How to Estimate Custom Software Development Cost?

One-solution-fits-all is slowly losing its charm as companies of all sizes and industries are finding it more and more important to shift their focus to custom software development services for matching their exact business requirements. With the advancement in technologies and the increasing competition between companies, having a unique, scalable and personalized custom software solution is becoming an absolute must to survive in the market.

Enterprise custom software solutions these days have immense capabilities due to promising technology integrations like AR/VR, Internet of Things, and Machine Learning in everyday business processes. However, it is important to rely on some top custom software development companies who know how to integrate such technologies to create a fully functional, scalable, and efficient custom software solution with justified custom software development costs.

Key Stats showing the popularity of Custom Software Development

1. Markets for IoT, AR, software, system integrations, and other industries grew to $520 billion in 2021 from $235 billion in 2017. – Forbes
2. The global market of outsourced IT services is expected to reach $410.2 billion by 2027. – Business Wire
3. The top reason for outsourcing is cost reduction – Deloitte survey

Things to consider before contacting a developer

Most businesses have a basic idea of what features and functionalities they need in their software to carry out their desired tasks effectively. However, put it to paper and eliminate any extra features or functions that contribute to your purpose. You will be able to save considerable time and money while speeding up the overall project development process. This way, when you meet your software development team, you will have a precise idea of what you want your software can do –

• Define your users –
  • Their role in your company
  • Type of tasks they are responsible for
  • Their level of training
• List all the steps and tasks each user will perform –
  • Login
  • Password Entry
  • Data Entry
  • Computations
  • Data Analysis
  • Tracking shipments
  • Processing Payments
• Define how different users will access the platform –
  • In-office desktop
  • Remote Laptop/Mobile Device
  • Mobile/Desktop application
• Decide the level of security needed to protect your sensitive data
• Decide on the limit of user access

Software Costing Estimating Techniques

Before starting your custom software development project, it is important to come up with an estimate. Software cost estimation is the process of predicting the efforts, tools and talents needed to develop custom software. It is very important to give an accurate estimate so that the overall software development budget can be decided accordingly. There are many different ways of estimating custom software development costs. Here are some of the most efficient ones –

1. Bottom-up Estimates

The Good: The accuracy percentage of estimates are very high.

The Bad: Time Consuming.

This is an interesting custom software development cost estimation technique where the overall project is divided into smaller tasks and subtasks that are clearly defined and easier to manage. Then all these groups are individually estimated and summed up starting from the bottom to the top, giving you a rough estimation of overall software development cost.

2. Analogous Estimates

The Good: Accuracy is moderate to high.

The Bad: Accuracy depends on the quality and relevance of analogy, hence slightly unreliable.

This is probably one of the most used or common techniques for making an estimation. Here, the estimated cost of custom software development is deduced by comparing the cost of similar projects in the past and comparing them to the project on hand. Then, all possible or notable differences are drawn to understand the potential differences in the estimates. Here factors such as scale of project, complexity, delivery date and time, inflation and others are taken into consideration to understand better.

3. Three-Point Estimates

The Good: Reduced chance of inflated estimates.

The Bad: It could be a little time consuming.

A more holistic estimate technique for estimating custom software development costs is the three-point estimate. Here the estimates are taken from three different vital data points – best, worst and most likely scenario. Then the weighted average of these estimates provides the final assessment for the project.

4. Parametric Estimates

The Good: Based on algorithms, highly accurate.

The Bad: Time consuming and costly.

Parametric estimate is a more calculation-based estimate of cost, time and risk based on algorithms. Such estimates are based on several parameters that help outline the complexity, cost and risk of your custom software project. Data is fed to the algorithm, manually or automatically, after which it comes out with an accurate estimate for your custom software development needs.

Key Factors Affecting Cost to Develop Custom Software

All software development requirements are different and require a different set of features, level of security and other various elements that can make estimating the development cost of custom software challenges. For ensuring that you have an accurate price estimation, it is important to consider factors such as –

1. Type of Software Project
2. Software Project Size
3. Software Developer Team Size
4. Overall Design Structure
5. Migrating Existing Data and Information
6. Features and Platforms
7. Software Integrations
8. Scalability
9. Onshore vs Offshore Custom Software Development
10. Custom Software Testing and Security
11. Maintenance and Support

1. Type of Software Project

It is not always the case that companies that need custom software solutions have not experimented with other software before. As a result, some companies look for developing software from scratch. In contrast, others want to upgrade their legacy software solutions, and some want to integrate new software with their existing solutions to expand their functionality. Hence, to estimate custom software development costs, it is important to know the software you need for your enterprise needs.

Custom Software Development Cost Estimate as per Software Project Type

2. Software Project Size and Complexity

Next, you need to determine the size of your software development project. In most cases, the bigger the software, the more the price is a general fundamental basis for estimating custom software development cost.

However, it is not necessarily always the case. Your project complexity and the features you need can also greatly impact the overall software development cost.

