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How Much Does it Cost to Develop Custom Software? [Main Impact Factors]

10 min read

Here, we’ll educate you on the cost of creating custom software, and the price-determining factors. This article is a perfect guide for startup founders, serial entrepreneurs, and product managers looking for custom software development services.

We’ll discuss the following here:

  • Definition of custom software development,
  • Custom software development cost,
  • Factors that influence developmental cost,
  • Hidden costs to consider,
  • And more!

For a quick understanding of the content, you should go straight to the bonus infographic, which will give you a visual idea of how much it costs to develop custom software.

Let’s delve into the crux of the article.

What is Custom Software Development?

Custom software development is the process of planning, designing, developing, launching, and maintaining a software solution per requirement.

It’s a basic software development process, but with strict adherence to specifications that answer the following questions:

  • Who will be using the product?
  • When will the software be used?
  • How accessible will the software be?
  • How will the software be used?

If you like to rebuild a generic solution to make it your brand product per requirements, then it’s custom software development. Most enterprise software falls in this category.

Another example of custom software development is making software that has some sets of features that are not present in the market to solve some given features.

The illustration shows the essence of custom software development

How Much Does Custom Software Development Cost?

The cost of creating custom software ranges between $120,000 to $220,000. This figure is not residual, because the cost is constantly increasing due to inflation and the rising cost of software development services around the world: from the U.S. to India.

However, the exact cost of developing your software depends on the pricing model, which is:

  • The complexity of the solution,
  • Your team type,
  • The location of your team.

Let’s discuss developmental costs per each pricing model.

Cost Defined by Software Complexity

The complexity of the software is the set of entities, functions, user roles, software size, and how they interact within the system. Simply put, the functionality of your platform determines how sophisticated it is.

Complexity is also affected by the UI/UX design, as the more characters in its user interface, the more sophisticated it is.

For example, if you want to create a corporate website, you might need a map of the location, and a form to gather information from users.

This will be less complex than creating the MVP of a SaaS eWallet platform that uses machine learning to offer optimized solutions. As such, the website development cost for a corporate site is lesser than an average wallet SaaS development price.

This is because the saas platform has multiple user roles, higher software sizes, more functions, and higher entities. Thus, it costs more than custom web development.

According to complexity, you can price custom software by basic complexity, average complexity, and highly complex.

Let’s take a look at the price of building a custom software per complexity:

Complexity Level Cost, $
Basic 100,000
Average 150,000
Complex 220,000
This picture shows the cost of custom software development depending on the complexity of the software

We will discuss the details of each complexity level later. Now, let’s focus on further cost breakdown by the type of team.

Cost Defined by the Type of Team

Another factor that determines the price of your software solution is your type of development team. In the table below, we’ll compare the cost of hiring 4 types of teams.

For illustrative purposes, we’ll assume that you’re creating a solution of average complexity:

Type of Team Cost, $
The local development company, the US 200,000
In-house, the US 220,000
Freelance developers 60,000
Outsourced agency, Ukraine 90,000

Are you confused about what each team type entails? Let’s break them down for you.

  • In-house Developers

These are custom software coders working inside the startup, as an employee of the organization. They receive day-by-day instruction from the management and have an apt understanding of the solution being created.

  • Local Development Company

A local development company is a software solution provider that’s located in the same country as your startup. For example, a startup in the United States partnering with a software development team that’s also in the same country.

Hiring a software application developer is an expensive option for startups in high-income nations like the United States.

  • Freelancers

Freelance custom software programmers are independent developers that are not full-time employees of any company. These types of developers accept contracts, and build to specification, or sometimes at discretion.

  • Outsourced Agency

An outsourced agency is a team of software developers that offers developmental services from a foreign location. They require cross-border transactions and are experienced in creating solutions for clients on a global scale.

This picture describes the effect of the type of development team on the cost of custom software development

 

Cost Defined by Team Location

A major determinant of the cost of custom software development is your team’s location. For example, the cost of creating custom software in Eastern Europe is $90,000, while the same product will cost $220,000 in the US.

Below is a more descriptive spreadsheet of costs defined by the team’s location.

Country Cost, $
Australia 150,000
The USA 220,000
The UK 180,000
Western Europe 160,000
Eastern Europe 90,000
South Asia 70,000
Illustration shows the cost of custom software development depending on the location of the team

Now that you have an apt understanding of different pricing models, let’s discuss some factors that affect those costs.

