided the quality of work is still high and these developers possess the skills your project needs, choosing a software development company that uses offshore and/or nearshore developers could be highly beneficial for your project.
Software Development Cost: Average Solution Prices
Now that you have a better idea of why software development prices vary so much (i.e., complexity, size, timeline, and team members involved), let’s look at some average price ranges based on numbers reported across the Internet.
Remember that these are estimates only and that the price of your project may differ based on your company’s specific needs.
- Small projects = $5K-$12K
- Medium projects = $23K-$55K
- Large projects = $85K-$160K
- Enterprise projects = $280,000+
- Small projects = $15K-$45K
- Medium projects = $65K-$100K
- Large projects = $80K-$130K
- Enterprise projects = $250,000+
Full Cycle Software Development:
- Small projects = $35K-$75K
- Medium projects = $70K-$120K
- Large projects = $100K-$300K
- Enterprise projects = $500,000+
While these numbers give you a basic idea, it might make more sense if we connect estimated price ranges to finished software projects.
It’s important to note that these numbers only reflect cost estimations based on performing modifications, integrations, or some full cycle software development projects. These numbers do not include what you will pay if you also purchase commercial off-the-shelf software.
For example, if you’ve purchased a commercial product, you will have to pay for the implementation of that product and any connected licenses and maintenance fees per your contract. The prices above would reflect any modifications, integrations, or full cycle software development projects you would do on top of those initial fees for the commercial product.
AltSource Helps You Manage Software Development Costs
When the AltSource team meets with potential clients, our goal is to find the right-size solutions for their needs, and that includes accommodating their budget. If what they want is outside the scope of that budget, we believe in having an honest conversation with them about what they can do within their budget and what will deliver the most value for their current needs and constraints.
As companies compare software development costs, they often review commercial off-the-shelf solution options first. Sometimes buying one of these premade solutions is your best option, and we will recommend it to clients when it makes sense. That said, sometimes your needs are so unique as a business that off-the-shelf is no longer an option.
Take Kirby Electric, for example. They were outgrowing their project management tools, which was significantly impeding business success. They reviewed all their off-the-shelf options, but nothing offered the capabilities they needed, so they reached out to AltSource for a custom software development solution. Find out more about what we did for Kirby Electric by reading this case study.