Cost Comparison as per Custom Software Solution Size and Complexity

3. Size of Software Development Team

Another key factor affecting the average cost of custom software development solutions is the size of the development team that you outsource your software development project. For any successful software solution, you atleast need an experienced Project Manager, a team of developers and QA testers. Depending on the size of your project and your project requirements, you can pick a team that better fits your budget. For a small-scale project, the developers can also fill in the role of testers. For enterprise-grade software development projects, however, you would need a team of specialists.

Cost of acquiring Essential Talents needed for Software Development

4. Overall Design Structure

The overall design structure greatly affects your custom software’s appeal, ease of use, and logical flows. For any enterprise-grade software solution, the overall design structure is usually divided into two sub-categories –

4.1. Creative Design

Avg. Cost of Custom Software Creative Design – $8000 – $16,000

Creative design covers all the creative aspects and visual elements of your custom software. The creative design team is responsible for adding relevant graphics, creating unique designs, choosing the right color schemes, and attracting customers on various platforms. A good design often tips the balance between an interested customer and a non-interested customer, which is why businesses invest heavily in creative design to make their software pixel-perfect and in alliance with their target audience.

4.2. UI/UX Design

Avg. Cost of Custom Software UI/UX Design – $800-$2000

Another aspect of design structure is the user experience and user interface of your software. Both these aspects interact directly with the users. Hence, it is essential to find talented and experienced UIUX designers who have a deep understanding and proficiency in designing both B2B and B2C custom software as per your requirements.

5. Migrating existing data and information

Average Data Migration Cost – $3000 – $15,000

If you have existing data or software, you want to migrate those important files into the new custom software you are developing. For this, you would need to rely on a credible custom enterprise software development company that has proven expertise in providing accurate data migration services. Data migration works on custom scripts that transfer your data from your legacy system and remodel it according to the new software.

6. Features and Platforms

The features that you want for your software define the functions and use of your custom software solution. Hence, you need to note down all the primary features that are non-negotiable and needed in your software, along with secondary features that you can let go of if they interfere with your custom software development budget. One of the best ways to identify the key elements is to go for MVP development before committing to a full-time software project.

Similarly, the platform you choose to develop your custom software also plays a significant role in estimating custom software development costs for your project. For instance, the cost of choosing one platform for your software from iOS, Android and web could be significantly lesser than choosing all three platforms. Other additional costs would depend on your software development team’s software development tools and tech stack.

7. Software Integrations

To increase the potential and ability of any enterprise software, you need to focus on adding the most relevant and effective third-party integrations with other software and API. Finding the right software integrations can be challenging and risky, especially if you do not know the potential security threat and performance issues of choosing a non-compatible or unsecure third-party integration. The type of integrations you need and the level of security your software needs will greatly affect your project’s overall estimated custom software development cost.

8. Scalability

Any custom software you develop should be scalable for meeting the ever-changing and growing needs of your business. By creating scalable custom software, you can start with the bare minimum important features and keep adding more and more functionalities to your software to match the increasing demand of your services or requirements over time. In addition, being a scalable custom software solution is also important for keeping your software flexible and capable enough of integrating new technologies made available in the market.

9. Onshore vs Offshore Custom Software Development

Where you get your custom software also developed significantly influences the overall cost estimation of custom software development. Generally, onshore development costs are significantly higher and do not guarantee the best results for the money you invest. This is because different countries have different standards of living and set a minimum wage that affects the pay scale of the developers significantly. Hence, setting up a dedicated ODC company in India can significantly reduce your overall software development costs.

Cost comparison of custom software development as per countries

10.  Custom Software Testing and Security

Properly testing your custom software is of utmost importance when it comes to custom software development projects. You spend a fortune getting the right-fitted solution for your business requirements. Hence it only makes sense for you to ensure that it serves the purpose and functions smoothly. After your custom software is developed, a team of QA analysts and testers run your software through various tests like performance testing, usability testing, fixing bugs, testing cross-device compatibility, and more.

Cost of various Custom Software Tests for Software Development

11. Maintenance and Support

Custom enterprise software solutions need constant maintenance and support for working smoothly and staying updated as per your changing requirements. Getting the right maintenance and technical support is important for extending your custom software’s lifecycle and efficiency.

Tips to Reduce Custom Software Development Costs

As you can see, many factors influence the overall software development cost estimates. If you are not careful, the overall cost can get overhead, leaving you with more costs to cover rather than benefits to reap. Here are some of the custom software development best practices to follow for reducing the cost of software development significantly –

Custom Software Development Best Practices for Cost Reduction

1. Automate as much as possible.
2. Partner with the right and trustable Offshore Development Company.
3. Choose the best-suited estimation technique.
4. Follow a robust development process.
5. Avoid fixed-price or fixed-scope services.
6. Have an in-depth understanding of your domain.

Wrapping up!

This is your ultimate guide to estimate software development costs. Before starting with your custom software development project, understand the purpose and the means to achieve your goals first, and then find the right partner who has the necessary skills and expertise to translate your goals into a workable, scalable, cost-effective custom software solution.