How to Reduce Software Development Costs

Rating — 3.2·16 min·January 11, 2023
How to Reduce Software Development Costs
How to Reduce Software Development Costs
Want to know how to reduce software development costs? Our article will share proven and effective ways to do so.
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Key takeaways: 

  • The costs of software development vary greatly depending on the development team’s location and the cooperation model you choose to build your app.
  • Choosing developers with relevant experience in your industry, starting your project with idea validation, and following a lean approach during development are some methods that can help you allocate your budget wisely.
  • If you approach software development methodically, you will be able to save more money than if you try to cut development expenses by abandoning the steps you find irrelevant from the very beginning.

Imagine you’re going to renovate an apartment you’ve just bought. You plan to live in this apartment for years to come and want it to look stylish and feel cozy. You also want to forget about another renovation for the next 15 years. But at the same time, you don’t want to spend a fortune. So you try to save money by looking for cheaper building materials, furniture, and workers.

Once you finish the renovation, you’re ready to enjoy your new interior. However, low-budget furniture doesn’t usually boast high quality, and you start noticing that it gets damaged fast even with normal wear and tear. Inexpensive building materials crack and chip off, and you realize that your apartment doesn’t look how you wanted it to.

How long do you think you’ll be happy with your dream renovation? You’ll probably be disappointed pretty soon.

The same happens when you decide to build an application but look for ways to reduce software development costs by all means. We do understand your motivation for reducing costs, but you should approach cost optimization wisely. Skipping certain product development stages and choosing the cheapest team and technologies will result in low-quality software, which is the opposite of what you want. In this article, we offer ways to optimize your software development budget in order to build a quality product at a reasonable price and for a reasonable amount of effort.

Proven ways to reduce software development costs

Before we start addressing how to minimize costs in software development, we have to state that high-quality custom app development is never cheap.

The IT industry is changing fast, and to keep up with the latest development trends, technologies, and best practices, software engineers need to constantly advance their knowledge and skills. They spend a lot of money on their education, frequently take courses, learn new technologies, and get certified, which impacts the cost of software development. Another factor that adds to the price of development services is the cost of hardware and software necessary for development. Software engineers have to upgrade their devices and software programs every couple of years.

These are only two of many factors that influence custom software development costs. If you want to build an app, you should be ready to spend a good amount of money.

However, there are ways to allocate your budget wisely, get ROI fast, and earn more than you spent on development.

At Clockwise Software, we always think through strategies that can help our clients reduce software development costs and optimize their budgets. In this article, we share some of our insights with you.

Decide who will build your software

Choosing a software development partner is one of the first decisions that can help you minimize unreasonable and unnecessary expenses. You should pay close attention to the people you entrust with creating your application.

Choosing the cooperation model is one of the first choices that will impact the cost of developing your product.

Cooperation model

There are three cooperation models you can choose from when building your application or website: hiring an in-house team, working with freelancers, and outsourcing development to a software company.

  • In-house team

Hiring an in-house team can bring your digital startup a lot of benefits:

  • Perfect match with company values. You can take part in the recruiting process on your own to make sure each team member has all the necessary hard and soft skills, shares your company’s vision and values, and fits the position perfectly.
  • Direct communication. You and your team are physically in the same place, which means you’re in touch with them every time you need them. Also, spontaneous water cooler talks may bring you great ideas on how to improve your product.
  • Involvement. An in-house team is fully involved in your project and dedicates all their time to working on it.

However, working with an in-house team has one big disadvantage: it’s a costly option. Depending on the country, the average salary of a software engineer varies from $7,000 to $110,000 a year. In separate locations like Silicon Valley, experienced developers can earn more than $200,000 a year, which means that in-house software development in this area is extremely expensive.

average software engeneer salary

On the map, you can see only the salaries of software engineers. But your in-house team will likely consist of more than one developer, plus other professionals. If you have a new startup, you will likely have five to ten people on your team, which means your salary expenses will be several times higher.

Another factor you should keep in mind is that you’ll have to spend time and money hiring all team members. For example, in the USA, it takes an average of almost 41 days to hire one software developer.

Besides paying salaries, you’ll have other operating expenses such as office rent, hardware and software, and taxes.

Takeaway: An in-house team is a great option for a mature startup that has a solid basis for development and strong financial support from investors.

