How Much Does Custom Software Development Cost?

Building software is like building a house. When you build a house, you work on the design and architecture and make sure it will be nice and convenient to live in. The only difference is that for software, you build using lines of code, while you build a house using bricks.

Similarly, the question of how much it costs to develop a piece of software is akin to the question of how much it costs to build a house.

When you’re planning to build a house, you first decide what kind of a house you’d like to live in. Would a shipping container be enough while you’re making money for a better place? Do you want to use reclaimed materials in your estate? Would you like to let other people rent rooms in your house?

Also, who will build it for you?

There are tons of questions to answer when building a house! And for software project cost estimation, you may need answers to even more questions.

What sort of software would you like to build? How many features would you like to add? Do you need a custom solution, or would a CMS be enough? How much time do you have to release your software?

And who will develop it for you?

In this article, you’ll find out everything you need to know to get closer to a software cost estimate. You’ll discover why it’s so expensive to build software and how much it may cost you in different countries. You’ll also find tips to save your budget and find out how to start your software development marathon.

Let’s get started.

How much does software development cost?

To provide you with a detailed cost estimate for software development, it’s essential to understand precisely what you would like to build, the size and composition of your development team, and where your engineering partner is located.

But where should you start?

Let’s have a look at examples.

GoodFirms analyzed the average development time and cost offered by a variety of IT agencies worldwide. According to their research, it may cost around $80,000 to build a low-key analogue to Instagram. A ridehailing app like Uber may cost $90,000 and more.

But these estimates aren’t quite representative of the cost of development in all countries. US-based companies charge more for software development services compared to companies in other locations. In the US, the development cost may start at $250,000.

Why is it so expensive to build software in the US? And where can you find cheaper services? Find the answers below.

Why is it so expensive to build software in the US?

In the US, the internet sector represents 10% of the economy, while less than three million employees work in this sector.

Six out of the ten largest IT companies in the world are based in the US, according to Wikipedia. Together, they generate over $25 billion in revenue per quarter.

Top tech companies have quite a lot of work for tech engineers. Naturally, they need to attract top talents in order to do this work well. Therefore, they compete intensely with one another, as well as with smaller companies in the market.

In this competition, attractive salaries and bonuses play a significant role. While small and midsize companies in the US can afford to pay up to $90,000 for key specialists annually, companies like Facebook or Google pay up to $250,000.

And then startups enter the game.

Have a glance at the value of venture capital (VC) investments in the US in Q1 2021:

The five leading VC sectors accounted for more than $55 million in investments at the beginning of 2021. All these funds were given to the most promising startups, which, in turn, invested a huge amount of this money in their employees.

FAANG and other tech giants compete with startups for the top talents, pushing the average salary even higher and leaving small companies behind, with little to no chance of attracting skilled software developers.

Thus, it’s quite a challenge for SMBs and early-stage startups to build their software in the US. The costs are nearly unaffordable. Wages and the cost of living, high taxes, high infrastructure costs, and high rental costs eat up companies’ budgets before they start making a profit.

Given this, what can you do? Are there any ways to optimize development costs and survive in the market? Outsourcing may be a solution.

Optimizing software development costs with outsourcing agreements

The term outsourcing means hiring external individuals or firms to deal with specific tasks which either are or can be handled within a company. Outsourcing is an alternative to hiring specialists in-house. Instead of searching for and attracting local talents using their own sourcing capabilities, business owners may cooperate with third-party agencies or contractors.

There are multiple reasons to start this sort of cooperation. For example, US-based companies opt for outsourcing to access the international talent pool and optimize software development costs.

The main principle of outsourcing is perfectly described by Peter Drucker:

Do what you do best and outsource the rest.

If management and idea generation are what you do best, maybe the time has come to outsource UI/UX design, coding, quality assurance, and other software development-related activities.

Outsourcing is the perfect way to involve contractors with exceptional and extraordinary skills who have unique experience.

Taking into account the shortage of job applicants in the US and Western Europe and the accelerated growth of Eastern European and Asian IT markets, we can assume that the popularity of software development outsourcing will keep booming. Outsourcing is, and will remain, a trend.

As it says in the article by Mayer Brown,

The future of outsourcing is digital. Outsourcing providers will increasingly use digital systems to offer faster, smarter, better, and cheaper services.

There are three main types of outsourcing:

For example, inshoring is when a Silicon Valley company hires contractors or a development agency based in Texas.

