Custom Software Development Cost: Complete Guide

While off-the-shelf software does its fair bit, ambitious businesses must also give priority to custom software for those core functions that make the difference. It's an investment that will not only deliver a super return on investment but also amplify your competitive advantage. But business owners are often inundated with choices and options when it comes to custom software development. How much does custom software development cost? What features should be included? What are the risks?

This guide answers all these questions about custom software development cost. We will cover everything from the basics to more advanced concepts, so that you can make an informed decision about your business’s future.

So whether you're a large company or SME, startup or individual entrepreneur, read on for all you need to know about custom software development costs!

What is Custom Software?

In a world where technology is constantly evolving, businesses are required to keep up by getting the right software. However, sometimes the pre-made options available in the market might not and in fact often do not meet all the specific needs of a business. In these cases, custom software development is the solution.

Custom software is software that is specifically designed for a certain customer or company. It is made to fit the unique needs and specifications of the customer, as opposed to off-the-shelf software, which is made for the general public.

As you can already imagine, a lot goes into custom software development — so it’s not cheap. It requires time and effort on the part of the developers to understand the customer's needs and design a solution that meets them. This is why custom software development is often seen as a last resort, when all other options have been exhausted. But in the long run, it’s the best decision you’ll ever make. 

Benefits of Custom Software

Custom software development offers businesses a number of benefits that simply cannot be found with off-the-shelf software. Here are the top benefits;

• Specific: Custom software can be tailored to meet the specific needs of your business. It's created to fit your exact requirements, meaning you won't have to compromise on features or functionality.
• Security: Custom software is also more secure than off-the-shelf software, as it's built specifically for your company and your team. This means that there's no chance of confidential data being compromised or stolen.
• Speed: Custom software is often faster and more efficient than off-the-shelf software. It's been designed specifically for your business, so you won't have to waste time trying to configure it to work the way you want it to.
• Efficient: Ultimately, custom software development is a great way for businesses to maximize their efficiency and get the most out of their technology investments.

Factors that Influence Custom Software Development Cost

So you've decided that you need custom software to help your business grow. Congratulations! Making that decision is the first step on the road to success.

Now comes the hard part: figuring out how much it's going to cost. Cost is one of the most important factors to consider when making any purchase, and custom software is no exception.

There are a number of factors that will affect the cost of custom software development. Let's take a closer look at some of the most important.

Complexity and project size

A more complex project will require more time and effort to develop, and as such will be more expensive. A simple application may only require a few days or weeks of development time, while a more complex system could take months or even years to complete. In general, the more complex the project, the higher the cost will be. 

However, there are ways to minimize costs by breaking down a project into smaller phases through the agile methodology or by using reusable components. Ultimately, the best way to control costs is to carefully plan and manage the development process from start to finish. 

Development team experience

A team with more experience will generally be able to develop the software more quickly and efficiently, resulting in a lower cost. Conversely, a team with less experience may not be as efficient and could end up costing more money and taking longer to complete the project.

Location of the development team

Development teams in countries with higher wages will typically charge more for their services. The cost of living also varies drastically from country to country. Developers in countries with a high cost of living, like the United States, will demand higher salaries than their counterparts in countries with a lower cost of living.

In addition, the availability of skilled developers is another major factor that affects software development cost. Countries with a high demand for developers, like the United States and Canada, will often have a higher price tag for custom software development than countries where developers are easier to find.

Features

The cost of custom software development is directly related to the number of features and functions that need to be developed. Generally, the more features and functions that need to be built, the higher the cost. 

Good design and user experience (UX) can dramatically reduce the number of features and functions that need to be developed, thus reducing the overall cost of custom software development. 

Poorly designed interfaces and confusing user flows can dramatically increase the cost of custom software development as they require additional development time and effort to fix.

Technologies

The technology involved in custom software development is one of the key factors that influence the cost. The more complex and cutting-edge the technology, the more expensive it will be to develop. For example, developing software that involves machine learning or artificial intelligence will be more expensive than a basic system.

Third party tools and platforms can also add to the cost of development. If the software needs to be integrated with existing systems or platforms, this will add to the cost.

Government regulations

Government regulations can influence the cost of custom software development in a few ways. First, if a company is required to comply with certain regulations, this may increase the cost of development as additional features need to be built into the software. For example, if a healthcare app needs to meet HIPAA compliance standards, this will likely add to the cost. 

Secondly, government regulations can also impact how developers are able to work on a project. For example, if certain sensitive information can only be accessed by citizens of the country in question, this may limit the talent pool that a company can choose from, and therefore drive up costs. 