  • Freelancers

Working with freelancers proves to be the cheapest option, but it requires you to show exceptional management and risk mitigation skills. You will be the one in charge of interviewing and hiring, sending technical tasks to developers, organizing the work of the remote team, communicating with them, and assessing the results of their work. It might be difficult if you don’t have enough of a technical background. At the same time, if you need to minimize the cost of software, cooperation with freelancers benefits you in the following ways:

  • Price diversity. Depending on a freelance developer’s location, skills, and experience, hourly rates can vary from $15 to $120, which gives you the flexibility to choose the most suitable price.
  • Flexible schedule. When working with freelancers, you aren’t forced to hire them full-time. You can discuss terms of cooperation individually. If you have a limited budget, you can hire freelancers for several hours a day, which increases the development time but allows you to allocate your budget according to your financial resources.

Takeaway:  If you have a very limited software development budget or your current scope of work doesn’t require full-time involvement, working with freelancers is the most appropriate option. However, you should be ready to manage the whole hiring and development process on your own.

  • Outsourcing company

Outsourcing product development is a middle ground if you’re looking for development services at a reasonable cost without compromising quality. Here are some factors that make IT outsourcing a more affordable option compared to an in-house team:

  • Price flexibility. The costs of outsourced services vary globally, and you’re free to choose your outsourcing destination. Here’s how hourly development rates differ in popular software development hubs:

software development cost per hour

By outsourcing software development to a country with lower hourly rates than in your home country, you can cut your development budget in half or even by two-thirds.

  • Beneficial payment system. With software development outsourcing, you don’t pay monthly or yearly salaries to your development team. You only pay for the hours they spend working on your project.
  • No extra expenses. When working with an outsourcing company, you don’t have to pay for office rent, hardware, software, etc. You can also cut down recruitment expenses since outsourcing companies offer you a team that meets your needs.
  • Project management. An outsourcing company usually takes full responsibility for your project, which means they lead it from beginning to end. This allows you to be less involved in the development process and devote your time to other important aspects of your business.

Takeaway: Outsourcing software development allows you to get quality services for a reasonable price. You aren’t limited to your location and can partner with developers from all over the world.

As you can see, in every cooperation model, you can find cheaper and more expensive options. This is because the cost of software development services depends on the living standards in the country where those services are provided. Software development services are the most expensive in Australia, Canada, and the USA, no matter the cooperation model. You can expect the cheapest services in India and Nigeria. At the same time, Eastern European countries tend to offer the best price-to-quality ratio.

Once you decide on a cooperation model and define what location is most suitable for you, you can start analyzing the experience of the potential team.

Relevant experience

Looking for ways of software cost reduction, business owners might neglect things that don’t obviously impact the development budget. A company’s expertise in your industry is one such thing.

Imagine you choose a company that has many years of experience building software, a great portfolio of successful projects, and affordable development rates. The only drawback is that they lack expertise in your particular industry. At first glance, this might not seem like a big problem — they are still experts in software development, right? However, if your software development team isn’t acquainted with your industry, running your project will take them more time and effort compared to a company with industry-specific expertise.

The situation is different if you opt for a vendor who has a number of industry-related projects in their portfolio. A team who has led several projects in one industry knows the stumbling blocks that might prevent your software from being successful. Such a team can share insights on how to build your product so it becomes a competitive player in your market. Plus, they know the development shortcuts that allow you to build your product in less time, thus spending less money.

The same is true for developers’ expertise working with technologies. If your project requires the use of data visualization, artificial intelligence, or a multi-tenant architecture, your software engineers will eventually figure out how to apply these technologies to your product even if they haven’t worked with them before. However, if your team has a relevant background, they will be able to figure it out faster, foresee possible bottlenecks, and offer ways to overcome them.

Payment model

When discussing the cost of developing an application, we can’t ignore payment models. In software development, there are two popular payment models: fixed price and time and materials.

  • Fixed-price model

If you choose a fixed-price contract, you provide your requirements, define the development cost at the very beginning of the project, set deadlines, and expect your development team to do the job within the set budget.

At first glance, it might seem that if you want to reduce software development costs, choosing the fixed-price model is the right decision. However, a fixed-price model doesn’t allow you to change your development strategy and the scope of work once you approve it. This may lead to launching a product that the market doesn’t need. And to meet the need, you’ll have to rebuild some if not all functionality, which will take a lot of time and money.

