Upon deciding to outsource a software development project, a common question asked by the client is “how much it will cost?” This is a fair enough question, although it would make more sense to understand what you are planning to build first before that question can be answered. Needless to say, software development cost will vary from one project to another.

The most basic step to determining a software development cost would be to identify the various pricing models available for software development outsourcing. There are four basic models to choose from: fixed pricing, hourly pricing, phased pricing, and retainer pricing.

You can get more details about each model below:

Fixed Pricing – In this pricing model, both the client and vendor agree on a flat fee upon the completion of the project. This is the best solution for clients who have a fixed budget in mind and want to ensure that they will not overspend, regardless of how many revisions are to be done for the project to ensure it meets the quality standard you aspire.

However, the software development team has the call on how much the project will cost and they must provide a detailed explanation on how they were able to reach the estimate. The client, on the other hand, can benefit knowing that they can extract as much work from the development team without paying extra.

Hourly Pricing – This is the most common pricing model for outsourcing software development. This is a flexible model although it can rapidly cause the software development cost to go up, which is why you need to use this model only when you are confident that you have highly skilled staff to do the project for you within the allotted time. This is a fair compensation plan though for both client and developers since the client only pays for the total amount of work done and the developers get paid only for the work they have rendered.

There are certain risks entailed with opting for the hourly pricing model on the client’s end. First off, there is the tendency of exceeding your estimated budget, particularly if you are not careful and unscrupulous contractors can take advantage of you. Opting for hourly rates would often result to a less efficient work and low productivity.

Phased Pricing – This pricing model combines both aspects of a fixed rate with an hourly rate to ensure benefit for both parties while reducing the amount of risks involved. This is recommended for a project that is large enough to be completed in over 2 weeks’ time. The consultant will come up with a rough estimate depending on the scope of the project, and then a new price estimation will be determined at each phase of the project.

Retainer Pricing – This type of pricing model is ideal for maintenance and support projects only, instead of web development projects from ground up. This is guaranteed for clients who are looking to avail of services for a given number of hours or maintenance work that is to be rendered on a regular basis.

Estimating Software Development Cost and Budget

You are the only one who can determine the estimated cost for your software development project. You must therefore determine exactly what you want to enable the outsourcing development team to assess the size and scope of the project. Be as detailed as possible when describing the project to the team for them to understand the software development cost.

It is also important to come up with your own budget projection. Then, the development team will inform you on whether the project is achievable for your budget or not. On the other hand, they can also utilize their expertise to realize your project while staying within the budget. Hence, it pays to be upfront to them about the software development cost issues to avoid overspending.

This can be achieved by describing to them your intended use, features, and functions for the software. Then, your development team can add features in increment based on priority. This will enable you to avail of a usable product that is of business value, in case you run out of money during the software development process and had to put it in halt.

In conclusion, software development cost depends a lot on what you want to achieve but there are ways for you to minimize or keep the costs within the allowable budget range.