All of these factors must be considered when budgeting for custom software development.

Average Custom Software Development Costs

Generally, custom software development costs range anywhere from $10,000 to $500,000 or even more. The cost of your project will largely depend on the features and complexity of the software, plus all the other factors we have discussed.

If you're looking for a ballpark figure, you can expect to pay around $25,000 for a simple custom software like a CRM or ERP system. However, more complex projects can easily cost in excess of $100,000.

If you're unsure about how much your project will cost, it's always best to consult with a software development company. They'll be able to provide you with an accurate estimate and help you navigate through the custom software development process.

Custom Development Cost Across Different Types of Software

Different types of software will attract different costs depending on the application, sometimes industry requirements and even the type of developers you will need to get the job done. Some custom software can be so intense that you will need a highly skilled and experienced team of developers from different fields.

Here is a look at some of the most common types of software and how they are likely to cost

1. eCommerce software

Developing a custom eCommerce platform can be expensive, but the benefits are rewarding. Depending on your needs, the cost can range from a few thousand dollars to over one hundred thousand dollars.

There are a few things that can drive the cost up, such as the number of features you need and the complexity of the project. If you need a bespoke solution that's tailored to your specific business requirements, the cost will be higher than if you choose a more generic software.

Another thing to consider is the level of support and maintenance you'll require. Most custom software development companies offer a range of support packages for eCommerce solutions, so be sure to ask about this before making a decision.

Generally speaking, you can expect to pay anywhere from $38,000 to $250,000 or more for eCommerce software development services. This price range covers both simple and complex applications; your final costs will depend on the features and functionality you require.

2. IoT software

Broadly speaking, IoT software refers to any kind of application or program that helps to manage and connect  IoT devices. This can include everything from simple apps for turning devices on and off, to more complex platforms that help businesses to collect and analyze data from devices.

When choosing IoT software, it's important to consider your specific needs and requirements. For example, if you're looking to manage a large number of devices, you'll need to develop a platform that can handle that level of complexity.

When it comes to the cost of developing a custom IoT software or solution, the development process itself is critical — whether or not you will be hiring an IoT developer or working with an IoT development company. If you are going the DIY route, then you will need to factor in the cost of your in-house team’s time as well as any associated costs like purchasing development hardware and software. However, if you decide to hire an IoT developer or company, then they will likely handle all of this for you.

The estimated development cost to build a very basic IoT solution starts at around $35,000.

3. Web Development

This is the most common type of software, almost compulsory for any business that wants to compete in the modern business context where having a website is more or less an obligation. For a small site, the total cost may be around $5,000. For a more complex site, the total cost could be closer to $10,000 or more. 

The total cost will also be affected by the number of pages and features that need to be developed, as well as any special requirements that might need to be met. In general, it is important to discuss your specific needs with a web apps development company in order to get an accurate estimate of the total cost.

4. Healthcare software

Healthcare software happens to be one of the most complex software in the market, which is understandable considering the dynamics of this industry, regulations around data and the technologies that go into it. In the US for example, all healthcare software must comply with the HIPAA regulation, which relates to privacy and security health information.  You can therefore expect it to cost higher than other types of software. However, you can still get custom healthcare software at a cost that is not so prohibitive as to make it an impossible adventure.  

In general, small size healthcare software projects can cost anywhere from $50,000 to $100,000, while larger projects can cost upwards of $500,000 or way more. The total cost will also be affected by how quickly the software needs to be developed. If a company is able to dedicate more resources to the project, they can often complete the project in a shorter timeframe and save on overall costs. We have created a list of healthcare software development companies to make the vendor selection process as convenient and efficient as possible.

5. Manufacturing software

Manufacturing is also complex and detailed, so is manufacturing software. As a manufacturer, you might want embedded software complete with integration with existing hardware, which can be quite some work. You might also pay more for the right engineers to pull the kind of embedded software that will meet your manufacturing needs .

Overall, custom manufacturing software can start at $80,000 to $250,000 per project.

6. Mobile App

Mobile apps are equally common, just like websites. They are so popular and competition is also high. Just to put this into perspective, about 100,000 new apps land on Google Play monthly while Apple Store approves over 30,000 apps per month. That's a total of over 130,000 apps per month on the world's most popular app stores.

At the end of the first quarter of 2022, there were over 3.5 million apps in Google Play alone, and this was in fact a decrease from the over 4.5 million apps that were recorded in the last quarter of 2021. 

Luckily, mobile apps are not so difficult to develop especially if the purpose is to complement your other offerings or to test a new product. So it should not be so expensive, but of course the cost can go high if you are looking at a full service solution or a pure commercial app at scale. 

