Software Development Cost Estimation Process: Depth Details Inside

Software Development Cost Estimation Process: Depth Details Inside

Software development is an intricate and dynamic process comprising several stages, including planning, designing and coding. Accurate cost estimation is an integral component of successful software development. Software cost estimation involves estimating how long, effort and resources will be needed to complete a project within budget constraints. Cost estimation is an integral component of project management and decisions, providing stakeholders such as developers, project managers and clients with an understanding of the financial repercussions of software development projects. Estimations also enable budgeting, resource allocation and risk mitigation efforts. Software development cost estimation involves numerous techniques and software development methodologies.

A common strategy is using historical project data as a basis for estimation; similarly, developers may estimate effort and costs related to similar projects when planning current ones - this practice is known as analogy-based estimate. Parametric cost estimation is an increasingly popular method for cost-estimating projects. It relies on mathematical models and statistics to produce cost estimates according to specific project parameters; parametric models generate these estimates based on factors like project size, team performance, and development environments. Cost estimation cannot be completed without expert input from software developers and project managers with domain expertise and past experiences. Their opinions can help complement quantitative estimation techniques. Software development cost estimation can be a dynamic and dynamic process, with initial estimates being adjusted and refined as the project moves along and new information emerges. Adopting such an iterative method maintains accurate and realistic estimations throughout its lifecycle. 

Which is the Best: In-House Software Development Vs Outsourcing Software Development

Prerequisites for Estimating Software Development Cost

A scoping session allows organizations to discuss these prerequisites for software development cost estimates. From helping you outline project goals to discussing monetization methods, a professional organization assists with all software development cost estimation aspects.

Project Goals

Setting Project Goals as soon as you begin discussing custom software costs is the ideal way to estimate custom software prices. An obvious objective will help create software worth its cost and effort while discussing it among team members will keep them all aligned on the final goals - the more specific their definition, the quicker development can begin, and cost optimization improves significantly.

Attracting Your Target Audience

One of the key steps in successful software development is defining your target audience. Your audience consists of those interested in your products or services; to gain a better idea, conduct thorough analyses on competitors, conduct market research, identify software development trends and analyze costs accordingly. Time spent and effort towards this effort will affect costs incurred during software development.

Types of Software

A key step in establishing the cost and timeline for software development is selecting a type of custom software to suit your needs. More features or complexity in the software will increase development costs and timescale, but well-integrated apps with user engagement features will give your business an edge in a highly competitive market.

Factors Affecting Custom Software Development Cost

Let's look closely at what makes a project more or less expensive to avoid mistakes when planning, estimating, and going over budget.

Product Size

There are multiple ways to estimate the size of the software. One straightforward approach is calculating total code lines; you can compare your project requirements against existing systems and systems with similar functionality. Also, consider programmer expertise; experienced programmers often have an easier time implementing logic efficiently in fewer lines of code. An alternative approach is to add up the time required to complete each entity in an Entity Relationship Diagram (ER). A user type or data piece can represent each entity. As more entities enter your system, custom software development prices increase accordingly. Finally, estimate the size of the final product by summarizing all processes into a detailed dataflow diagram. The number of actions users can complete with the system will affect development costs, as will product complexity.

Product Complexity

It is necessary to consider the complexity and number of features to be developed. Software structures become more intricate as features and workflows evolve. Each feature can become increasingly intricate; you could add social login as an option that enables users to signup using email addresses and passwords or add signup forms using users' social media profiles for signup forms that require more work, which increases costs associated with custom software development. Users can customize WordPress to meet their specific needs by altering page content, layout and design features, and functionality.


A responsive website may provide enough value to users and profit for its owner. Mobile app development offers several advantages over websites, including more user personalization and engagement and unique features. Your options for app development include either native development or cross-platform strategies. Native apps typically cost less, with only minor price differences between Android and iOS apps. For more information, read our guide on app development costs estimation. Web app development offers another viable solution. Web apps offer many of the same functions as mobile apps at lower costs. Integrating external services involves many unknowns; you don't know what data will fail to pass, whether the latest upgrade is compatible with your technology, or if it will provide enough protection.