  • Time and materials

If you sign a time and materials contract with a development team, you have room for flexibility, which is the main advantage of this model. It allows you to analyze market changes and pivot the development process if necessary. You can change feature priorities at any point in the development process. Thus, you can skip or add features depending on user feedback. This payment model also perfectly combines with the lean startup approach, which is another way to reduce software development costs that we will discuss in the following sections.

With the time and materials model, you can also agree on how much of your development team’s time you’re ready to pay for every month so you can wisely allocate your budget. What’s more, by choosing this model, you will be charged every month (not once for the whole project as in the fixed price model), which will help you plan your development expenses.

Make sure your team follows the best development practices

No matter what country you choose for developing your product, what cooperation model you opt for, and what industry you work in, there are software development best practices your developers should follow to help you optimize development costs.

Thoroughly plan the app architecture

If you want your app to be of high quality, perform well, meet the requirements of your target audience, and be scalable, thinking through its components as well as connections, relations, and dependencies at the very beginning of the development process is a must. That is what your development team should start with.

There are different types of software architectures, each with its pros and cons, and each is best suited to a particular application type. If you decide to skip architectural planning and choose the architecture blindly, you’ll face a lot of challenges that will impact the technical implementation of features, the app’s performance, and the app’s scalability. Eventually, you will likely need to rebuild your app, which will take you much more time, money, and effort.

A thorough design of your app architecture in the initial stages may save you from the need for costly improvements later.

Use ready-made solutions and tools for your app

Depending on your budget, an experienced development team can offer you a technology stack to optimize your custom software development cost. Here are a couple of solutions that your software engineers can offer instead of developing functionality from scratch:

  • Open-source software

Open-source solutions are the holy grail for new digital businesses, helping them reduce app development costs. They can provide functionality out of the box so you don’t need to spend weeks or months building it from scratch.

Open-source software is software that the creator has granted free access to with the right to use and modify the source code. Such software is usually supported by a community of developers thanks to donations or contributions. Being reliable and secure, open-source solutions may be a beneficial choice if you want to reduce the cost of software development.

For example, a lot of startup owners can start developing their web apps with WordPress, an open-source content management system. WordPress allows users to build simple sites using either free functionality or paid themes and plugins for those who want to customize their software.

Starting with WordPress, business owners can not only save money at the early stages of their business but also validate their idea without putting all their savings at stake. One of the issues with WordPress is that it doesn’t cover all possible functionality of each software product. So if you want to scale, you’ll eventually have to go for custom development. However, by the time you decide to scale, you’ll have proof that your product meets the market needs and can bring you money. You will probably even have significant investments from VC partners so you can afford to scale by ordering custom development services.

  • Third-party integrations

One more way to reduce software development costs is to use third-party integrations where possible instead of going for custom software development. Luckily, a lot of services provide their APIs for integrations, which allows software engineers to spend less time on development in exchange for a moderate monthly or yearly fee.

For example, say you need to develop basic messaging functionality in your app for creating private and group chats with the ability to attach photos and send emojis and for getting in-app notifications. This functionality might take your backend and frontend engineers about 300 development hours. Or your software engineers can take advantage of a ready library, such as CometChat, that gives them an opportunity to implement the same functionality about three times faster. Even with the cost of this library, you will still be able to save a lot of money since the plans are affordable, starting at $149 a month.

Implement DevOps

DevOps is an approach that combines a set of tools and techniques to deliver software to users as fast and smoothly as possible. Combining expertise in development (Dev) and operations processes (Ops), a DevOps engineer can:

  • optimize and automate development processes and tasks to reduce development time
  • take over deployment tasks and automate builds
  • set up the infrastructure and environment for software development, testing, and deployment
  • participate in product version control and implement CI/CD
  • ensure software scalability

Besides, a DevOps engineer may support a team throughout the whole delivery process and handle other engineering tasks depending on project specifics, the team’s size, and the team’s skillset.

This approach to development benefits both startup founders and real users. Startup founders can reduce software development costs thanks to process automation and reduced development times. If an app is released to a wide audience, DevOps practices also help increase customer satisfaction thanks to the fast delivery of new functionality.

