What does software development cost?
7 min 
Every day, thousands of new ideas for innovative services and products emerge in the Netherlands. Whether it’s the next Tikkie or Adyen, software development often plays a crucial role. But what are the actual costs of software development?
KEY TAKEAWAYS
- Cost structure
- Direct and indirect costs
- Difference between fixed price and Agile development
- Saving costs
Structure of Software Development Costs
If you have experience with software development, you know it’s not just about the cost of the first release. It’s about the cost of developing software over its entire intended lifecycle, also known as TCO (Total Cost of Ownership). Total Cost of Ownership can be defined as the sum of all costs associated with developing, owning, and maintaining a digital product. This includes both direct and indirect costs.
Direct Costs of Software Development
Direct software development costs are the most well-known and are directly attributable to building and implementing your product. This also includes software licenses (e.g., AI services, Stripe, LiveChat, and Google Services) as well as hosting and database costs.
- The development and further development of your product
- The UX design of your product
- Support based on your SLA
- Hosting & database
- Licenses / third-party services
- Training
Factors Influencing the Direct Costs of Software Development
- Hourly rates – These range for Dutch software developers between €80 and €150 per hour depending on quality and seniority. Nearshoring (Eastern Europe) rates range from €40–70/hour, and offshoring (India and the rest of Asia) generally ranges from €20–40/hour.
- Developer speed – Software companies with truly top-tier developers can be up to 10 times faster than those with less talented developers. This also depends on experience and the use of specialists versus generalists/”jacks of all trades”.
- First-time right – Are the right features developed from the start, or is time wasted on functionality that won’t be used? A good IT company helps you get it right the first time.
- Lean development / minimizing waste – Lean development (in combination with Agile) ensures that your product is iteratively improved based on customer feedback. This is a proven way to build products quickly and cost-effectively.
- Technology and architecture sustainability – Avoid overly exotic/hype technologies; there’s a significant risk they won’t be supported in a few years or that developers will be hard to find.
- Use of Open Source components – Components backed by large developer communities save time during development, so your team can focus on building what makes your product unique.
- Vendor lock-in – What future costs will you incur if you want to switch software providers?
All these factors affect the TCO. In summary, you’re best off with an experienced team of top-tier developers who follow Lean and Agile methodologies. They choose future-proof architecture and technologies, use open source components to minimize boilerplate work, and ensure you’re not locked in with a vendor.
Indirect Costs of Software Projects
Indirect costs include all other expenses related to developing your product that are not directly attributable to the actual technical execution, maintenance, or training.
- Filling new roles in your team or replacing roles (illness / recruitment / onboarding / wrong hires)
- The cost of doing nothing – Say you have an outdated SaaS product and delay updating its technology, UX, or product-market fit. Your product will slowly become less successful and profitable. In short, you’re losing money every day, which should factor into the decision of whether or not to modernize your software.
- Compliance and legal costs
- Lost productivity during transition periods
Software Development Costs: Fixed Price vs. Agile Development
Build a product that delivers value to your customers from day one, with minimal investment!
The Fixed Price model only works for relatively small projects with clearly defined requirements that will not change—something that, in most cases, is wishful thinking. A conflict of interest between you as the client and the IT company quickly becomes a risk. And that’s the last thing you want when you’re aiming for a professional, collaborative result.
Fortunately, there’s Agile… An Agile model, on the other hand, is the best choice for projects with evolving requirements. And don’t be mistaken—requirements can change faster than you think, especially as you learn more from your customers and users. An Agile team of software developers delivers results in short sprints, giving you constant visibility and the ability to easily adjust course if needed. This Agile approach leads to faster and better results.
Factsheet: Save 70% on Your Software Development Costs
Reduce Software Development Costs with an MVP
Build a product that delivers immediate value to your customers, with minimal investment!
You can control software development costs by choosing to build an MVP—Minimum Viable Product.
Simply put, an MVP is the most basic version of your product that still delivers real value to your users, keeping them satisfied and engaged.
Building a simple yet well-functioning version of your final product allows you to go live quickly and start doing business.
It also enables you to immediately begin collecting feedback and learning from your users. These interactions help you prioritize new features effectively.
Quick Estimate of Your Software Development Costs
Building a product for less: The process described above allows you to build a launch-worthy product with a smaller budget. Developing an MVP is all about selecting the “must-have features”—the features that will satisfy and retain your first users. We’ll save the rest for later and focus on the essentials—the most important parts.
This way, your product is developed faster, starts generating revenue sooner, and ultimately saves you development hours.
At GlobalOrange, we’ve been building innovative applications for startups and scaling businesses for sixteen years. Because we’re frequently asked to provide estimates, we decided to develop a cost calculator for this purpose. Get in touch with us to receive a quick estimate of your software development costs.
“Let us help you focus on growing your business. After an initial meeting, you’ll have a clear understanding of the possibilities, as well as an estimate of costs and timeline.”
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