Software Development Budget: Key Factors that Influence the Final Costs

Sep 09, 2020

Software development budget

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The matter of cost is a crucial factor for anyone who wants to create a digital product. Custom software development costs depend on many factors, such as specific features, scope, and size of software, delivery timelines, etc. Even though there is no definitive answer on how much your product will cost you, this article briefly describes how software development pricing is formed. Read on to learn:

Introduction to Pricing Models: Dedicated Team, T&M, and Fixed Price

Outsourcing your software development, you have to be aware of the main software development pricing models. Choosing the right option for your project can help to maximize the benefits of your collaboration with a custom software development company.

Dedicated Team

The dedicated team collaboration model is best suited for long-term engagement and projects that require a significant amount of work and can be characterized by constantly changing requirements. The software development company supplies all the staff necessary for project completion. When choosing the team extension approach, you are billed on a monthly basis depending on the number of developers involved and their rates. This pricing model provides you with maximum visibility and flexibility, but one of its biggest advantages is a focused approach. Having a dedicated outsourcing team that is focused only on your project guarantees reaching the best results. Also, a dedicated team model provides increased adaptability as your team can be reconfigured at every stage of development depending on the requirements.

Time and Material

The Time and Material engagement model (T&M) allows you to quickly modify requirements, change the work plan, and even pause the development without incurring expenses for it. That’s because you pay for every hour that developers work on your project. In T&M contract, the software development budget, the scope, the timeframes are estimated but still flexible. You can revise the requirements with your custom software development company on a regular basis and make payments within set intervals, for example, every month.

Fixed Price

A fixed price agreement is typically used for initial short-term contracts with highly defined and detailed requirements to test cooperation and get used to an outsourcing vendor. This model is perfect for developing landing pages or simple WordPress websites. Fixed-price projects are finished within the established budget and deadlines. You pay for exactly what was set out in the contact, according to the initial estimations. Remember that changing requirements after signing the contract may lead to additional charges for the completed work, changes to the scope and schedule.

Pricing models

Main Factors that Influence Software Development Costs

Once you decide to outsource your software development, you clearly expect to save money, but lower prices don’t always go hand-in-hand with high-quality services. To get an optimal price-quality ratio, it’s important to understand what determines the costs. Let’s have a look at the main factors that affect the final price.

Project complexity

The project complexity varies case by case, but in general it describes the overall development environment used to build your application. The complexity is defined by challenges that the development team is facing and efforts required from its members. So, what makes your project complex?

  • Uncertainty: you always have to be prepared for unexpected events. Changes can be driven by strategy alterations, user feedback, unpredictable competitors’ actions, etc. Dealing with uncertainties properly can be critical to the project’s success.
  • Novelty: the price will be higher if you want to leverage cutting-edge technologies like augmented reality, virtual reality, machine learning, or artificial intelligence.
  • Security matters: if security is a critical part for your software, strict security measures are needed for safe data storage and, therefore, additional efforts from the team.

Functionality

Software functionality is one of the main software cost factors to consider. A rich feature list that you would like to implement at once increases the cost of development. Vast functionality also takes longer, involves more people for custom software development, and demands more coordinated development processes, more thorough testing, and more structured approaches to UX.

UI/UX design complexity

Cost for UI/UX design is highly dependent on a feature list and overall project complexity. A custom design means higher costs compared to a standard one that uses pre-built templates and themes. Stylish, engaging design and clear, intuitive navigation is what keeps the users of your application coming back. Animations, custom illustrations, unique user interface elements—all these things must be intuitive, convenient, and eye-pleasant.

With Leobit you will get a maximum return on your project investments and revenue increase. Looking for a custom software development cost estimation?

Software integrations

In some cases, a seamless integration can add significantly to the delivery timeline. Some integrations are quite easy, while others can be more tricky. For example, sometimes storage compatibility and migration issues should be eliminated before the integration can be performed.

The most common integration examples are:

  • Integration with third-party services, such as payment or file sharing services.
  • Integration with business applications, such as CRM, ERP, supply chain management.
  • Integration with AR/VR, AI, IoT, blockchain.

Data migration

Different migration techniques and unique migration requirements of multiple storage vendors add complexity to this process. There are many challenges in data migration operations, which is why a tailored approach is required. So the data can fit into another system, it has to be reshaped first. It includes custom scripts creation, translation rules calculation, testing, adjustment implementation, which eventually adds to the price of your software.

Human resources involved

Every software development project requires a different number of professionals with a special set of skills. Taking into account all the aforementioned software cost factors, your total price for software might vary according to the roles of experts needed (developers, architects, designers, BAs, PMs, testers, etc.) and their level of experience (junior, middle or senior).

Main factors that affect Software development budget

Hidden Factors that Increase Your Software Development Costs

There are hidden costs that might affect your final price. Some of them should be anticipated when your software is up and running, some are taken into account by custom software development companies during the estimation phase. Nevertheless, these factors explain why costs for your software can be higher than you expected.

Future updates and maintenance

Software development costs don’t end once your software is developed and implemented. You will certainly want to have updates and maintenance as a regular activity. That’s why software maintenance strategy is crucial to consider while calculating future software development costs.

Technical debt

In order to prevent the negative consequences of poor code quality on the software in long-term perspective, developers need to put at least 1-day of extra effort into understanding and testing the code. Thus, technical debt is the incremental cost for you that impacts the team’s velocity and prevents it from delivering the value. So if you choose the T&M model, you have to pay for the time developers spend to fix the technical debt.

Buffers

You have to understand that there’s always a risk associated with a business project. A software development provider preparing a fixed price collaboration model considers unpredictability of the development process beforehand. That’s why providers add buffers (extra costs for the customer) in the estimation using their experience to evaluate how much potential complications might cost.

Licensing fees

You have to be ready to spend additional costs for the licensing fees. Even though there might be free solutions on the market, a paid option might better suit your tech stack, or have some unique benefits.

Hidden factors that affect Software development budget

Software development cost estimation at Leobit

At Leobit, we offer a two-step framework to estimate your software development cost. Powered by over 6 years’ worth of experience, we have found that this approach to be trustworthy and clear for our customers.

A Ballpark Estimate

The ballpark estimate is completely free for you. The only thing required from your side is to attend a 1-hour meeting with our experts to go over the basic information about your software project. After that, Leobit’s team will need 1-2 business days to provide you with a potential range of costs you might expect for the project. Our experts will also consider basic features for MVP and time needed to build it. It’s important to understand that ballpark estimate gives you a sense of what you’re up against and has some tolerance depending on the project’s complexity.

A Detailed Estimate

This estimation step aims to protect both parties by defining a clear scope of work. Leobit’s business analyst communicates with you, the client, in order to note all the features and functions your software should have and create a product specification document. This document is then taken as a basis of detailed estimation that shows the time needed to complete each task discussed earlier. Compared to the ballpark estimation, this phase lasts longer and depending on the project size might take 2-4 weeks.

Conclusion

There are plenty of technical and non-technical factors affecting the final cost of your software development. All of them should be considered during the estimation phase to give you clear insight on whether or not you can pursue the product’s development. Contact us today if you would like to know how much the software development will cost you and how long it will take.

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