75% of organizations have increased their software budgets this year – and no wonder! Software is the keystone of critical business projects, especially to stay competitive in today’s market.
Yet, building new software is a big undertaking and investment. Even the most experienced CTOs struggle to keep costs down while also accurately scoping their project and accounting for “hidden” expenses. In fact, 59% of businesses worldwide regret at least one recent software purchase.
That’s why it’s essential to understand software project budgeting upfront, so you can:
- Optimize your resources
- Control costly risks
- Enhance your ROI
Here we’ve put together a software cost planning guide so you can get clarity into your project scoping and budgeting. We’ll explore pricing factors, cost breakdowns, budgeting tips and more so you can make an accurate cost estimation for software development projects.
Key Factors for Custom Software Development Pricing
High-impact software budget management starts with knowing the main pricing factors.
Project Size and Complexity
Your project’s level of complexity can directly influence pricing. For example, custom software development for an MVP won’t involve the same manpower as a full enterprise build. To plan ahead, get a sense of your primary features, design intricacy, data needs and more.
Team Size and Experience Levels
Determine the number of experts you need to carry out your project. The most basic team involves developers, designers, business analysts and testers – plus a project manager. Of course, the exact team size will depend on your software project scope, as well as the type of specialists required.
Tech Stack Expertise
The technologies running your software will also influence costs. This includes languages, frameworks, databases and other tools. Keep in mind that in-demand technologies can incur significantly higher costs (see this StackOverflow list).
Development Methodology
The way your software team approaches your project can boost efficiency and cost savings as well. Agile and DevOps are usually the gold standards, as these methods involve a continuous cycle of development and feedback to verify and improve the product. More traditional methods such as waterfall can become expensive if your needs or direction changes mid-project. Overall, agile development costs lead to even greater savings through top efficiency.
Team Location and Logistics
Finally, you can significantly reduce your custom software development pricing by hiring global developers. Regions such as Latin America, Eastern Europe and Asia/Pacific have talent available at lower competitive rates, as well as more flexible engagement models. Discover salary ranges for our top-tier LatAm-based professionals via our salary wizard!
A Breakdown Cost Estimation for Software Development Projects
Now that you understand the cost factors, let’s break down a typical software development cost estimate.
Most of your software budget will be used for development, especially for multi-phase projects. In addition, areas such as discovery, design, QA and project management are critical. Generally, you can plan to spend:
- Small Projects (such as MVPs, CRMs, task management platforms, etc.): $5,000-$50,000
- Medium Projects (such as ecommerce, mobile/web apps, SaaS, etc.): $50,000-$200,000
- Large Projects (such as ERP, AI, BI platforms, banking/healthcare apps, etc.): $200,000+
Typical Software Developer Rates by Location
Remember that the largest budget item is typically developer salaries. By hiring software developers beyond U.S. borders, you can get huge savings. As you can see above, developer rates in the U.S. are nearly twice that of first-rate software developers in our TECLA network!
Other Main Costs for Software Budget Management
In addition to the usual software development lifecycle, be sure to think about these essential cost areas in advance:
- Integrations/Tools. Licensing or fees for third-party tools can quickly add to your costs. Whenever possible, estimate your required integrations in advance.
- QA Testing. Multiple rounds of quality assurance are the industry standard. Depending on your technologies, you may also need specialized tests.
- Data and Security Protections. Keeping your data safeguarded is a top priority for businesses. The amount of data you store and process will determine your security costs.
- Regulatory Compliance. If you’re building software for the banking or healthcare industries, you may need extra features or protections to meet regulations such as HIPAA or GDPR.
- Ongoing Maintenance/Upgrades. Don’t skip costs for maintaining your software. Remember that ongoing maintenance tends to cost about 20% of your annual IT budget.
Tips for Accurate Software Project Budgeting
Top software development is a major investment for your businesses. Even so, you can make smart cuts to your budget by planning ahead.
1. Define Clear Requirements and Deliverables
Start by defining your key objectives and technical requirements. This is typically called a Software Requirements Specification (SRS) document, as it outlines your full needs and assumptions. Be sure to talk to all your stakeholders and departments so nothing gets overlooked.
2. Prioritize Features to Align with Budget Constraints
Ideally, begin by building an MVP (Minimum Viable Product) to verify your vision and prioritize features. Focusing your initial budget on only the most important features tends to pay off in the long run, as you’ll achieve efficient development and improve your core offering over time.
3. Understand the Costs of Third-Party Integrations
Companies frequently cite third-party integrations as “hidden” costs of software development. Integrations can speed up development by giving you access to ready-to-go components and tools. Yet, sometimes it can increase your budget significantly in the long run. Find out if there are ways to use open-source tools or reduce your reliance on third-party options.
4. Leverage Nearshore Teams for Cost Efficiency
For maximum cost savings, lean on a nearshore software partner. Hiring developers that share your time zone will optimize your real-time collaboration and team efficiency. Plus, tech professionals located in Latin America involve 40-50% lower competitive salaries, so you can immediately reduce costs.
5. Plan a Long-Term Project Roadmap
Have an action plan for completing your project, especially if it’s larger and will be carried out in phases. Your long-term roadmap will empower you to understand your full expenses and align your cost expectations from milestone to milestone. An experienced software partner can support you in creating this roadmap for the best outcomes.
Hire TECLA Software Developers for Budget Savings
Calculating a realistic cost estimation for software development projects is now possible. Consult our smart software project budgeting guide to optimize your resources and reduce your budget without sacrificing quality.
As you undergo software cost planning, reach out to our specialists. At TECLA, we’re strong advocates of attaining affordable software development via our tailored talent solutions. We have a decade of experience in matching U.S. companies with elite, cost-effective TECLA software developers in 18+ LatAm countries.
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