In the case of nearshoring, the same company might outsource some operations to Mexico.

Offshoring allows US companies to hire specialists from Kenya, Ukraine, Poland, or other countries located several time zones away.

To find out more, read our article about outsourcing and its advantages. Now, let’s proceed with development costs in different regions.

Software development costs in different regions

You already know that software development is extremely expensive in the US.

And you’re already acquainted with the software development outsourcing model.

Now, let’s take a look at some numbers.

Let’s assume that an SMB — either a bootstrapped or a Series A startup — wants to build a piece of cross-platform software. What’s the average price per hour for software development?

• US and Canada: $150–$250
• South America: $35–$70
• Western and Central Europe: $65–$100
• Eastern Europe: $45–$70
• Africa: $25–$45
• Asia: $15–$45

Note: These are only rough estimates based on Clockwise Software analysis and a comparison of different outsourcing destinations. To get more precise cost estimates, contact your potential development partners. But first, take a look at our definitive guide on how to find a reliable software development vendor.

Here’s a graph showing how development costs differ depending on the type of software and an outsourcing development team’s location.

Outsourcing may be a life-saving model for high-quality MVP development.

Engagement models for outsourcing software development

How can you engage with a potential vendor and start a successful partnership? There are two main engagement models you can consider:

• Dedicated development team

You already work with a team of software engineers and need to strengthen your team with more specialists.

If this describes your current situation, you can consider Dedicated development team services.

According to this model, you can hire as many team members as you need and pay only for the hours they work.

Staff augmentation allows you to cut recruitment, hiring, and infrastructure costs. Still, you can hire top talents from any IT outsourcing company in the world and manage the process yourself.

• Product development

You’ve got an idea but are not sure how to start your product development process. You aren’t currently working with an engineering team and want to delegate project discovery, design, and development to a dedicated development partner.

You can opt for product development services if you have an idea for a solution and need to build it from scratch. In this case, your software development provider can compose a development team responsible for your product. Typically, the team consists of four to six people to launch an MVP. The pricing model depends on the agreement with your partner — you can either choose time and materials or a fixed price model.

Product development services allow you to optimize development costs as well as spend your time on business-related tasks while the development team takes care of engineering tasks.

Software development cost and product development cost

How does the cost for software development impact the overall cost of product development?

At first sight, it seems there’s a direct impact: the more expensive software development, the more your product will cost.

However, when we take a closer look at the specifics of product development, we can see that the relationship is not so straightforward.

Here are two common cases:

You outsource your project to the cheapest destination and expect to cut your product cost significantly. While the team is busy with coding and testing, you are involved in business development and product promotion activities. But the deadline comes, and you receive none of the deliverables. It turns out the estimates were not realistic, and the team needs more time for development. Months go by, you continue paying for development, and nothing goes right.

Eventually, you get your product, but it’s full of issues and inconsistencies.

As a result, you have to start the development process all over again, as it’s vital to fix all the issues before you show your product to investors.

In this case, the cheapest development service may result in months of headaches, broken deadlines, and a seemingly endless time to market.

But there’s a more successful case.

You choose a development partner who charges the average price for development services. You get acquainted with a team and find your specialists to be skilled, experienced, and open-minded. You get two estimates: a more positive estimate that assumes all risks have been accounted for and everything goes well, and a more negative estimate that accounts for a scenario in which issues emerge.

With this information, you can plan your business-related activities. Besides, you can have a custom product on time, with minimum issues.

Thus, even if your custom software development team is not the cheapest in the market, you can save time, money, and nerves on product development as a whole.

It all depends on your software development partner.

And finding one is the first step towards achieving your goals.

In conclusion

Before you start building a house, or building software, you should first get a clear vision of your idea, think about available resources, and find out the amount of investment your idea requires.

The location of your development team is a critical factor that impacts software development cost estimation. Partnering with a US-based company may be the most expensive option, while outsourcing software development may help you optimize expenses without compromising your app’s quality.

IT outsourcing companies offer multiple services, and you can choose the one you feel most comfortable with. For example, two common cooperation models are:

• Dedicated development team – You hire as many engineers as you need to your existing development team.
• IT product development – You delegate the entire solution to an outsourcing company, and your partner composes the team, starts the project discovery phase, comes up with a UI/ UX design, develops and tests an MVP, and launches and supports your product.