Top Factors That Determine the Price When Outsourcing

Introduction

One of the most important questions a client poses to the software service provider is how much their custom software development services cost. After all, finding a partner who can ensure quality services while staying within the budget is critical.

Yet, as you might have expected- there is no one secret formula to calculating the software development cost. Rates and policies vary across companies, every blog will suggest a different cost range, such as $5000- $100,000 for typical projects all the way up to millions of dollars for highly complex custom solutions.

In this context, understanding why some companies charge more or less for similar services becomes crucial. This article will help you uncover the "universal" factors influencing software development prices.

How much does it cost to create a custom software?

In most cases, the software costs are determined based on the complexity, requirements, and development timeframe of the project/product.

The complexity of requested software, particularly in cases such as enterprise systems, correlates with higher development costs. Why? One should take into account that such software systems call for complex business logic, databases, sophisticated design, and multiple modules working concurrently. The development timeline often extends beyond six months, sometimes stretching into years, with potential post-launch support.

For basic software, like simple applications, developers can leverage ready-made solutions, allowing for a relatively short development time of 1-3 months. These solutions require simple logic, limited functionality, and features. Meanwhile, medium complexity software solutions demand relatively more complex functions and custom solutions, extending the development period to 4-6 months.

How Custom Software Price is Determined: Hourly Rate or Project Based?

Custom software development pricing can be calculated either based on hours spent or by the overall project cost. Hourly rates are better suited for "medium and high complexity" projects.

On the other hand, project-based calculations and fixed-price forecasts are better suited for software of “low” complexity where development processes, tools, and pitfalls are more predictable and can be prevented well in advance. Developers determine an average cost for software engineers based on skills and expertise (rates), multiplying it by the estimated project duration.

Average tech team rates for established companies may vary between $25-55 or even much higher depending on factors we address below. Selection of companies and checking individual rates is crucial for accuracy.

Sample Calculation of a Software Development Cost:

Consider a scenario where your fast-growing advertising agency needs a custom tool. Your clients have entrusted you with advertising materials and your team is tasked to find bloggers/influencers who will promote them. The challenge? There are thousands of bloggers and hundreds and thousands of blogs to go over. Your team has too much on their plate and simply cannot afford to spend months researching each blog, so you require a custom tool.

To achieve this swiftly, a software development company is engaged in the process. A special tool is designed to gather and research 300 mln+ blog posts in total, select essential keywords from your client’s advertising materials, and find the most suitable blogger/influencer to promote them. You manage to get quick and reliable results, devoid of human error. Based on a $40 hourly rate, the average cost for a similar tool would amount to approximately $40,000.

Key Factors in Cost Estimations:

1. Software engineering team- In House or Outsourced?

Let’s say you have chosen to outsource your software processes. Outsourcing rates vary based on the destination. Higher-income countries like the USA and Canada tend to charge more, on average ranging from $50 to $100. The rates are higher if the company has a proven track record and boasts for their reputation, reliability and high-quality work. Notable outsourcing companies in North America in 2024 include Intellectsoft, BairesDev, ScienceSoft, Synergo Group, etc.

Western Europe, Australia, UAE, Israel follow up the list when it comes to the highest rates in the industry. Check out the image below to find out common prices. Prominent outsourcing agencies include Intellias, Netguru, Ciklum Western Europe, The Software House, Mitrais etc.

Eastern European countries like Armenia, Russia, Ukraine, Estonia and Belarus offer more affordable rates, ranging between $25-50 on average. One of the top advantages Eastern Europe can offer are top IT specialists with B2+ knowledge in three or more European languages, making communication seamless. Top-rated companies include SCD Company | Software Engineering, DataArt , Glorium Technologies, Helmes - Software Development Company , etc.

2. Type of project - Backend or FrontEnd development, Cloud Computing, Embedded systems, Online Games, Ecommerce Applications, Sentiment Analysis, etc.

3. Development Timeframe, Complexity, Software Size- Considerations include development timeframe (weeks, months, years), project complexity (low, medium, high), software size (dependent on end users).

4. Team Size, Composition and Senior Specialists Involved- Factors include the involvement and number of specialists such as Project/Product manager (PM), Quality assurance engineer (QA), Frontend developer or Backend developer (Junior/Mid/Senior/Team Lead), UI/UX designer in the team composition.

5. Tech Stack- Frameworks/Programming language(s) used for the project.

Some software service providers work with a limited number of programming languages and choose the project based on their mastered programming language.

Other software agencies have specialists experienced in a wide variety of languages and frameworks. In this case, the Tech Stack is chosen based on the most suitable languages and frameworks for your unique project.

6. QA assistance and Testing- QA processes are essential to lower the risks of project failure, spot bugs in codes, and other flaws or inconsistencies that can cost a fortune to recover from.

7. Maintenance costs- According to Dev Technosys, software maintenance services cost around 20-25% of the development costs. This can include outdated functions removal, bug fixes, performance monitoring and improving, managing evolving requirements, system stability management, and so much more.

8. Licensing and Intellectual Property: Licensing fees or intellectual property rights may have an effect on total costs, especially when using third-party components or libraries.

Summary

The article provides a comprehensive roadmap on factors that influence custom software development costs. From project complexity and development timeframe to team composition and maintenance, each element plays a crucial role in determining the final software price. By examining each key factor in detail, decision makers can have a better understanding of the processes behind the scenes and know how to align their budget with their envisioned product.