Quite often, companies ordering software development service wonder about pricing methodology for software engineering, so as to assess how adequate the project cost billed by developers really is.
Let’s try to figure out what motivates outsourcing companies that create various software products upon the customer’s requirements, as well as try to find the best formula to estimate the cost of a future program or mobile application. Such information will be helpful not only for developers, but also for the enterprises using their services, that are in need of solutions tooled for their infrastructure and requirements.
Method of Calculation
In order to estimate how the price for software development is calculated, it’s necessary to evaluate what the price is actually formed of. To do this, let’s review the key “consumables”, used by developers in the course of work on the final product.
- material and technical resources;
- costs for third-party component libraries (if necessary);
- staff salaries;
- costs for outsourcing (if necessary);
- social contributions;
- other costs.
Salary expenditure depends entirely on the number of employees involved by IT outsourcing company in the process of creating the final product, its further testing and ultimate debugging, as well as these employees’ experience. Material and technical resources mean the equipment utilized in the software development process, which also includes acquisition of required licenses and rights. If creating the final software requires purchasing an appropriate license or a ready-made component (module) from a third-party developer, these costs are to one extent or another passed on to the customers. The total of such costs can be shared among multiple enterprises that ordered software development.
It is also assumed that in some cases, you may need to purchase ready-made software solutions, which are then implemented in a program or mobile application, requested by the customer that ordered the required service from the IT outsourcer. In this case, the entire amount that was spent on the purchase of the module will be added to the final price for software development.
What the Price Depends On
Making a quote for software development, the provider relies on the customer’s requirements set forth in the Technical Design Specification, based on their own experience and expected amount of resources to be used during the project. IT outsourcer calculates how many employees will be involved in the order execution, as well as evaluates the necessity to purchase additional licenses or copyright-protected solutions.
To avoid significant increase in price of the final product, you should stick to free licenses and platforms (crucial when developing mobile applications), as well as try to split the project into several smaller parts, when it comes to creating a multi-purpose product.
What Can You Save On?
The most popular solution to reduce the cost of software engineering has become a so-called offshore IT outsourcing, when a task to create a program or application is assigned to the developers located far away from the customer. In general, the least expensive are developers from the Middle East and India, where code writing services are rather cheaper than in Central Europe or Russia. However, this approach may seriously jeopardize the project implementation, which has been already covered in one of our previous posts.
Alternatively, you can save by using a limited number of employees of the IT outsourcer, when fewer workers on payroll are involved in code writing. However, in some cases, this may lead to a dramatic extension of the project implementation timeframe, which, as a consequence, automatically increases the price of software development.
In order to avoid unpleasant financial clashes, it’s vital to prepare in advance a thorough Technical Design Specification that would summarize all the nuances of the forthcoming collaboration with IT outsourcing company. This will help to quickly and with mutual benefit resolve any issues that might arise in the process of software development and its price formation.