All the abovementioned practices in the software development workflow help your team overcome typical bottlenecks and show better performance, which, in turn, will help you optimize software development costs.

Validate an idea

Once you choose a team to cooperate with, you should discuss the viability and feasibility of your business idea with them. You can’t just build an application that you think will be useful. You need to prove the demand first if you don’t want to spend your development budget in vain.

According to CB Insights, 35% of startups fail because there is no market need for the product or service they offer. And while business owners may skip the startup stage of proper market research in a bid to reduce software development costs, they end up losing much more money when their startup fails.

Idea validation takes place during the discovery phase of a project and includes such activities as market research, competitor research, and target audience analysis.

Once you have information about the current market state, you will be able to adjust your idea so it better fits market needs. Building an app that can fill a market gap is the best way to optimize your development costs. Otherwise, you’ll have to redevelop your product, which can cost you tens of thousands of dollars extra.

Another important thing you want to do at the beginning of your product development is to test the technical feasibility of your product by creating a proof of concept (PoC). A proof of concept allows you to develop a minimum piece of functionality to check if you can build your app using the technologies you want. By proving that you’re on the right track from a technical standpoint, a PoC prevents you from paying for developers’ work that will result in a non-working product and will require additional expenses to fix.

Go lean

We’ve already mentioned that it’s important to follow development best practices to reduce the cost of developing an application. This is true not only about the technical side of development but also about the business approach. The most beneficial approach to building your software is the lean startup methodology.

By following the lean methodology, startup owners constantly learn and improve their product. They build their app bit by bit, present iterations to their focus group, gather feedback, analyze it, decide what they need to improve, and work on improvements. The cycle repeats until startup owners and app users are happy with the result.

By the time that product is ready to be distributed widely, it will already have established customers. It will have solved real problems and offer detailed specifications for what needs to be built.

— The Lean Startup Principles

Here is how the lean approach looks:

lean startup methology

Sticking to the lean approach, you concentrate exactly on what your target audience needs and can adjust your product on the go. That means you make data-driven decisions and develop only the functionality your potential customers need, which might be completely different from what you planned. If during development you find out that you need to build more functionality than expected, you can still prioritize features to optimize your development budget.

Basically, the idea of a lean startup is to not spend your budget implementing things that don’t pay off.

Delegate as much as you can to professionals

Trying to reduce software development costs, you might want to do as much as you can on your own. However, if you don’t have a technical background, you won’t be able to manage the development process properly or assess the quality of the software. If you don’t have a business background, you’ll hardly be able to assess if your product meets your users’ requirements and market needs. In general, lack of expertise leads to miscommunication, missed deadlines, poor quality of work, and constant rework, which, in turn, results in increased development time and cost.

We recommend delegating all the jobs you’re not skilled at. This prevents you from making critical mistakes that can require even more investments from your side.

You can fully delegate software development to a team of professionals who have a streamlined workflow, optimized processes, and years of experience working in the software development industry. With such a team, you’ll be able to effectively allocate your resources, both material and non-material, develop an MVP, launch it, and start getting revenue.

Final thoughts

While building an application isn’t cheap, you still can find ways to develop your software at a reasonable cost and with a reasonable amount of effort. Entrusting app development to an experienced engineering partner who follows industry best practices will help you optimize your software development expenses without compromising quality.

Want to know the most cost-effective way to implement your software idea?
Drop us a line to get in touch with our representative.


Q: How can I develop software at a minimal cost?

A: Working with freelancers allows you to minimize software development costs. However, it also requires you to manage the whole development process on your own, which may be challenging if you don’t have a technical or business background.

To minimize software development risks, you might want to outsource your product development to a software development company. While this will cost you more, by working with a team of professionals, you have a better chance to build a high-quality app that meets market needs.

Q: How does outsourcing help reduce software development costs?

A: By outsourcing software development, you entrust your project to a team of professionals with optimized processes. This speeds up the development and consequently reduces the software development price. You can also reduce costs if you choose to outsource development to a company in a country with reasonable hourly rates.

Q: How can I estimate the cost of developing a software product?

A: You can approximately estimate the time and cost required for developing your software if you know what features you want to build, how long it will take to build them, and the hourly rates for software development services in the region where you want to outsource development.

However, you can’t get a precise estimate unless you have both a technical and business background or unless you approach a particular software development company that may work on your application.

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