Custom software development pricing: how to prevent unexpected costs

Anyone who dreams of creating an application is wondering how much it costs. But it is impossible to answer this question for sure as in each case the cost will be different. It depends on who takes on the job, what costs are included in the price, what is the type of application, and many other factors. Different developers are ready to make the same project for different money. It happens that the difference is hundreds of thousands of dollars. The table below shows the approximate cost of applications depending on their type and development company. Are you ready to pay a million? And how about 100 million?

As you can see, software development is quite expensive. The easiest way to save money in this situation is to buy a ready-made solution. Yes, in the short term, everything is under control, however, then you will then have a bunch of headaches in the form of the inconsistency of functionality with your business needs and hassle with licenses. An alternative to this is to develop your own custom solution. First, you will have to pay a considerable amount of money, but you will not have to live in poverty, because the payback of a high-quality unique solution can be about 5-9 dollars for each investment in the project. Though, even a small project requires specialists with different skills and knowledge. Creation of a quality software solution requires the efforts of project managers, business analysts, designers, developers, QA engineers, and others.

 

In addition, you may have to modify the application or add new features in the course of the project, which will result in additional costs. The application  may require some level of integration with third-party products, and this also contributes to increased costs. Unsurprisingly, you can face a continuous cost increase.

 

However, there are several effective ways to reduce software development costs without sacrificing quality. This requires knowing and controlling the factors that determine costs. That’s what we will talk about in this article.

 

Choose a software development model

 

The importance of choosing a software development model for effective cost management cannot be overstated. Let's say you are using Agile project development methodology. In this case, you do not need to define the entire project from the very beginning as a whole: you can add new components along the way and make changes at any stage.

 

Agile methodology is the best choice for a long and complex project since changes in such projects are inevitable. However, if the project takes less than six months to complete and you are absolutely sure of its scale, you can choose the Waterfall model.

 

Unlike classic Project Management, when a project is strictly regulated by predetermined requirements (contracts), Agile assumes quick response, as well as flexible adaptation to external and internal changes. In this case, you do not need to define the entire project from the very beginning as a whole: you can add new components along the way and make changes at any stage. In turn, in Waterfall, strict certainty and an abundance of regulatory documents determine the length of the production cycle. In this case, the product is considered ready only after all stages have been completed.

Waterfall software development model

 

In Agile, a product is created serially, when each subsequent version of a workable solution has more functionality than the previous one. Such a consolidation of processes can significantly reduce the time for a finished product to enter the market, and time, as we know, is money. We'll focus on Agile next, but some of the tips will be helpful for everyone.

 

Select features based on priorities

 

The math here is simple: the more complex the project, the higher the cost. The best way to optimize costs is to prioritize features and implement the most important ones in the application first and postpone the rest until a later date.

Do not add new features unless necessary. You should also avoid complex, expensive components unless you are sure they will actually be useful to your users. The best time to think about expanding product functionality is when you've demonstrated a return on investment or increased user base.

The MoSCoW analysis method will help to determine priorities. The letters of the abbreviation indicate the following:

• Must have;
• Should have;
• Could have;
• Won't have this time.

 

To understand how prioritization works, consider an example. Let's say you want to open an online clothing store. First of all, you need a good catalog with a convenient product classification, which lists prices and shows what the products look like. Add a shipping service and different payment methods and your visitors will start to turn into buyers (must-have feature). After that, you can start thinking about adding new functions, for example, a section "You might also like" with a list of related products and accessories or special offers for regular customers (Should have-feature). The function "Form online wardrobe" will help customers get expert advice on shopping in your store (Could have-feature). The list of additional features can be endless, but not all of them are needed in an online store, at least at first. Having clearly understood the priorities, you can invest the budget in precisely those functions that the project needs in the first place. This way, you can gradually increase functionality in the process, when the application is already able to bring the first potential profit.

 

Make a plan for change

 

According to Darwin's theory, it is not the strongest species that survive, but those that adapt most successfully to changes. To survive in the market, a software product must constantly evolve. Not only do users need new and updated features, but the systems on which programs run are also constantly changing. Is it possible to control the cost of software development in the context of continuous adaptation of software products to a changing environment? The answer is clear: planning and scalable software architecture make changes more predictable and easy.

 

For a successful software project, requirements must be formulated at the outset, however, it is vital to lay the foundation for later scaling. Detailed project planning, taking into account all your business needs, market trends, vision, etc. will allow you to understand what budget to target and what costs to expect. Having written everything from and to at the very beginning, you will not spend additional funds on processing a product that does not meet the needs of the market.

