Software Development
Software Development Cost Breakdown
Creating a budget for software development isn’t just about setting a number. It’s about knowing where that number comes from and how it is calculated. Only when you understand the software development cost breakdown can you make sufficiently accurate estimates.
A detailed cost breakdown is crucial for businesses to plan efficiently, use resources properly, and protect themselves from fiscal surprises as the project progresses.
This post covers the primary cost components involved, factors that contribute to them, and practical approaches to estimating and keeping track of software development expenses.
Major Cost components of Software Development Projects
The major cost components of a software development project can be divided into the following:
Planning And Requirement Analysis
This component accounts for approximately 10% of the project cost. The team is responsible for determining the company’s goals, long-term and short-term. It further looks into any existing processes, along with any software that’s already in place.
The team then ascertains features and functional requirements. The next phase is all about the UX design. Once that has been completed, the team begins work on the project roadmap, resource planning, and estimating the software development cost.
Lastly, it identifies potential risks and constraints associated with the software development project.
Designing
The design phase accounts for approximately 5-10% of the project cost. During this phase, the team refines the specifications from the previous phase and develops a structure around them. This structure is then deployed using the decided-upon tech stack.
This is done by executing technical design, also known as software architecture design. That is when the layers and modules, required algorithms, integrations, and data structures are outlined.
Additionally, it caters to the UI design, which is essentially what the software’s end users will see.
Development Phase
The front-end development accounts for approximately 25% of the project cost, whereas the back-end development accounts for approximately 40%.
Back-end development involves writing server-side code and APIs and conducting unit tests. On the other hand, front-end development involves transforming the user interface design into a completely functional GUI.
Software Testing And QA
This component accounts for approximately 15-20% of the project cost. During this phase, the team ensures that the product does what it’s supposed to do.
The end product is tested thoroughly across different platforms and devices to ensure that its features are working properly and that there aren’t any bugs. It is important to note that QA is not a standalone process and continues throughout the development cycle to ensure that each module meets the required specifications.
Deployment And Launch
The cost of this component depends entirely on the services offered during it. At this point, the team is responsible for deploying and making the software available to users.
Software Support And Maintenance
This component accounts for 15-20% of the original development cost annually. Once launched, the software requires periodic maintenance to address any bugs that pop up, address any security vulnerabilities, and optimize it.
What are the factors influencing each software development cost component?
Now that we have discussed the major cost components of software development, let’s talk about the factors that affect them:
- Project Size And Complexity
- Features And Functionalities
- Development Team Type And Location
- Technology Stack And Tools Used
Project Size And Complexity
The size and complexity of the software development project are perhaps the biggest influencers on the cost components.
A bigger project implies that either the timeline will be bigger or the number of resources engaged will have to be increased. As a result, the cost will definitely go up.
On the other hand, the more complex a project becomes, the more nuanced it is. You’d require specialized expertise to handle particular aspects of it, and the cost would increase in this scenario too.
Features And Functionalities
The more features and functionalities you add to your software, the costlier it becomes. With extra functionalities and features, almost all the cost components of software development are affected. The planning and requirement analysis would take longer, and so would the designing phase.
The development phase would also become more challenging, while testing and QA would become more intensive. Software support and maintenance would also become more resource-intensive.
Development Team Type And Location
There are different kinds of development teams that you can use for your software development project, and based on their location, you might end up saving considerable amounts.
For any software development project, you have the following options available:
- Hiring An In-House Team In Your Office
- Hiring A Development Agency In Your Country
- Hiring Freelancers
- Hiring A Development Agency Out Of Your Country
Hiring developers to be part of your full-time employees will also incur overhead charges since you’d be paying for their logistics.
Procuring the services of a development agency in your country will help you offset those overhead charges. Furthermore, it becomes easier to communicate when the agency is based in your country and operates in the same time zone.
Hiring freelancers would help you save money, but they all would be operating in different time zones, and communication may prove to be a challenge. Additionally, you would need a project manager to ensure everything remains on schedule.