Having said that, the cost of creating a custom mobile app ranges from $5,000 to $25,000. This price tag includes the cost of design, development, testing and deployment. Of course this is on the lower side, for the simplest of apps. 

Depending on your specific needs and requirements, the cost of a custom mobile app could be higher or lower. Check the below table to benchmark prices based on some of the popular apps today;

* Caution: Please note that these are just estimated costs to serve as reference cases just in case you want to build apps that will compete with some of the best in the market today. This should not be confused with the worth of these apps, which runs into billions for some. An app or indeed any software for that matter is what you ultimately nurture it to become in terms of user attraction, features and brand positioning. 

You might want to start by considering mobile development companies in the US.

7. CMS software

A CMS software is used to create, manage, and publish content. Think of it like a word processor for your company’s website. With a CMS, you can add new pages, edit existing pages, and even design your site's layout without having to write any code. Best of all, a good CMS will make it easy for you and your team to collaborate on content creation and publishing.

While there are several CMS platforms that are free to use such as WordPress, Joomla, and Drupal, some companies opt to build their own custom CMS. This gives you good control over your content and increases productivity because the custom CMS is built specifically for your business and not for every business in the world. 

If you're considering using a custom  CMS, you can expect to pay around $15,000 for a simple CMS.

8. CRM software

CRM software is essential for any business that wants to keep track of customer interactions and data. It can be used to manage everything from customer contacts to sales leads and marketing campaigns.

On average, you can expect to pay around $20,000 for a simple custom CRM system. However, this price can go up significantly if you need extra features or require extensive customization.

If you're interested in getting a custom CRM system, it's important to get a quote from a software development company that specializes in CRM software so you can get an idea of how much it will cost. 

The good thing with CRM software is that they have been around for such a long time. CRM systems were more like the pioneer software types, meaning it’s quite easy to find good developers who will quickly understand what you want. 

9. ERP software

Just like CRM, ERP software is common and  essential for businesses of all sizes. It helps manage critical business processes such as accounting, finance, inventory, and HR. Many businesses opt for general ERP systems from credible vendors, but you might want to have your own special ERP to serve your specific business needs. 

The average cost of a basic custom ERP software starts at around $20,000, but can go high again depending on the scope.

10. Supply Chain Management software

When it comes to managing a supply chain, there is no one-size-fits-all solution. Every business has different needs, and a custom supply chain management software can be tailor-made to meet those specific needs. That's why more and more businesses are turning to custom supply chain management solutions to help them manage their supply chains effectively.

A custom supply chain management software can be designed to track inventory levels, manage production schedules, coordinate shipping and logistics. It can also be integrated with other business systems, such as accounting and customer relationship management (CRM). This allows businesses to have a complete overview of their entire operation, and makes it easier to identify areas where improvements can be made.

The cost of custom supply chain management software starts at around $30,000.

11. SaaS Software Development Costs

SaaS (Software as a Service is a type of subscription software model in which software is licensed on a recurring basis and delivered over the internet. SaaS products are hosted by the provider and accessed by subscribers using a web browser or mobile app. This type of software is perhaps the most lucrative business model and still continues to grow in prominence as more users embrace the digital way of life, fueled by the COVID-19 pandemic. 

The benefits of using a SaaS product include: access to the latest updates and features, no hardware or software installation required, automatic updates and backups, security and compliance features, 24/7 customer support, and typically lower total cost of ownership than on-premises software.

The SaaS development process is elaborate but nicely manageable. On average, you can expect to pay around $15,000 for a simple custom SaaS product. Be sure to get estimate quotes from a couple of SaaS development providers before settling on one. 

Summary of Custom Software Development Costs Per Type

Here is a summary table of the cost estimates for all the types of software we have covered.

* Caution: Please note that these are just estimates. Otherwise the cost can go way above or even below this depending on the scope of your project.

Average Custom Software Development Costs by Company Size

Larger companies typically have more complex needs and require more features, which drives up the cost of software development.

On the other hand, smaller companies may not require as many features and can save money by opting for a simpler solution. Furthermore, they may also be able to negotiate a lower custom software development price due to their smaller budget.

Here is a quick look at the average custom software development costs for large companies, SMEs, startups, and individuals (solo) entrepreneurs.

Large Companies

The average cost of software development for a large company is $250,000. Keep in mind that this is just a ballpark figure and the final cost may vary depending on the complexity of the project. Otherwise this price can go as high as $1 million or more for more complex projects.