What Factors Impact the Cost of Custom Software development?

The cost of a custom software solution is affected by several factors. These factors are constant irrespective of the team type and location. These factors are:

  • The complexity of the software
  • The development team you’re partnering with

Let’s discuss each of the factors to consider during cost estimation.

The Complexity of the Custom Software

The complexity of custom software varies with:

  • The technology required to develop the product,
  • The number and level of developers required to create the solution.

We’ll discuss each of these factors, and help you understand how they affect overall development cost.

Factor 1. The Level of Complexity of the Software to be Created.

As defined earlier, complexity entails the number of roles, integration, design creation, and functionality in the software. The higher the number of characters within the solution, the greater its complexity.

Also, solutions with more features are more complex than those with lesser features. The only exception is instances where those features are sophisticated ones like blockchain, machine learning, or AI.

To know how complex software is, then first identify the following:

  • The seniority of developers needed to create the solution,
  • The skill-set required in development and maintenance,
  • Number of object types that should be managed in a cloud server
  • The tech stack needed to build the solution,
  • Certifications and licenses are required.

Based on these, complexity can be classified into basic, average, and highly complex. Let’s discuss each type of complexity in detail.

Basic Complexity

By basic complexity, we refer to custom software that majorly provides users with general information. In some instances, it gets data from users, but they’re usually minimal.

An example of software with basic complexity is Blogger.  Most CRM-based platforms form in this category.

Average Complexity

These types of software have multiple basic and complex functionalities. Although junior developers can build them, they still require input from senior developers on a number of complex features. This type of software is the most common for startups and scale-ups.

An example of software in this category is  BigOven. The mobile app has a basic complexity because its main function is to provide users with cooking recipes.

Difficult Complexity

This type of custom software has many sophisticated functionalities, APIs, entities, and user roles. Building this type of software requires top-notch expertise from senior developers and a lot of development time.

An ideal example of custom software of high complexity is QGIS, a geographic information system. This software helps scientists and researchers analyze and predict geographic features like sea levels, wind speed, etc.

This picture shows the complexity of custom software depending on the level of complexity of the software being created

Another important cost-determining factor to consider is the team type you’re partnering with.

Factor 2. The Team you Worked With

Your preferred team affects the price of hiring developers in multiple ways. Software development cost is affected by the following:

  • The seniority and experience of developers involved,
  • The location of the development team,
  • The vendor’s business focus.

Let’s discuss each of these points succinctly.

  • The Seniority of Developers Involved

Prices charged by developers vary with the seniority of developers involved in creating a custom software solution.

Below is a table showing the seniority of developers, and what each entails.

Seniority Description
Trainee As the name implies, this is an employee that’s being trained within the organization in the act of developing custom software.

Although an employee of the company, can’t be involved in any developmental task. As such, they have a negligible contribution towards the development of your custom software.

Junior developer Junior developers have minimal skill sets and little experience in a few programming languages. Quite often, they have about a year of experience coding.

Although they’re cheap to hire, they can only work on software with basic complexity.

Middle developer Mid-level developers are coders with 1-3 years of experience in programming and can independently solve problems.

They are good at most standard coding practices and can independently work on software of average complexity.

Senior developer Senior developers, as their name suggests- can independently work on projects, irrespective of the complexity. They have over 3 years of experience programming and usually know both front-end and back-end stacks.

Hiring senior developers can be expensive. However, they’re great at mentoring junior developers and trainees. They also provide direction to team members.

Software architect A software architect is a programmer that’s responsible for high-level creative design choices and framing the technical standards for the custom software.

They determine processes needed to guarantee top-notch user experience and functionality in the shortest development time possible.

They determine the tools, coding standards, and platforms that other developers within the team use.

Most software developers were once senior developers, as such, they can act in place of one during the development processes.

Illustration shows the complexity of custom software development depending on the team you are working with

Another team-related factor that affects project cost is the location of the development team.

  • Location of Development Team

For example, the average cost of custom software development by a U.S.-based team is about three times more expensive than one developed by a Ukraine-based team.

The final cost differs per geographical area because of the following:

  • Minimum wage,
  • Cost of living,
  • Workforce availability.