Integrations with well-known payment services like Paypal or Stripe or credit providers like Equifax can be straightforward, while less prominent or custom integrations may present additional challenges and lead to increased project costs. Custom software programmers can write scripts to extract and reformat data for use with the new solution. In general, migration should be a straightforward process except in cases of significant differences between software structures, taxonomies, or designs.

Data Migration

When updating content to ensure accessibility issues are handled properly, additional time should be dedicated to reviewing accessibility issues and creating custom scripts to conduct tests - this added time and cost would ultimately reflect in the price of any custom software developed specifically.

Hiring Model

The cost of developing custom software depends heavily on HR processes. Development costs will depend on how many specialists and their experience are in your team, with in-house development being the preferred method, followed by outsourcing, dedicated software developer teams or out staffing.

Team Composition

In our example, a project of 1,000 hours duration, a standard team size was four members: one part-time business analyst, two frontend and back-end developers (front end and back end),a part-time project coordinator and a quality assurance engineer. If your project is small, a project manager may not be required. Instead, middle-level developers could help write effective yet simple code.

Team Location

Where your software development company is located can affect its costs. Outsourcing tends to be less costly than in-house development, and further lowering expenses by hiring international talent can provide even further savings.

How to Determine the Cost of Software Development?

Software development costs depend heavily on your project's complexity, features required and technologies and programming languages being utilized - these will all affect pricing or estimating your startup project accurately and saving both money and time on software developer costs. Please refer to this checklist below when pricing or estimating a startup project, as this will allow you to avoid losing money due to software development fees and save valuable time!

The Discovery Phase 

This stage marks the beginning of your road map journey. Here, your business identifies problems and determines possible solutions. Begin by reading product and market descriptions; from there, you can begin determining features, tech stack, outsourcing costs for software development, and an estimate for the software development timeframe.

Evaluate the Scope of Work

Before beginning software development cost estimation, assessing the scope of work is essential. Start by asking yourself, "how many features I require for my product and customer feedback." Your scope includes all expected functionalities of your product. Your development process should be organized in stages. Startups often start by building a prototype before producing an MVP (minimum viable product). After its release, customers can provide feedback while you identify business models for further expansion. Your product owner will continue delivering new features until all have been delivered successfully. As with any estimate, using comparable projects allows you to get an approximate cost estimate for software. Be wary when making comparisons, as these numbers could have changed due to changes in technology stack and standards, team composition or location of developers. When making such estimates, it is wise to double-check them against future bootstrapping as some benchmarking may only offer limited data points, and the rates may change annually depending on this factor.

Define Your Tech Stack

To determine the complexity of your tech stack, estimate its complexity based on how complex your software or app is. Depending on its nature, this might include hiring specialists such as UX/UI designers, frontend and back-end developers (both frontend and back-end),administrators, QA testers, product managers/owners etc. To meet deadlines and keep costs under control.

Break it Down into Sprints or Small Tasks

Divide costs into small tasks or sprints to understand their total costs. For example, when creating a new application feature, break development cost estimates into sprints (each lasting one month). Once this has been determined, divide the estimated total system development costs among these sprints, indicating how long each task may take.

Estimate Each Project Component Individually

Software development can be complex and time-consuming, involving numerous disciplines and skill sets. When you first embark on this journey, its vast number of steps may quickly overwhelm you; to make the task more manageable, it's essential that each step be broken into smaller chunks; estimate each task individually to create an accurate project budget.

Create a Cost Breakdown

A cost breakdown allows you to accurately assess the costs associated with a software project by comparing product development company costs with stages in your process. By doing this, you can estimate various aspects such as prototyping and user experience (UI/UX),business analysis services, market testing, and front-end and rear-end development costs.

