Custom Software Development Cost: How to Make an Estimate for Your Project?

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Are you considering building your software but wondering about custom software development costs?

You are not the only one. This question is tricky even for experienced software building giants because the cost really depends.

The primary reason is that custom software development services provide endless opportunities to implement your ideas. You get to choose how your software looks and behaves and what it should do. In addition, custom software offers the highest data security since you are the only one with access to the code. You can also lay your business growth plans into your custom tool’s architecture to easily expand its functionality as the time comes.

But how much does it cost to develop software that combines all the best features?

In this blog, we will investigate the aspects constituting custom software development price and explain the estimation process at Syndicode.

How much does custom software development cost? The short answer

The 2019 survey by GoodFirms found that the average cost of software development varied between $3,000 and over $60,000. The range covers pre-made products as well.

There is no research to provide a definite answer to the “how much does custom software cost?” question. However, an overview of the data presented by Google reveals that it may fall in the $50,000–$250,000 range. The cost may reach millions in some cases, though (take Microsoft, which spent $1,2 billion on Windows 10).

The costs may break the bank due to complex architecture and innovative solutions requiring multiple iterations. Errors caused by insufficient planning and poor quality assurance are other factors that can double the initial estimated cost.

Cost of custom software development by type

You might want to create an improved version of what’s already on the market or come up with a principally new concept. The question is, how much does it cost to develop software? Let’s review some popular software types and see what it takes to build a custom website.

Content management system (CMS)

A CMS helps users create, modify, and manage content on a website without the need for coding skills. It can also perform document management functions. The most popular content management systems are WordPress and Magento.

The premade tools work great for general purposes. But businesses choose custom solutions to get specific functionality tailored to their needs and avoid overpaying for unused features.

So, how much does the CMS development cost? A version with a unique feature set specifically tailored to help you reach the objectives will cost around $45,000 to $90,000 and more. It will integrate smoothly with your other business software due to open-source code and serverless architecture.

Customer relationship management system (CRM)

A CRM platform connects different company departments, organizing their notes, activities, and metrics into one system. This way, marketing, sales, and customer service teams can access real-time user data and use it to improve their work efficiency.

Hubspot and Salesforce Sales Cloud are renowned ready-to-use CRM solutions. However, clients who seek unique customer segmentation tools, want to track custom metrics, or need a higher security level than shared systems can provide, opt for custom web development services.

The average cost of CRM software development varies between $150,000 and $300,000 for core solutions. The price may be higher if you need many features, AI/ML-based functionality, integration with your other business software, etc. You can learn more about the specifics of CRM development in our blog post.

Enterprise resource planning system (ERP)

ERP is a system that helps organizations manage and automate their business processes. It brings a company’s financial, supply chain, operational, commercial, reporting, and human resources activities into one place. This way, a business owner can have an overall view of the processes and see how they can reach their goals more efficiently.

Katana, Oracle Netsuite, and Sage 300 are just some of the popular off-the-shelf ERP solutions in the market. However, they all have weaknesses that may be critical in some situations. Custom development will help get all the best from these tools, spare the cons.

How much does the ERP development cost? Again, depending on what you need your software to do, the number of users, and the amount of data to be processed, a custom solution may cost between $250,000 to $800,000 and sometimes more.

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Marketplace

An online marketplace is a website where multiple vendors, shops, or individual sellers connect with customers. The platform does all the promotions and is also responsible for transaction handling. This way, sellers can focus on closing deals and delivery.

Amazon is the world-known marketplace for everything, followed by eBay. Airbnb is also a marketplace but in a narrower segment.

Many entrepreneurs turn to custom marketplace development services to get a piece of the $40.1 billion revenue pie. But what is the cost of building a marketplace from scratch? From our experience, you can expect to pay from $70,000 for a basic solution to over $280,000 and more for an advanced product. 

More details in our guide to marketplace development cost calculation.

Software-as-a-service (SaaS) solution

Software-as-a-service (SaaS) application delivers services over the internet instead of being downloaded and installed. It is accessible via an internet browser and runs on a cloud server. A SaaS application can be anything from office software to business tools.

