Business / 04.02.2018

Lance Capel

Understanding Software Design & Development Costs

In order to understand the costs of designing and developing software, it is important to understand each phase of development and who is involved in the process.

While there is not a formal equation to arrive at the final price for delivering a software product or service, my hope is that this will help inform anyone looking for a website, mobile app, AR/VR experience or AI integration.

First off, software design and development costs are going to fluctuate depending on location, expertise of the designers, developers and project managers (team/firm), complexity of the project and duration of the project. For the purpose of this article, I am going to make cost assumptions based on Los Angeles averages. When I ask someone how much they think it costs to build out a website, mobile application or AR/VR experience, the answers I receive can literally range from $5,000 to $250,000 for a website, $15,000 to $500,000 for a mobile app and, worst of all, $30,000 to $1,000,000 for AR/VR experiences. I liken this exercise of asking people to estimate prices to Ellen DeGeneres asking Bill Gates to guess grocery store prices. To be fair, it is challenging to guess how much a product or service will cost if you are unfamiliar with the industry (Mr. Gates has not gone grocery shopping in many years). For the software and technology industry, software engineers make $102,000 ($51.00/hr) on average, UX/UI designers make $95,000 ($47.50/hr) on average and product managers earn $107,000 ($53.50/hr) on average. To be clear, these are averages and do not reflect senior or executive level compensation. By understanding the salaries that a firm pays their employees, you can quickly calculate a minimum hourly rate that they must charge clients just to break even. On top of that, consider office space rent in Los Angeles and then the ability for the company to make a small profit. While understanding the basic math of development costs is important, it is essential to consider the background of the firm and engineers that you are partnering with when determining whether they are worth the price tag they are attaching to their services. There is really no way around it, developing and designing software can be expensive.

The main elements that one should consider when choosing a design and development firm include: the expertise of the team, previous clients the firm has worked with, timeline in which the firm can deliver your desired results, industry knowledge of the firm and overall culture of the firm. If any of these components do not align with your desired outcome, you should strongly consider finding a different company. The expertise of the team working on your vision is immensely important because the insights and ideologies they bring to the project will largely shape the outcome of the deliverable. The greater the expertise, the more the team members are paid, which is ultimately reflected in the price you are charged per week. Unsurprisingly, it is fairly easy to determine if the team has expertise in your given industry by reviewing their client list and determining the success of prior projects. The more experienced a team is, the more they are going to charge for their time. Some of the large digital design and development firms can charge 10x more than their competitors because they are used to dealing with Fortune 500 companies and anything smaller is a waste of time. If you are an early stage company that is strapped for capital, it is important to find a firm that you know deals with early stage companies. The time frame in which a company can deliver a desired website, mobile app, or AR/VR experience is likely only an estimate, but it is important to know that they have a structured plan in place before you begin design and development.

The last thing that is important to consider is the culture of the firm you are seeking to work with on your project. Like I mentioned above, some firms exclusively focus on working for billion dollar corporations, while others focus solely on early stage companies. I believe it is best to find a firm that works with both, large and small companies, because then you know that they have the expertise of working with significant industry players, but they also understand the main constraints of early stage companies (costs and time). It is ideal to partner with a firm that you feel respects your mission, empathizes with your challenges, outlines how they believe they can help, communicates with you as if you were their most important client and implements processes that enhance your chances of success. Each of these qualities do correlate with the final price tag, so make sure you check off each of these boxes before proceeding with a design and development firm.

There are many challenges associated with pricing software design and development. As with many other things in life, pricing is a blend of subjective and objective data. Ironically, subjective inputs can arguably increase total costs more than objective facts, but it is also true that choosing a firm is often based off of subjective perceptions. Many design and development firms are going to be capable of offering similar technical skills, but it will often come to down to subjective qualities like creativity, personality of the team and your own “gut feeling”. If you are convinced that you can build a technology product cheaper, just remember the old adage: you get what you pay for.