Calculate Possible Budget Deviations

Most people assume the costs associated with software development are fixed. Unfortunately, unexpected costs may arise after your budget has been set and work has begun. To prevent problems related to budgeting issues and ensure timely software deliveries. It is advisable to prepare a cost breakdown that includes deviations and ways to keep costs under control. This will enable you to establish clear cost controls.

Custom Software Development Cost Estimation Techniques

A successful project relies on accurate cost estimation. These techniques will assist in simplifying this complex process based on realistic amounts of time, effort, and money spent developing software applications.

Empirical Estimation Technique

This technique estimates software development costs using data from previous projects and collects information through assumptions and guesswork, gathering this into evidence-based formulas to estimate costs roughly during the planning phase of software development projects.

Heuristic Estimation Technique

The Heuristic Estimation Technique can be used to quickly estimate the average software development costs. This model addresses budget estimation from multiple angles. This technique makes quick decisions regarding complex projects by considering all elements and parameters related to cost estimation.

Analytical Estimation Technique

This software development cost estimation technique utilizes dividing tasks into different elements or operations and then calculating their standard duration times using experience. Once you're familiar with various software development cost methods, you must gain an understanding of different estimates for software projects in New York. A software company in this city will give an estimate based on your goals, requirements and details discussed during scoping meetings.

Costs of Custom Software Development by Type

Perhaps you are looking to enhance what already exists or create something completely new; how much does software development cost? Here we look at some popular types of software to see the average costs of creating a bespoke website.

Content Management Systems (CMSs)

CMSs allow users to easily create, edit, and manage website content without needing coding or specialized knowledge in document management systems like WordPress or Magento - today's popular content management systems. Pre-made tools are fine for most purposes; however, businesses typically opt for tailored solutions to tailor functionality to individual business needs and avoid paying for features they do not utilize. How much does CMS development cost exactly? Costs range from $45,000 up to $90,000. Open-source code allows it to integrate seamlessly with other business software packages.

Customer Relationship Management System (CRM)

A CRM platform connects the various departments within a company by collecting notes, metrics and activities into one central database system. Marketing, sales and customer service departments can use this information to increase efficiency in their work processes. Hubspot Sales Cloud and Salesforce are two of the leading CRM solutions, while custom web development offers clients who require unique tools to segment customers, track custom metrics or require an extra layer of security that can be provided through shared systems. Core solutions generally range between $150,000 to $300,000. Prices for solutions requiring advanced features like AI/ML capabilities or integration with other business software systems could increase. Our blog can provide more insight into CRM development.

Enterprise Resource Planning System (ERP)

ERP helps businesses automate and streamline their business processes. The system brings together finances, supply chain management, commercial activities, human resources and reporting in one central hub for ease of use by business owners to better understand how their processes align with meeting goals. Katana ERP software is one of the top-selling ERP products on the market, but all ERP products can have vulnerabilities that can prove critical in certain circumstances. Custom development allows you to get the most out of these tools by eliminating their disadvantages.


An online marketplace connects various sellers, shops and individuals with customers, providing seamless promotions and transaction processing while sellers focus on closing sales and fulfilling orders. Amazon is the most well-known marketplace, followed by eBay and Airbnb (though technically not considered as such). As entrepreneurs look for their piece of the $40.1 Billion revenue pie, many are turning to custom marketplace development as an avenue. Our experience shows that building one could cost anywhere between $70,000 and $280,000 depending on its complexity - for basic products, it could range from between PS50K-100K, while more complex ones might incur even greater expenses.

Software-as-a-Service (SaaS) Solution

SaaS applications deliver services over the internet rather than being downloaded and installed locally on a server, giving access to everything from business tools to office software applications via any browser. Saas solutions have become a popular solution for various needs. Popular examples include Dropbox for file-hosting purposes, Microsoft Office 365 - an office suite - and Slack as messaging apps, all accessible from any browser-enabled device with pay-as-you-go models. Custom SaaS can facilitate an expedited launch and help expand your business exponentially - but at what price point will its development occur? Our previous blog post about SaaS development processes highlighted that, on average, developing such apps costs between $80K and $250K.