Among the popular Saas solutions are Dropbox — a file hosting service; Microsoft Office 365 — a cloud-based office software set; Slack — a messaging tool, and others. All these applications can be accessed from any device with a browser installed and offer pay-as-you-go payment models.

Those who decide to invest in custom SaaS development benefit from a relatively easier launch and gain the opportunity to grow their business exponentially. But how much does SaaS development cost?

In our earlier blog post about the SaaS application development process, we found that the average price of building a SaaS application varies between $80K-$250K.

Learning management system (LMS)

An LMS enables users to create, deliver, and manage educational materials and track training for their customers or employees. Its main benefit is the 24/7 access to learning materials from any device connected to the internet.

Moodle, Schoology, and Blackboard Learn are the top popular LMS used by educational institutions. This is because they are easy to use by a wide audience and cost-effective.

However, custom LMS development is preferable if you need to train a large number of people or have particular customization needs or security requirements. So, how much does it cost to develop an LMS?

In our other blog post about LMS development steps, we analyzed the price of developing LMS software in detail. In short, you can expect to pay a minimum of $80K-$150K for a bespoke LMS with all the core functionality. The price goes up along with the feature number and complexity.

Minimum viable product (MVP)

An MVP is a product with just enough features to enable users to assess its value and provide feedback. It can be anything from a CMS to an LMS. The main purpose of MVP development is to test the demand for the product.

Facebook, Dropbox, and Zappos are just some thriving businesses that started as MVPs.

The MVP development cost varies depending on the software type. Thus, custom software development price starts at around $50K for a relatively simple tool like a check-in app. A more complex MVP may cost over $250K.

Factors impacting custom software development cost

We already touched on that earlier, but let’s discuss what can make your project more or less costly in detail. Knowing these factors will help you avoid mistakes in planning and estimation and go over the budget.

Besides, you will be able to ask your development partner, “how much does it cost to develop the software I have in mind?” and evaluate the reasoning behind their answer.

Product size

Software size can be determined in several different ways. The simplest one is estimating the number of code lines in the entire project. It can be done by comparing the project requirements with existing systems of the same kind. However, the developer’s expertise should also be considered since seasoned programmers can implement the same logic with fewer lines of code.

Another method is summing up the time needed to complete all the entities in the project’s Entity Relationship (ER) diagram. An entity may be represented by a user type or a data piece. The more there are in the system, the more the custom software development pricing will be. 

Finally, the product size may be estimated by summarizing the processes in a detailed data flow diagram. Here, the number of actions a user can perform using the system affects the cost of software development.

Product complexity

The next important factors are the number of features to develop, their complexity, and customization level.

The more features, the more workflows, and the more complex the software structure. In addition, each feature can be infinitely complexified. Thus, you can build a simple signup feature using email and password or additionally enhance it with a social login feature that would use one’s social media information to create a profile. The latter requires more work and adds up to the custom software development cost.

Customization enables users to choose and set their preferences in the system. Thus, WordPress lets users change page content, layout, and design of websites, as well as their functionality.

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Platforms

For starters, a responsive website is enough to bring value to users and profit to the business owner. However, mobile app development offers many benefits, including more personalization, higher engagement, and unique features.

Here, you have two options: native development and a cross-platform solution. Native apps are usually cheaper, with slight price variations for Android and iOS platforms—more on this read in our guide to app development cost estimation.

You can also opt for web app development services. A web app can do many things a mobile app does but usually costs less.

Integrations

Integrating with external services introduces multiple variables. You don’t know what data can fail to pass through, if the next service update will be compatible with your technology, if it’s protected enough, etc.

Typical integrations like payment services such as Paypal and Stripe or credit providers such as Equifax are easy to integrate with. However, lesser-known systems and custom integrations may pose a challenge and increase project costs.

Data migration

If you need to migrate data from your old system, custom software programmers can write a script to extract the required content and reshape it to fit your new solution. The process is fairly straightforward unless there are differences in software structures, taxonomy, or design.

