How to Estimate the Cost of Software Development in 2023

Excellent custom software development is a costly affair, right? What is the most amount of money you would be prepared to spend? Nevertheless, you may be surprised, but careful professional software cost estimation is not an outlier. It is a crucial point when you want to avoid eye-watering expenses. At CleverDev Software, we know how to determine the overall development budget competently.

Software Development Costs

In our article, we are ready to share our expert hints to help you create a comprehensive understanding of pricing essentials. Just stick to them while building top-notch software to address your business needs.

Why Know the Average Cost of Software Development?

First, let us see how much money global businesses are ready to pay for software and digital transformation. According to Gartner, worldwide expenditures for IT are projected to hit $4.4 trillion in 2022, which is a 4% increase to the results of the previous year. It means that the demand for proven ways of determining software development costs will not cease shortly.

Why is it so crucial to run down the careful calculation of cost, effort, and time for your project? Otherwise, you may find your business among the long list of failures that were caused by poor estimation and implementation of software projects.

As an example, we can take the promising digital platform Its launch was scheduled for 1 October 2013. The project funding was determined at an impressive $93.7 million. The resource had to pave the way for millions of Americans to innovative healthcare plans at the snap of the finger.

Well, it all failed. Inadequate software development pricing estimation led to severe difficulties in the platform developing and zillions of mistakes in the project delivery. It generated massive issues during the website rollout, data breaches, and other serious problems.

Despite all the attempts to fix the resource and massive additional funding, became one of the loudest breakdowns. What were the final expenses? The ultimate value for the portal ballooned to $1.7 billion. And it came to nothing.

Given this, you should mind that if your software development price evaluation is below par, it has all chances to become the costliest mistake you will ever make.

Custom Software Development

Is Custom Software More Expensive?

So, why not turn to one of the software packages of large vendor brands and just pay for your plan? Furthermore, it may seem that custom solutions will cost you an arm and a leg as you will have to pay all the involved specialists like developers, system architects, designers, project managers, etc.

When you determine the cost of software development the essential difference between the two types of software delivery lies in the perspective of the extended period.

Thus, when you create a custom solution exquisitely adapted to your business requirements, you invest in your assets. You can add new features or alter the functionality of your bespoke project.

Things are different with packaged software. With it, you get practical answers to a limited set of operations. Needless to say, no source code is provided and modifications are not guaranteed by service providers. To add up to highly-priced subscription fees in off-the-shelf software costs estimation don’t forget about setting up, maintenance, and so many other hidden wages.

Because of that, we are convinced that custom software delivered with great attention to every detail in your business by a responsible development partner is worth every penny.

What Affects Software Costing Estimation?

Now let us review the key factors that will help you calculate a budget for a software project. Here are three cornerstones that put up the price for your project.

Software Costing Estimation

The Type

The scope of work is defined by the type of your software project. It can be a solution delivered from scratch, a modification of existing software, or the development of a web-based app or platform. One more type of rage project is software integration. For example, that can be insurance providers integrity for an innovative RPM portal.

Software Costing Estimation

The Size

The next vital factor when you develop software and evaluate the expenditure is its size. Eventually, the larger your project is, the more expensive it will be to build. That is not always the case, of course. But for rough estimates, it is a vital consideration.

For a Small Project, it is typical to make some minor changes in your existing software, such as bug fixing or tweaks to the UI. No need for an extended team or a lot of communication with a client.

A Medium Project can be a simple mobile app, a web interface tailored for your existing inventory, or something like that. As a rule, there is a single data source and a narrow range of features or integrations.

A Large Project sets the wheels in motion for deep and complex development processes. For instance, a cross-platform multi-party application falls under this category. It may require omnichannel integrations, database creation, robust logging options, and security features.

An Enterprise-Level Project is the king on our list. To understand the scale, think about Western Union, Uber, or DPD. Top data security and integrity, logging, support systems, integrations, and other requirements need industry-leading expert teams.

