Custom Software Development Costs Explained: A Guide for Businesses

When businesses start thinking about custom software to improve their operations, the first question on their minds is often, 'How much will this cost?' It’s a fair concern—when you know what to expect financially, it will help you make the right decisions. But the truth is, the cost of custom software isn’t just one big number, and it differs from business to business, depending on each one’s goals, requirements, the team they choose to work with, and where that team is located. 

Several things affect the price of custom-built software, and we will explain them all in this article. By the end, you will know what to expect and what to consider before starting your next software project.

Why Choose Custom Software

Every business works differently, and sometimes, the tools and software available on the market just don’t fit. That's why more and more companies choose to build their own software because of all the advantages it offers. According to a research by Gartner, the custom software services market is expected to exceed $283 billion by 2028.

As a company grows, its needs change, and the tools it uses should adapt to those changes. One benefit of custom software is that you can upgrade and change it as needed to fit your needs.

As time goes on, custom software can really help you save both time and money for your business. Since generic software often doesn't meet all your needs perfectly, you might find yourself needing to invest in additional tools and features to cover those gaps. With custom software, on the other hand, you usually have everything in one place.

Look at custom software as a long-term investment. It does come with a significant upfront cost, but you’re not paying for features you don’t need or for ongoing license fees. Custom-built software is designed to fit your company’s needs and delivers value over the years. 

Next, let’s talk about all the factors that determine the final cost of custom-built software. 

Find out if custom software is what you need: 6 Signs Your Business Needs Custom Software Development .

What Affects Custom Software Costs

If you’re wondering what makes custom software development cost so much—or so little, it all comes down to a few key factors.

First, complexity really matters. Want a lot of features? It’s going to take time—and that means more money. On the other hand, if you're only looking for a smaller app, let's say a mobile app to track employee hours, that will probably cost a lot less. So, the more complex features you want, the more time it will take to build, and that will result in higher costs too.

Then, there’s the team that works on your software. This team consists of not only developers, but also designers, testers, project managers, or other experts, AI or data security specialists for example. The size of your team will definitely have an impact on your custom software’s price. 

Let’s not forget the technology you choose. This is also an important factor cost-wise because there are technologies and frameworks that are faster to work with and cheaper to maintain, while there are others that require more specialized expertise. Keep this in mind, and do a detailed research on the technologies you want to work with on your project. 

Where your team is located is important too. For example, if you decide to work with a custom software development team from Eastern Europe, it may be cheaper than hiring a team from the U.S. or Western Europe. This is a great way to work with experts for a lower price but keeping the quality high. Here are some rough estimates of hourly rates:

U.S. or Western Europe: $100–$200 per hour.

Eastern Europe: $30–$60 per hour.

South Asia (e.g., India): $20–$40 per hour.

South America: $40–$70 per hour.

Cost Breakdown for Businesses

When budgeting for your software project, it’s easier to break down the project into smaller parts to help you get a good estimate for the costs. Here is what the breakdown looks like for a project:

1. Initial development costs

The majority of your budget will go toward designing, coding, and testing your software. Let’s say you want a smaller project—a simple mobile app with basic features, for example—you should expect a $20,000-$50,000 starting price. 

If you’re looking to build something more complex though, like a custom CRM system or an e-commerce platform that has multiple advanced features, the price can range from $50,000 to $150,000 or more. It really depends on the complexity of the software. 

2. Hidden costs to consider

It’s always a good idea to prepare for unforeseen costs, or “hidden costs”, which can add to the final cost of the project. These are some of the hidden costs you’ll want to keep in mind: 

Third-party software licenses or APIs: Depending on the requirements, these can be anywhere between $500 to $5,000 per year. 

Infrastructure and hosting: Cloud hosting for your app may cost around $50 to $1,000 per month, depending on scale and traffic. 

Scope changes: If at any point you decide to add more features to the software, this can increase your budget majorly. 

3. Ongoing costs

Your software will need maintenance and ongoing support after it’s live. This includes bug fixes, maybe adding new features as well, and keeping it up-to-date at all times. 

On average, businesses should expect to spend around 15% to 20% of the initial development cost per year for maintenance and updates. For example, if your software costs $50,000 to build, you should expect to spend around $7,500 to $10,000 annually for maintenance. 

4. Total project estimates

Here’s a quick overview of the typical costs of custom software for your business: 

Small projects: $20,000-$50,000

Mid-sized projects: $50,000-$150,000

Large, enterprise-level projects: $150,000-$500,000 or more

Planning Your  Budget

If you’re preparing to start a software project, planning your budget from the beginning and taking it step-by-step will help a lot in the process. What are the features of the software that you need for your business? It's a good idea to separate the must-haves from the nice-to-haves. This way, you can stay focused and avoid spending too much on things you don't really need.

Next, it’s time to define your budget for the project. With a clear idea of the budget, you and your development team will be able to decide what’s possible and what isn’t. Also, your team will support you in decision-making, and recommend possible features and solutions to maximize your investment. 

This article can serve as a guide when budgeting for your custom software. Don’t forget about maintenance costs either! A good rule of thumb is to set aside 15-20% of the initial development cost each year to cover these expenses.

Try to get quotes from as many development teams as you can. Compare the offers, and choose what suits you the best. And remember, the cheapest option is not always the best one, so try to find a balance between quality and cost.

Lastly, treat the process with flexibility. If the software you’ve imagined ends up costing more than you expected, start with a smaller version, and add more features gradually, as your business expands. But if you choose a reliable development team, they will guide you through this process offering advice and recommendations.

Conclusion

Investing in custom software is a big step for your business, but with some good planning, it doesn’t have to be complicated at all. Understanding all the costs involved—both the obvious ones and the hidden ones—can really make a difference in how well your project runs. It’s worth taking the time to look into it! With a clear budget and a good team by your side, you can focus on what matters: creating software that genuinely works for your business.

Work closely with your development team to figure out what’s best for your business when it comes to tools and features, and go from there. 

Remember, careful planning goes a long way and gets you functional software tailored to your needs, all while staying on budget.