Lastly, while finding the right development agency outside of your country may require some due diligence, it is the most cost-effective option. An experienced agency such as Coding Crafts can take care of all the nuances of software development projects while providing you with a transparent view of how it works.
Technology Stack And Tools Used
The cost of your software development project will also greatly depend on the kind of technology stack you decide to use for it. However, the selection of technology stack and tools can’t be done solely based on pricing.
The right technology stack is crucial in ensuring that you end up with reliable, secure, scalable, and efficient software. The selection of technology stack will depend on scalability requirements, compatibility with legacy systems, and the availability of skilled resources.
Estimated Cost Ranges for Software Development Projects
If we were to categorize the software development projects based on their size and complexity, the following figures could be used as a benchmark:
- Small Projects – Basic software without any complex features can cost anywhere between $5,000 to $50,000.
- Medium Projects – Moderately complex software with a bigger feature set would generally cost between $50,000 and $200,000.
- Large Projects – Enterprise-scale software that boasts an extensive feature set would cost you more than $200,000.
Please note that these are merely approximates. The actual cost depends on various factors and will most likely vary.
What are the methods of software development cost estimation?
There are primarily three methods of software development cost estimation that we will be discussing here. They are as follows:
- Parametric Cost Estimation
- Analogous Cost Estimation
- Bottom-Up Cost Estimation
Each method has its pros and cons. However, you should keep in mind that these are merely estimates. You can only get a realistic idea once you actually sit down with the development team and define the scope of the project.
Parametric Cost Estimation
This cost estimation technique relies on parameters or factors, such as the complexity of the project, its size, estimated duration, and the number of software developers, to arrive at a cost estimate.
It is a quick way of getting a cost estimate without worrying about its accuracy since it is done before the scope of the project is defined. It can be used to get a decent enough idea of a ballpark figure.
While it is quick, it is not suitable for complex projects. Furthermore, it relies greatly on accurate inputs.
Analogous Cost Estimation
This approach relies on historical data from similar projects that have been executed to get an estimate of the project cost. So, basically, you will be using figures from a previous project of similar scope to estimate the cost of your latest project and get a reference point. Once you have that, you will make adjustments as per the new project to find a more realistic estimate.
This particular method allows for very quick estimation when you have historical data available and considerably reduces the upfront planning. However, it can be massively inaccurate if the previously done projects aren’t a good comparison.
It may also lead to inaccurate figures because of changes in technology and/or market conditions.
Bottom-Up Cost Estimation
Finally, this technique relies on analyzing the tasks that have to be completed to complete the project. Think of how you design a sprint that outlines various phases and activities. It is a good way of cost estimation when you are dealing with a complex project that requires a higher degree of accuracy.
You start by breaking the project into smaller activities and assigning each activity a timeline and resources. Once completed, you assign an estimated cost to each activity and then simply add up the costs to get the final cost estimate.
It is important to understand that the higher the number of activities, the higher your estimate will be. You will eventually add a buffer to each activity’s associated cost, which will reflect in a higher cost estimate.
This cost estimation approach offers more accuracy and is flexible enough to cater to any project regardless of its complexity. However, it can be more time-consuming and tends to overestimate the cost.
How to calculate software development cost and avoid typical pitfalls?
You should always start by clearly defining the scope of the software development project. If you rush this phase or don’t do it properly, there’s a strong possibility of scope creep, which may lead to additional costs.
Once you have the scope defined, choose the right cost estimation method. The method should be selected keeping the particulars of your project in mind and factoring in the available data.
It is imperative that you look at all phases of the software development cycle and cover the post-launch support and maintenance costs as well.
Finally, track your actual expenses and make sure you’re staying within budget. Try to plan ahead and ensure that everything is in place to avoid any overheads.
Ready To Begin Your Software Development Project?
Coding Crafts understands the nuances of software development projects. Owing to our years of experience, we have historical data available to help you with accurate cost estimation, and our veteran developers can take care of development projects of any size and complexity. Get in touch with us today to learn more!