In the latter case, the content should be reworked and extra time allocated to check for accessibility errors. Developers might need to write several custom scripts and perform a series of tests. And, of course, the additional time spent on this will reflect in the final cost of custom software development.

Hiring model

HR processes are the major aspect of custom software development costs. Your bill will change depending on the number of specialists in your team, their experience, and the engagement model. The top popular choices are in-house development, outsourcing, and hiring a dedicated software development team or outstaffing.

We took an average custom software developer’s rate to calculate the estimated cost of software in the U.S. In our example, the project’s duration is 1,000 hours. So, the cost of custom software development with a team of four units will be the following:

Engagement model/Line itemIn-house teamOutsourceOutstaff
Cost per hire$4,425$885$885
Total team salary$250,815$380,000$380,000
IT expenses$60$0$60
IT server$12,500$0$12,500
Technology training$5,000$0$0
Paid benefits$86,900$0$0
Software license$461$0$461
Overhead$64,000$0$0
Total cost$437,161$380,885$393,906
Engagement models price comparison

It’s worth noting that outsourcing and outstaffing costs include overheads and other expenses such as management. However, the total price is still lower due to the wide client base and numerous services.

Team composition

In the example above, we considered a standard team of four units for a 1,000 hours-long project. The team consists of a business analyst (part-time), two developers (front-end and back-end), a project manager (part-time), and a quality assurance engineer.

If your project is smaller, you might not require a manager. You can also opt for middle-level developers who will write you simple yet effective code.

Alternatively, you will need more experienced staff and a different set of professionals for larger projects or tighter deadlines. Moreover, in this case, the cost of custom software development will increase by about 25%. 

Team location

Custom software development costs vary depending on the development company’s location. You have already noticed that outsourcing generally costs less than in-house development. However, you can cut the bill even more by hiring internationally.

How much does software development cost in different countries? See the table.

CountryAverage hourly rates
USA & Australia$120–$170
UK$100–$120
Western Europe$75–$100
Eastern Europe$45–$75
Software engineer’s hourly rate in different countries in 2022

So, by contracting software development vendors in Europe, you can cut the price featured in the example above at least twice.

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How much does it cost to develop software at Syndicode?

Syndicode is a custom software development company and a full-cycle digitalization partner with almost a decade of experience. Our rich portfolio of successful cases proves our diligent and creative approach to planning and estimation.

We start every new project with careful analysis, balancing what’s effective and reasonable. As a result, we stay within the initially estimated timeframes and cost ranges.

Estimation methods

We use several methods to estimate the cost of custom software development.

  • Analogy method. When we see a project similar to one of our previous cases, we apply the same cost projections. Some additional calculations can be made to consider a change in technologies or slight differences in features but, generally, this is the quickest and most precise method of estimating software development costs.
  • Ballpark method. This is a rough estimate based on the client’s objectives and average market prices. We use this method when requirements are vague, and the scope isn’t clear to quickly give the client an idea of whether they can financially build the project. If the ballpark numbers look good, we can gather more details about the project and estimate more precisely.

Detailed estimate. It is based on the project development lifecycle, requirements, and work breakdown structure. To estimate software development costs in detail, we perform extensive business analysis, list all the features, and create mockups. We also consider potential risks and map out the mitigation strategy.

Estimation steps

Not everyone has the technical background to create specifications for software building. We broke the cost estimation process into several steps to make communication frictionless and quickly provide the client with the initial information regarding custom software development costs.

  1. Consultation. During the first contact with the client, we collect all the information about their project and discuss our capabilities and technical limitations. If everyone is comfortable and ready to move on, we schedule a call or a meeting to gather more details.
  2. Detalization. We ask the client for more details about their project through a questionnaire. Meanwhile, our business analysts conduct initial research to learn more about the client’s niche, audience, and competition.
  3. Quote preparation. Based on the collected information, we prepare an initial estimate using one of the estimation methods described earlier.
  4. Offer. We complete the market research and prepare a list of features and implementation ideas. Based on that, we prepare an accurate software development costing estimate.

