When it comes to the software development cost breakdown, companies are primarily concerned with how much it will cost them, what exactly they have to pay for, and whether outsourcing their tech projects is a more cost-effective option.
However, determining the true cost of software development is anything but simple, as there are multiple factors involved. The process of calculation is often not transparent and can lead to hidden costs as firms fail to take into account other factors that arise during the development cycle.
Thus, this article will provide a detailed breakdown of software development costs, offering insightful analysis on how to budget and allocate resources effectively for tech projects. More importantly, businesses can make informed decisions on whether they want to keep the process in-house or outsource it for further cost savings.
Software Development Cost Breakdown – The Cost Structure
It can be tempting to accept offers from software development services that promise quick and cheap development costs of just a few hundred dollars. However, these “low-cost” solutions often leverage low-code development platforms and pre-built assets to quickly create the software, much like building a website with WordPress. Thus, they fall short in terms of customization, flexibility, and scalability.
On the other hand, customized software development involves a thorough understanding of your business processes, goals, and challenges, resulting in software that is more robust, scalable, and aligned with your strategic objectives. Although it requires a higher initial investment, the long-term benefits include improved efficiency, better user experience, and the ability to adapt to future needs.
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Let’s break down its cost structure and explore how each element contributes to the final price tag:
|
Development Phrase |
Description |
Percentage to the total cost * |
|
Design |
The design phase involves creating detailed specifications and visual representations of the software’s user interface and experience (UI/UX). |
10% |
|
Development |
The development phase involves writing the actual code to build the software according to the design specifications. This phase is typically the most resource-intensive. |
50% |
|
Testing |
Testing ensures that the software is free of bugs and performs as expected. It includes various types of testing such as unit testing, integration testing, system testing, and user acceptance testing (UAT). |
25% |
|
Project Management |
Project management involves planning, executing, and overseeing the software development process to ensure the project is completed on time, within scope, and on budget. |
10% |
|
Maintenance |
After the software is deployed, the maintenance phase ensures it functions correctly and efficiently. This includes fixing bugs, making updates, and adding new features. |
5% |
* It’s important to note that the figures presented in the table are educated estimates and should be treated as guidelines. Businesses can use them as a starting point for determining the cost of each phase of software development, adjusting as necessary to fit their unique circumstances.
Now that we’re clear on the cost structure of software development, let’s examine in detail the main factors that will affect software cost.
Software Development Cost Breakdown – Main Factors
Factors influencing software development cost
The cost of software development can range from as low as $5,000 to well over $100,000. Such disparity is due to the multiple factors that affect the development cycle, including the scope of the project and the level of customization required.
Software Type
The type of software being developed will significantly affect the cost as it will determine the project requirements, features, and desired outcomes. Complex software, such as enterprise systems or cutting-edge AI applications, requires more development time and resources compared to simpler applications like basic mobile apps.
|
Type of Software Development |
Estimated Cost |
| Website Development | $5,000 ~ $20,000 |
| Product MVP | $10,000 ~ $200,000 |
| Basic Web-based Application | $15,000 ~ $30,000 |
| Mobile Application | $15,000 ~ $80,000+ |
| Enterprise-grade Software Solution | $100,000 ~ $800,000+ |
Project Scope
After deciding on the type of software, businesses will have to consider the project scope and complexity to determine the resources needed. Even within the same category, a mobile application that offers basic functions for fewer than 1,000 users will cost a fraction compared to one developed for real-time responsiveness with millions of active users simultaneously.
Typically, project scope can be classified into the following categories:
|
Project |
Estimated Costs |
|
Small Scope software development Tech projects with limited functionalities, requirements, and a relatively short development timeline, often weeks to a few months. Ex: simple mobile apps, basic websites, or small-scale desktop applications. |
$15,000 ~ $50,000 |
|
Medium-scope software development Tech projects that involve moderate complexity in terms of functionalities, requirements, and development time. As a result, it requires thorough planning and coordination to manage multiple features and functionalities. Ex: Medium-sized enterprise applications, e-commerce platforms, or educational software suites. |
$50,000 ~ $200,000 |
|
Large-scale software development Tech projects Require a large, multidisciplinary team of developers, designers, project managers, and quality assurance professionals. The development timeline is long-term, spanning multiple years in some cases, due to the scale and complexity of the project. Ex: Enterprise-level systems such as ERP (Enterprise Resource Planning) software, complex financial systems, or large-scale social media platforms. |
$200,000 ~ $500,000+ |
Software Development Team Composition
The project manager, developer, and QA tester form the backbone of software development. Subsequently, additional roles can be filled according to project requirements, such as UX/UI designers to enhance user experience, data analysts to extract valuable insights, or system architects to ensure robust infrastructure.
In other words, the tech team structure will heavily affect the software development costs. Opting for an in-house team offers control and seamless collaboration but may entail higher expenses, including salaries, benefits, and infrastructure. On the other hand, outsourcing or hiring freelancers could provide cost savings but may sacrifice some degree of control and long-term commitment.
|
Team Type |
Cost (Estimated) | Quality |
Duration |
|
In-house Team |
High ~$200,000 per year for a team of 3 developers |
Full 100% quality control & management | Long-term |
|
Outsourced Team |
Low to Moderate ~$120,000 to $160,000 per year |
High productivity with great results | Can be for both long-term and short-term |
|
Freelancers |
Low ~$80,000 per year for a team of 3 freelancers |
Great productivity but not ideal for complex tech projects | Short-term |
Maintenance and Updates
It’s crucial to remember that software development costs don’t stop at the initial build and launch. Once your software is up and running, ongoing maintenance and support become a must.
On average, firms can expect to spend from $200 to $500 per month on maintenance, though costs can skyrocket if the requested updates are extensive and require a major overhaul of the software.
Software Development Cost Breakdown – Example Project Cost Estimation
Example project cost estimation
To provide better visualization and further understanding of the software development cost breakdown, let’s take a look at some samples below:
#1 – Marketplace
Developing a Marketplace for a small retail store that sells clothing and accessories using PHP, MySQL, HTML, and CSS technologies to manage inventory, process transactions, and maintain customer records.
|
Project Scope: |
Project Complexity: Basic |
Time Frame: 2-3 months |
Estimated Cost: |
#2 – AI-Powered Wealth Planning Application
A customized Wealth Planning platform leverages AI algorithms to analyze user data and financial metrics. Key functions include instant auto-responses with personalized advice, access to real-time market information, and detailed analysis that empowers users to make well-informed financial decisions.
|
Project Scope: |
Project Complexity: Medium |
Time Frame: 1 year |
Estimated Cost: |
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#3 – Custom Enterprise Application
A comprehensive e-commerce platform designed to support large-scale enterprise operations. The platform must be robust, scalable, and capable of handling high volumes of transactions and inventory from multiple vendors across the globe.
|
Project Scope: |
Project Complexity: High |
Time Frame: +1 year |
Estimated Cost: |
Conclusion
In an era where technology plays a pivotal role in business growth, the decision to invest in software development can significantly impact a company’s trajectory. Whether it’s choosing between in-house development or outsourcing, businesses must weigh their options wisely to align with their strategic goals and budget constraints.
For businesses that lack an in-house IT team or find themselves short on the needed manpower, outsourcing is a great strategy that enables firms to access specialized expertise, accelerate development timelines, and achieve significant cost savings.
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