Software Development Costs - What Factors Influence?

Software Development Services Costs: How Much and Why?

8 min read


Provision of software development services is a growing industry that is now worth an estimated $100 billion annually. It’s also a flourishing industry that has changed everything about the way enterprises do business. It allows companies to cut down costs and provides a way to significantly reduce time to market and increase flexibility.

However, with rates varying anywhere between $15/h and $150/h companies are often confused as to how much they should be paying.

With this in mind, we thought that it was about time we explained the factors that can affect the cost of software development. Armed with this information, companies should find themselves in a better position to negotiate what they feel is a fair rate for the work involved.

Isn’t offshore software development supposed to be cheap?

While offshore software development teams are often a cheaper option to hiring an in-house team, there is still some significant investment needed to reach the required level of reliability and quality. As with everything in life, it seems that you get what you pay for.

We’ll let MobiDev Head of Client Care Olena Ganchyna explain in a little more detail.

When a company sets out to hire an external software development team, they need to bear in mind that they are about to hire a highly qualified group of industry specialists. If the company needs a certain level of quality and dedication from their service provider, then they should expect to pay market rates for that quality.

Is it cheaper than hiring an in-house team of software developers? Yes, of course it is, but cheaper doesn’t necessarily mean cheap.

While there may be cheap development teams out there who do a good job, these are few and far between. No matter the region, if software development costs go under $20/h, it should be a red flag. Likewise though, expensive doesn’t necessarily mean efficient and high-quality.

So it’s extremely important that a company knows exactly what their offshore development team will provide as they manage their project. It’s not enough for the service provider to simply guarantee product delivery, they must also highlight the processes so the client understands fully how the project will run from start to finish.

This is something that a number of offshore software development teams fail to do, which is why so many clients have difficulty understanding the cost involved in their project.

Olena Ganchyna

Head of Business

Generally speaking, companies should expect to pay somewhere in the region of 40-60% of what they would do in their domestic market.

So what are you getting for your money?

This is where a company can differentiate between a goal-achieving team and one that’s just in it for the project fee. A reputable software development company should offer all of the following benefits.

Clearly defined technical roadmap. This is one of the most important aspects of any software project. But it is often overlooked or rushed through to get the job moving as quickly as possible. Not only does a technical roadmap help the client understand the process and the timescale of the project, but it also helps the development team stay on track to achieve the client’s goals and expectations. Needless to say, technical roadmap could be designed only after clarifying business goals and major requirements, not beforehand. So it usually goes after the business analysis and UI/UX design estimation stages.

Technical leader for the project. This will depend on the size of the project. But, generally speaking, if the job requires a team of engineers, then there will be a technical expert on hand to lead them. The technical leader may not be directly involved with the development work, but have a good track of the project. They will coordinate applying technologies and project components, make key decisions as and when required, and keep an eye on the overall code quality. This can prove invaluable as it ensures that the team are moving in the same direction and remain on target to deliver by a planned launch date. Moreover, there’s always one point of contact regarding any technology decisions.

Adhering to industry standards and guidelines. Failing to follow industry standards and best practices when developing custom software can have serious repercussions later down the line.

MobiDev Lead Solution Architect Serge Koba had this to say on the matter.

During a recent project, we were surprised to find that prior to hiring us, a new client had enlisted the help of a software development company who had failed to follow any industry standards with regards to coding. What we had to deal with could only be described as ‘spaghetti coding’ which made helping the client achieve their goal incredibly difficult and time-consuming.

Had the original software developer simply followed coding best practices, we could have spent less time rectifying the situation and saved the client a great deal of time and money in the process.

Serhii Koba

Solution Architect

Unfortunately, this happens all too often especially when a company opts for a cheap development team with little experience in the field. It is therefore imperative that any company hiring an offshore software development company should request that the developers working on their project follow the standards. The last thing they’ll want is spaghetti coding on the backstage of their software.

The most up-to-date technologies. It’s crucial to ensure that a software development company is using the latest tools, technologies and approaches on the project. Using older tools poses a great risk as there’s always the chance that they will become outdated and unsupported in the not-too-distant future. There’s also the risk that outdated software will affect the implementation of new features later down the road. While it may work perfectly now, you must think of the future.

On the other hand, technology experts have to verify that applied technologies are reliable and stable enough to perform. A good point may be to check the community and see if there are any existing solutions on the market running the technology.

Cost of software development

A typical software development project pricing breakdown

Now that we’ve explained what a high-end software development company should offer, let’s take a closer look at the pricing breakdown. Here’s what Olena had to say on the matter.

“When a client asks me to explain the cost of a project, I usually tell them that it is broken up into several parts.

The first one relates to the team. It covers their salaries and the time they spend on the project. While some may question why this costs so much, note that it’s not just about hiring any required engineer. We ensure that all of them are familiar with the company and client’s business processes, match the corporate standards and approaches. It inevitably leads to a smoothly run project with guaranteed results.

The second part relates to the cost of running a legal business. This means our taxes and any fees or licenses that we must pay to ensure that we are operating 100% legally. This also includes our in-house security measures that offer our clients peace of mind knowing that we handle all of their data with absolute care.

The third part of the project fee covers infrastructure. What I mean by this is our office and the equipment that we use. As an offshore software development agency, you can hire the best developers in the world, but if your office is in a bad location and you have outdated equipment, they likely won’t stay for very long.”

Price of software development

Efficient management as an important part of software development pricing structure

We’ve noticed a trend with our clients – hybrid distributed teams. This involves several people employed locally and working closely with the product executives. There may also be several remote contractors, located all over the world. And finally, the client may join the MobiDev engineering team not instead, but rather additionally to the existing employees. Managing all of these people and ensuring that they are working for one common goal could be a challenge. But based on what we see, it eventually helps businesses to grow.

Being a good software development partner means to assist the client and make all the management clear, efficient, and less time-consuming. Not everything could be handed over to the team, but a lot of routine definitely could. So when choosing a company, pay close attention to their approach. It must be clear and well-managed.

It’s important to note that the efficient management of your project doesn’t simply involve leading the team in the right direction. It also includes taking the right approach to technology. Continuous integration and automated deployment should be used depending on the project needs. Using version control systems such as Git for setting staging and production environment is an absolute must.

Carefully examine the questions software development companies ask

While many companies still look only for the cheapest option when evaluating service providers, we hope that the benefits we listed above will give those in search of a software development team a better understanding of why they should avoid this approach.

As mentioned earlier, offshore software development can result in significant savings for a company, but those savings should never be the only focus. So the next time your company receives a quote for the project, please try to bear in mind what an efficient team really looks like. Above all else, make sure that your offshore development team has a defined and efficient management plan in place for taking on your project. And the best indication for that is to look at the questions they ask.

Please feel free to contact us with any further questions.

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