How to make your own software development cost estimates?

If you feel confident enough, you may try and estimate the potential cost ranges for your idea implementation. Here are the basic steps to follow:

  1. Split your project into phases. In Agile development, the major phases are design, development, testing, and maintenance. You can also add a prototype phase, an MVP, etc.
  2. Divide the phases into smaller parts. Thus, the design phase can be broken down into wireframes and detailed design stages. The development phase may involve the completion of each separate feature.
  3. Estimate the duration of each subphase. Here, you may need a consultation from a specialist in every development-related field.
  4. Determine the acceptable time limits and the number of employees required to complete all the tasks within the time given.
  5. Determine the scope of HR resources for each development phase. This involves recruitment, training, rewards, etc.
  6. Establish acceptable payment rates for every professional involved in the project.
  7. Include fixed costs such as office equipment, project management, etc.
  8. Calculate employee wages and add up all other costs. Don’t forget the risks such as inflation, hardware malfunctions, etc.

Custom software development cost in a nutshell

How much does it cost to develop software? A quick Google search will tell you that average software development costs start at around $40,000 and go as high as the sky. While ranges this wide may look intimidating, remember that they describe all kinds of projects, from the smallest restaurant menu app to the Amazon marketplace.

Besides, even building an Amazon-like marketplace, you can go modest and create an MVP with all the basic functionality minus the high-tech. Or you can add an ML-powered search and two-factor authentication to a restaurant menu. Both will affect the final cost of custom software development.

Therefore, an accurate estimate can only be made after the project requirements have been determined and deadlines set. That’s why our business analysts tend to ask plenty of questions about your idea and vision to provide you with an accurate estimate. They also do their research to mitigate the risk of exceeding the software development budget.

FAQ

  • When calculating software development costs, providers consider software size, complexity, UI/UX design, the development team composition, custom software development rates, and targeted platforms. The first step in cost estimation is requirements gathering and analysis. An analyst determines the fundamental project phases, such as design, development, testing, and pre-launch activities. Then, they break each phase into stages and determine the necessary resources to complete them. Finally, they identify risks affecting custom software development price or project length and add up everything to get the total sum.

  • Hiring an outsourced team is generally cheaper than recruiting and training an in-house one. By our estimates, you can save about 15-30% thanks to outsourcing. Overhead and hiring costs are the major difference between the two engagement models. When you outsource your project, your vendor is responsible for finding skilled workers and ensuring good working conditions. Of course, these costs are included in the quote. But since companies specializing in software development tend to work on several projects simultaneously and rent large offices (or even hire remotely), the price per client turns out to be less than you’d pay for facilities independently.

  • As a client, you can greatly save on development by outsourcing to Eastern European vendors. According to our calculations, the cost of custom software development in Poland, Romania, Slovakia, Czech Republic, Ukraine, Bulgaria, Hungary, or Moldova is about 40-50% cheaper than the estimated cost of software in the U.S., Australia, and the UK. At that, there is no substantial difference in developers’ skills, experience, and language proficiency. Another thing you can do is to decrease your project size by prioritizing features and deleting non-essential ones. It will cut the amount of a designer’s and developer’s work. And finally, don’t skip testing. This may sound controversial, but timely error prevention and troubleshooting will save you hours and dozens of bucks later.

  • It depends. If you have a project with perfectly defined requirements and are positive that nothing can make you reconsider them amidst the development process, you can choose the V-shaped model and a fixed-price contract. If the requirements are unclear, applying the Prototype model is best. It uses dummy features and limited capabilities to test if the customers’ needs were understood correctly. Then, after feedback collection, the actual development starts. An Iterative Incremental model is beneficial for lengthy projects with the risk of changing requirements. It involves building software in small parts and having scope for changes, thus adding no cost. The Agile model is another way to add flexibility to the development process, provided the client knows what they want the product to be. It also suits projects of all sizes.

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