Software Costing Estimation

The Team

This factor has a close correlation with the previous one. In practice, no project can be delivered without a developer, a QA tester, and a PM. And for the smallest projects, it can be the same person. Nevertheless, for large and enterprise projects, dedicated in-house or outsourcing teams are of the essence.

Software Development Pricing

Defining Software Development Cost: 3 Key Stages

Besides a clear vision about the type, the size, and the team, software development pricing evaluation should also include calculating expenses in three more essential perspectives.

Ballpark Figure

It is a preliminary assessment of the potential price of your future project in rough values. The ballpark figure will show you whether it is worth the effort launching a software development product for your business.

Budget Projection

This estimation stage helps you create the roadmap for strategy and budget plans. You prioritize the project stages and evaluate risks.

Statement of Work

The SoW estimate splits the software delivery process into definite timelines of activities. At this stage, your development team or an outsourcing partner provides the most accurate estimations.

Calculate Budget for a Software Project

How to Estimate the Cost of Software Development?

Now, we are ready to share the best-proven techniques to calculate the final budget for your project with labor and overhead costs, license and vendor fees, etc. We handpicked four leading approaches you can apply to calculate a budget for a software project or its stages.

Parallels Technique

This technique is simple: you take the historical data about the project, which is similar to yours, and stick to the pattern. Nevertheless, you need valuable data from your previous and current projects, an experienced project manager, and senior specialists.

Top-down Technique

For the top-down estimation, you start with outlining the final goal and deliverable of the project and divide it into several layers of smaller processes. Specified detailed tasks can be assigned to your delivery teams.

What are the critical requirements for the technique? You need to have a deep understanding of all the product specifications, extensive experience with similar projects, and a clear vision of future business benefits.

Bottom-up Technique

This estimation technique is the oil and vinegar to the previous one. Your team has to focus on every detail of the client’s software requirements at the lowest layer and make a range of estimates. The software development costs evaluation process implies using the expert opinions of your team members in creating the full picture of your project budget.

The technique is rather time-consuming and needs seasoned professionals from your teams. Nevertheless it is also much more accurate and substantial.

Planning Poker

One more unconventional technique is a cumberstone part of the Agile methodology. It is used for consensus-based estimations and planning. The key idea of planning poker is that the best solution can be derived from an open discussion of professionals where every opinion is significant. The final value of the project design and development is the build-up of experts’ points of view, competencies, and experience.

Additional Factors Affecting Software Costing Estimation

If you do not have a magic crystal ball, then you should also take into consideration several possible hidden project pitfalls for your software costs estimation . On this account, remember to leave some room for manoeuvre.  

We recommend to mind such essential factors as migration of existing data, licences, compliances, and creative design for your app or web resource.

So, it is a wise idea to add up some allowances to make your budget flexible.

How Do We Estimate the Cost of Software Development at CleverDev Software?

Do you think it is still the highest mountain to climb when it comes to the issue of how to determine the cost of software development?

It is all right to have concerns about the cutting-edge needed digital transformation prospects for your business. That is why it is crucial to turn to a reliable outsourcing partner that will help you solve your company’s pain points, turn your ideas into reality, and set new prospects for the future.

At CleverDev Software we will create a detailed roadmap of the project delivery with specific attention to precise software cost estimation and top-quality delivery and support processes. We will provide you with the best-proven solutions to get the most out of every dollar in your project budget.

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About the Author

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Julia Bonchenkova

Julia Bonchenkova

IT Expert at CleverDev Software

With a tech leadership spanning from 2008, Julia lives by the motto of diving deep into the innovation ocean. Her writing prowess, research acumen, and interviewing expertise enable her to share invaluable insights into IT trends.

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How Can We Help You?

Get in touch with us, and we will gladly get back to you as soon as possible. If you need a professional team, CleverDev Software will be happy to assist you in making your vision a reality.
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