 

In addition, the functionality of the software product must be flexible in responding to changes, and the code base must provide for the ease of adding new functions to adapt the software to changing customer needs. To do this, you need to develop an application with an architecture that allows for scalability. Think long-term, so that when you want to expand your business, your application won't let you down and you won't have to redo everything from scratch. With a flexible architecture, design requirements can be met with minimal redesign effort, and the software architecture does not need to be changed to implement new functionality.

 

Outsourcing software development

 

Consider hiring third-party development teams to do the work. Choosing to work with partners from Eastern Europe or Southeast Asia can help you reduce costs. They are reduced due to the fact that your business does not have its own staff or labor-related costs. With internal software development, project time is lost for the period of staff recruitment, training, employee vacation, and sick leave. This does not happen with outsourced custom development teams.

 

Despite the lower costs, outsourcing to these countries does not mean that you will experience a lower quality of work (although this is highly dependent on the country). These regions are among the world's leaders in software development, which means the competition is fierce and you can choose from a wide talent pool.

 

Whatsapp is a successful example of an outsourcing approach. Known for its cross-platform messaging system, the VoIP platform that Facebook acquired for $19 billion, Whatsapp was actually a software development outsourcing project. When the founders came up with the idea for Whatsapp in 2009, professional teams from Eastern Europe were assigned to develop it. Then the platform topped the rating of Google Play, App Store, and almost superseded mobile SMS services.

 

The cost of the latest technology is different in each country. In the US, a developer may have to pay between $250 and $850 an hour, according to a study by FullStack Labs. But when outsourcing software development in Ukraine, China, or other countries with similar offshore companies, the same skills can cost $ 25-50 per hour. In fact, this is one of the biggest benefits of outsourcing.

 

Different pricing models

When looking for a development team, pay special attention to those offering customer-centric pricing models. In particular, there are several basic models and before developing software, you should think carefully about which one is right for you.

 

Fixed-price

After a detailed analysis of the complexity and scope of the project, the software development company sends the client a project implementation plan and a fixed budget for the development of the entire software product. Thanks to this pricing model, the exact cost and terms of project development are determined, which do not change for the client. Keep in mind, there is one "but"! If the client wants to add a new function that is not in the documentation, then after the agreement of the parties, it is drawn up by an additional agreement to the contract. In this case, the client will have to pay extra. Strict terms of the contract at a fixed price provide minimal risks for the client and high risks for the software provider since the client will not pay extra for additional development hours. The price remains fixed until the customer changes the requirements, and it also does not require strict customer control, since all the details are prescribed during the planning.

Time and materials

This pricing model is characterized by more flexible terms and costs. The cost of the project is formed by providing established payments for the time spent on development. This means that the customer pays for the actual working hours of the developers at the rates previously agreed upon with the IT company. At the same time, the client pays gradually as the sprints or tasks are completed. The advantages of this model are gradual payment for the finished result and a quick start, since there is no need for long planning. The model works great for long term technology projects.

 

FFF - Fixed time, Fixed budget, Flexible scope.

 

With the FFF pricing model, everything is simple: the timing and budget of software development for tech startups cannot be changed under any circumstances, but there is an adjustment to the scope of work. What does it give to you? Ability to plan a budget before starting a project, know its final cost and release date. It's safe to say - who knows the price and release date of a startup - it's easier for them to plan their costs and launch a project. An important feature of this pricing model is that the quality of work does not suffer under these conditions.

Working on the FFF model, adhering to the established timeline and budget, the client and the development company work together to set priorities. Imagine that a client ordered the development of a trading application with a budget of $2000. If at some stage a client with their wish list exceeds the budget, the team changes functionality, giving preference to the most important functions. As a result, the budget is not exceeded, and a high-quality application is released on time.

Milestone-based

A characteristic of the milestone-based pricing model is that the work development scope is pre-divided into discrete milestones or stages. In most cases, the milestones are not the same, as different functionality takes different amounts of time and, therefore, client funds. Therefore, an IT company, in turn, moves on to another one depending on the importance of each  milestone. Thus, just like in the Time & Materials pricing model, the customer pays incrementally, the only difference being that he pays the planned costs for each successfully completed milestone.

 

 

Dedicated team

Before starting development, the software customer and the IT company discuss the product requirements, workload, and time needed to complete the project. At the same time, the software company provides the customer with a dedicated team of necessary IT professionals who meet their requirements and expectations. Each month the software client pays for the work of this team. This model differs in that the client controls the entire development of the project, and the software company helps to solve organizational issues. It is good to use it when the client knows in advance that requirements will often change.

 

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Developing software on budget can be challenging, but it is possible if you know how to manage the escalating costs of the project. The main thing is to be guided by teams and companies that will treat your project as their own as well as be result-oriented, and not about extorting money from you.