Learning Management System (LMS)

LMSs allow users to track and create training materials for customers and employees, then deliver and manage them efficiently. Their key benefit lies in 24/7 access from any device with an internet connection - making LMS an indispensable asset for managing learning materials! Moodle, Schoology and Blackboard Learn are the most frequently utilized LMSs among educational institutions due to their ease of use and cost-effectiveness. Custom LMS development may be your best solution if you train multiple trainees simultaneously or if your customization and security requirements are specific. How much does custom LMS development cost? In our blog post on that subject, we recently discussed the costs associated with LMS development in-depth, with estimated spending ranging from $80K to $150K on developing an LMS that provides all core functionality; costs may increase depending on features or complexity.

Minimum Viable Product (MVP)

An MVP is any product with just enough features for users to evaluate its worth and provide feedback - such as a CMS or LMS. The primary goal of an MVP is testing demand for such a product. Facebook, Dropbox and Zappos all utilize MVPs for software development purposes. Costs associated with creating an MVP depend upon its complexity - from $50K for something as basic as check-in applications up to a maximum of $250K, depending on the complexity of the design.

How can you Estimate Software Development Costs?

Estimating software development costs is possible if you are confident. Here are a few simple steps:

  • Divide your project into phases. Agile development typically comprises four major stages: design, testing, development and maintenance. Additional phases, such as MVP/prototype creation, could be included.
  • Separate each phase into smaller steps. The design phase can include wireframes or more intricate design stages; development includes completing every feature.
  • Calculate the time required for each subphase; consult specialists in each development area if necessary.
  • Determine an acceptable deadline and employee numbers needed to complete tasks within that timeline.
  • Determining the required Human Resource (HR) resources at each stage of development is vitally important, including recruitment, training and rewards.
  • Establish reasonable rates of payment for professionals involved with the project.
  • Include fixed costs such as office equipment or project Management fees when considering total project expenses.
  • Add all expenses, including employee salaries, to calculate software development costs accurately. Also, consider risks like inflation or hardware failures that could arise during development.


Costs associated with software development depend on various factors that only become apparent upon deepening development processes. Provide more specific details to the development company to gain more accurate estimates rather than giving a general idea. Validating your idea before embarking on the full-fledged project may reduce risk. Estimating software development projects is no simple task. To properly estimate costs, you should establish the basics from the outset with a thorough discovery phase, considering factors like developer level, technology stack, quality assurance requirements etc. Create an MVP that contains all the functionality you require without high-tech components while still taking into account ML-powered searching and two-factor verification - though remember this could impact the cost as a whole. An accurate estimation can only be provided after determining project requirements and deadlines. Our business analysts will ask many questions to give an accurate estimation, researching to reduce risks related to software development budget overruns.


Q1. How much does custom software development cost?

You must first determine what type of custom software you want to create to estimate the cost. Basic software with a simple feature set can cost between $30,000 and $100,000, while highly complex software costs $100,000 to $300,000. 

Q2. What is the average hourly wage of developers in the US?

Hourly rates for developers in the US are around $140-150. Hiring developers from the US will result in higher development costs. Therefore, outsourcing software development in India is better, where the hourly rate is only $40-60. 

Q3. How long does it usually take to create new software?

The complexity of the project and its requirements will determine how long it takes to develop custom software. Software with a large feature list will take longer than software with fewer features. Simple software can be created in as little as 4 to 5 weeks. Complex software takes between 9 and 12 months to develop. Custom software development should not be rushed, as this can result in a suboptimal product lacking sustainability. 

Q4. What are the most popular cost estimation tools that organizations worldwide use?

Some popular cost estimation tools for software development used globally include Jira, Microsoft Project, Toggl, Harvest, and Function Point.