Software Project Cost Estimation: What Impacts the Cost of Your Project?

How much does software development cost? This is the question that boggles not only you, but IT teams alike.

Every buying process – and I believe it’s true for software projects, too – starts with a cost estimation. 

First, you decide how much money you’re willing to pay, and then you start looking for offers that fit within this price range.

Looking for a software development company starts similarly. Say you have received funding for your project, or maybe you’ve set aside a budget dedicated to improving your product. That’s the amount of money you can spend, and now you need to find a software house that will meet this criterion.

The problem is, however, the cost of software development and how it’s being determined. Ideally, you would like to get a precise IT project cost, right away. What you get is an estimation. Why is that so?

What is a software project cost estimation?

Unlike physical products, which can be manufactured en masse and have equal price and quality, software project development is unique.

Even if you want to create “the next Uber” or “the next Tinder”, your project will have its unique features. Depending on a chosen tech stack, third party services, etc., the delivery time and cost can differ for the same idea!

That’s why you need a software project cost estimation. It allows you to get a ballpark for your idea, even from multiple vendors, and compare them to choose a tech partner that meets your criteria best.

How to prepare a software development cost estimation?

To estimate a software project, an IT company needs to know in detail what you want to build. The more detailed brief or a request for proposal, the better estimate you may get. The other important thing to bear in mind is that estimation is often vaguer at the first stages of the project, as there are many uncertainties and unknowns.

What tech team can do is to estimate the cost of software development for a given amount of time dedicated to a project. Then, based on the number of people you need for the job and their hourly rates, the company will calculate the cost of your project.

As the project unfolds, a team can estimate further sprints with more confidence. This approach to software development cost estimation is based on time and material model and is well suitable for Agile methodology.

Now, an important thing to bear in mind is that estimation is only as good as the information you provide a software development team with. The more detailed is your brief or a request for proposal, the more accurate estimate you will get.

SoftwareHut’s senior project manager wrote a full article on IT project requirements that will help you with briefing a software house.

What impacts the cost of software development?

Let’s briefly sum up how we calculate the software development cost estimation:

The total cost of a software development project is a sum of people involved over a given period times their hourly rates.

Based on this model, we have two things determining your project’s cost: the team and their hourly rates.

The software development team can consist of different roles, such as:

Depending on your project, different roles can apply. It’s up to you who you want to hire, and for which part of the project.

The second variable, team members’ hourly rate, depends on:

Knowing what impacts the cost of an IT project will allow you to make a more informed decision about a potential tech vendor.

Choosing IT outsourcing services is a way to optimise the IT project cost. You should be aware, though, that underestimating the budget and cutting corners on quality can later on negatively influence project delivery.

How much does software development cost?

On SoftwareHut’s blog, we have compared in-house development vs IT outsourcing, so allow me to briefly point out the differences.

When hiring a full-time employee, you need to consider wages, equipment leasing, employee benefits, trainings, certificates, and more. Although there are many advantages of hiring your own team, these are the costs to consider when you need to be cautious about your budget.

IT outsourcing gives you quick access to specialists without compromising the quality of your project. The main cost-related benefit is that you pay only for the job done – you don’t have to consider holidays or sick leaves, trainings, etc. You’re being charged only for the time spent on your project: the exact hourly rate.