SMEs

Custom software can give small and medium-sized businesses (SMBs) a big competitive advantage. By investing in a custom solution, SMEs can increase their efficiency, save money, and gain a significant competitive edge. The average cost of custom software development for an SME is approximately $100,000.

SMEs have smaller budgets and need software that is affordable and efficient. 

Startups

A startup is a company or organization in their early stages, normally characterized by high uncertainty and risk. A startup typically does not have a proven track record or stable customer base.

A custom software is designed specifically for the early needs of a startup. It can help to automate business processes, improve communication and collaboration, and make it easier to track key metrics. Custom software can be an important tool for startups as they work to grow and stabilize their business.

The average cost for custom software development for a startup is typically around $40,000. This price includes programming, design, testing, and deployment.

Individual (Solo Entrepreneur)

In most cases, the price for custom software development for an individual (solo entrepreneur) is significantly lower than the price for a fully established business. When you work as an individual, you have the liberty to squeeze out some things and get some costly processes out of the way. This means your average cost for a custom software can be significantly lower compared to all other types of businesses. 

Having said that, the average cost of custom software for a solo entrepreneur is $10,000. This is because most solo entrepreneurs do not have the same needs as larger or mid-sized companies. They usually don’t require as many features or as much functionality, which makes the development process simpler and less expensive.

If you are a solo entrepreneur and are looking for custom software development, be sure to keep this in mind and ask about discounts. You may be able to get a lower price by working with a smaller company or by negotiating with a larger company.

Regardless of the size, it's important to note that the cost of custom software development is not a one-time expense. You will need to budget for ongoing maintenance and support costs as well.

Costs of In-house vs Outsourced Custom Software Development

How much does it cost to outsource software development? How about in-house? 

When it comes to custom software development, businesses have two main options: in-house or outsourced. Both have their own pros and cons, which you should take into account before you decide which is the best option for your company.

What Is in-House Software Development?

When a company decides to build and maintain its own software rather than relying on outside developers, this is known as in-house software development.

There are a few reasons why a company might choose this option: perhaps you need a custom solution that doesn't exist in the market, or you want more control over the final product and the development process. In-house development can also be cheaper in the long run — once the software is built, the company owns it and doesn't have to pay licensing or subscription fees.

The Pros of in-House Software Development

• Hands on: When it comes to in-house software development, your team will be able to have a more hands-on role in the entire process. This means they'll have a better understanding of the system and be able to make tweaks and changes as needed.
• Smooth collaboration: In-house software development also allows for more collaboration and communication between team members. This leads to a more cohesive team and a better end product.
• Budget control: You'll have more control over the budget. You'll be able to allocate funds and resources as needed without having to worry about outside constraints.

The Cons of in-House Software Development

• Can get costly: In-house software development can be incredibly costly. You need to have the right team in place, with the skillset to handle a wide range of tasks, from planning and designing to coding and testing. Not only do you need to pay your team members a competitive salary, but you also need to provide them with the necessary equipment, tools, and resources they need to do their job.
• Business disruption: In-house software development can be very disruptive to your business. If you're not careful, it can take up a lot of time and resources that could be better spent on other areas of your business. It can also be difficult to scale up or down your in-house team based on your needs, which can lead to wasted time and money.
• Maintenance issues: If the software isn't properly maintained, it can quickly become out of date and difficult to upgrade.
• Difficulties finding right talent:  It's often difficult to find and bring in-house all the types of programmers and qualified developers who will understand your company's specific business needs. 

What Is Outsourced Software Development?

Outsourced software development is when a company decides to contract with a third-party company to develop custom software for them.

The software development outsourcing trend continues to grow in prominence as a great option for businesses that don't have the time, resources, or expertise to develop their own software. It can also be cost-effective, as the third-party company or freelancer will often provide a quote for the project that is almost always lower than the cost of in-house development.

The Pros of Outsourced Software Development

• Experience: When you outsource your custom software development, you get to take advantage of the provider's years of experience and technical expertise.
• Networks: Outsourced software providers have a vast network of resources you can tap into, which can come in handy when you need specific expertise or when your project requirements are very deep.
• Top talent: Outsourcing your project gives you access to top talent — something that can be challenging to find in-house. Providers have the ability to handpick the best developers for your project, so you can be assured that you're working with the best of the best.
• Cost-effective: Offshore software development costs can be affordable compared to the cost implications of in-house developers.