To get a better understanding of how price varies by team location, check out the section on “cost defined by team location” above.

This picture describes the impact of the location of the development team on the cost of custom software development
  • The Vendors’ Size and Business Focus

Size and business focus are other factors to consider. How?

Software development companies charge different fees based on their preferred tech stack, and their size. For example, blockchain-centric companies will charge lower to create an eCommerce blockchain solution, than others.

This is primarily due to the availability of experienced programmers in this field within their domain.

Also, based on resources from SoftwareWorld, Thinkmobile, and Clutch, we found that size of the outsourcing agency affects cost.

Software development agencies can be categorized by size in the following:

Categorization Description
Global software development agencies This type of custom software development company has thousands of employees, with development centers around the world. They usually charge between $250 to $850 per hour.
Large software development agencies These agencies often charge between $150 to $300 per hour, and they typically offer their services to large companies on a budget.

They usually prioritize projects on specific niches e.g., ML, e-commerce, Cloud, automation, IoT, etc.

These agencies typically have a workforce of 100 to 1,000 developers.

Small-medium software development agencies These companies are ideal for investment-backed startups that want to save money, yet create a resilient, scalable, and feature-rich product.

The developers here range from 10 to 100 individuals, with an hourly rate of between $120 to $200.

Boutique agencies These are mini agencies with less than 10 developers. They usually handle software development projects for local startups and usually focus on developing for a single niche.

These agencies often charge from $70, depending on the company’s location.

These agencies are predominant in India, Vietnam, and Africa. Their code often fails quality assurance tests.

The illustration shows the impact of vendor size and business focus on the cost of custom software development

Now that you have an apt idea of the factors impacting custom software development pricing, we’ll discuss some unforeseen costs you might encounter.

Hidden Custom Software Development Costs

When creating custom software, you should consider some hidden costs needed to make your product successful. Those costs are:

  • Marketing,
  • Maintenance.

Both hidden costs should be factored upfront before web app development commences.
Let’s discuss what both entail.

Hidden Cost 1. Marketing Cost

The marketing cost is the amount expended on making your solution known to its target users.

Marketing cost should be x2-x3 of the initial development price/annum. That is, if the cost estimate of developing new software is $50,000, then your marketing budget should range between $100,000-$150,000 yearly. This cost will be expended on the following:

  • On-site, and off-site SEO,
  • Email marketing,
  • Information architecture,
  • Social media marketing,
  • PR,
  • Product Hunt launches.
  • And more!

Some of this money will also be spent as an overhead cost for the marketing team.

Illustration shows shows the main components of marketing costs, which are the hidden costs of software development

Another cost implication to consider is maintenance. Let’s discuss this.

Hidden Cost 2. Maintenance Cost

Ideally, the maintenance price tag is expected to be X2 of the development cost/annum.

For example, if the total cost of developing software is 50,000, then the cost of maintenance is expected to be about $100,000.

Your maintenance cost may differ from this if you’re creating a highly sophisticated solution that requires some legal compliance from the government. An ideal maintenance cost will include spending on:

  • Email services,
  • SSL certificate,
  • Domain name,
  • Hosting,
  • iOS and Android app store hosting services
  • Technical support.

This cost keeps your software running, and provides a quick fix during downtime, or when an error occurs. Maintenance costs exist throughout the solution’s lifecycle.

This picture shows the main components of maintenance, which is a hidden cost of software development

Now that you have an idea of some hidden bespoke software development costs. What’s more?

Interested in Getting a Free Estimation of your Custom Software Development Idea?

Creating bespoke software requires that you have an understanding of multiple cost factors. However, while these cost factors might give you a hint of the price tag involved, the final price is still at the discretion of the software development agency involved.

Let’s help you cut the chase and get right down to business. Click here for a free, exact custom software development cost estimate for your idea in just two days.

Interested in custom software development?

Contact us now. We will be happy to assemble a dedicated on-demand dedicated software development center for you.

Talk to us

Bonus Infographic

For your convenience, we decided to create a summary of our in-depth guide. In it, you will learn what the cost of custom software development depends on and what factors you should focus on when setting a development budget.

This infographic shows the main factors that affect the cost of custom software development

 

Looking for a software development partner?

In our guide we will tell you what criteria you should focus on when looking for the ideal software development partner

Click here

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