The Cons of Outsourced Software Development

• Weak control: You lose most control over the entire process. Not only do you have to trust the outsourced developers to do a good job, but you also have to rely on them to understand your business and your specific needs. This can often lead to miscommunication and frustration on both sides.
• Expensive on updates: Outsourced development can be quite expensive, especially if you need to make changes or updates to the software. Plus, there's always the risk that the developer will go out of business or stop providing support, leaving you stranded with a software you can't use anymore.
• Communication issues: Communication can be a challenge when working with a third-party company. It's important to make sure that all parties are on the same page in order to avoid misunderstandings and missed deadlines.

There are more pros and cons of outsourcing development, which again can vary in significance depending on your company size, location or size of project. 

How to Save on Custom Software Development Costs

By now you probably have no doubt that custom software development can be expensive. However, there are a few ways that you can save money on your project without sacrificing quality or features. Here are five tips to help you get the most out of your budget:

1. Define your requirements up front. The more specific you can be about what you need, the easier it will be for the development team to give you an accurate estimate.
2. Shop around. Get quotes from several different software development companies before making a decision.
3. Consider open source tools. There are many excellent open source solutions available for a variety of needs throughout the custom development journey.
4. Be flexible with timing. If you can be flexible about when your project is completed, you may be able to get a discount.
5. Pay upfront. Many software development firms offer discounts for projects that are paid for in full up front.

Conclusion

Although there is no fixed price for custom software, it is important to remember that you get what you pay for. When choosing a developer or development team, be sure to take enough time to ensure they understand what you really want. This is an essential step towards getting a high quality product within your budget.  

Otherwise it’s possible that developers may misunderstand your requirements at the beginning, turning the exercise into a costly affair for your business. It’s also important to go for software development companies who use modern approaches. This will save you a lot of time and money. 

FAQ About Software Development Costs

How will you calculate the cost for a software?

The first step in calculating the estimated total cost of developing your planned custom software is to get clear on the size and scope of the project. Next step in software development cost estimation is to consider whether you want to have software developed in-house, outsourced or a mix of these two approaches. Once you have these items figured out to a good level, compare the market rates of outsourcing or rough estimates of technologies that will be involved if you decide to go in-house. 

Always start by having a clear view of the end product, then come backwards compiling all the components that will go into this process. Then estimate the cost of each component to get the total cost estimate. This is roughly how to estimate software development cost. 

Most developers nowadays charge per hours. So calculation can be as easy as using the below formula;

Total Software Development Cost  = Hourly Cost x  Total Development Time 

Of course  there is so much more you will need to do to arrive at the final cost., including negotiations.  Use this formula strictly for rough estimates. 

Why is software development expensive?

Software development can be expensive because it is a complex process that requires significant expertise and experience. The time and effort required to develop high-quality software can vary greatly depending on the requirements, so pricing can be difficult to estimate. And since software is often mission-critical, there is a lot of risk associated with making a mistake, which can drive up costs even further.

How do you budget a software project?

Software cost estimation depends on the size and scope of the software project. For smaller projects, you can use Excel or other spreadsheet software to track income and expenditures. For larger projects, you may need specialized budgeting software such as QuickBooks.

No matter what size project you're working on, you'll need to establish how much money you have to work with. This may come from your own savings, investors, or grant funding. Once you know how much money you have available, you can start estimating costs for the various aspects of your project.

Is custom software an expense or asset?

There are a few factors to consider when determining whether software development is an expense or asset. The first factor is the size and scope of the project. A small, quick project may be considered an expense, while a larger, multi-year project may be considered more of an asset. Generally speaking, the larger and more complex the project, the more likely it is to be considered an asset rather than an expense.

Another factor to consider is the industry you're in. Some industries, like healthcare or banking, are heavily regulated and require compliance with many rules and regulations. In these industries, compliance-related software development projects may be classified as an asset.

Is the cost of software increasing or decreasing?

Yes. It seems that the cost of software is increasing. One reason for this is that the development of new software has become increasingly complex in recent years. This can be explained from a competition perspective. While you would expect the cost to be decreasing as more developers and tools come to the market, the opposite is the reality  — and competition is playing a huge role here. 

As businesses compete to rise to the top, the demand for high end complex features drives up the cost. This is unlike the past when only a few businesses appreciated the importance of software. Now everyone understands that software is the ultimate differentiator in any business. As this happens, the cream of developers are in high demand which means their fees will automatically reflect this — it’s all about the law of supply and demand. 

How much do software prices increase each year?

Software prices normally tend to increase at  an average of 1.5%- 5.5% each year.   The last 10 years have particularly registered the sharpest increase in software development prices. This increase is also driven by factors such as inflation over the years… As the cost of living rises, so does the cost of everything else and software is no exception.