Custom software cost estimation is notoriously difficult. A McKinsey study found that 66% of software projects exceed their budgets. Why?
Hidden complexity.
Why Custom Software Cost Estimation Is Challenging
Custom software development is filled with unknowns. Just like construction projects that uncover unexpected obstacles—like large rocks beneath a build site—software projects often reveal unforeseen technical challenges.
No matter how much experience a team has, some surprises only surface once development begins.
Because of this, the best approach is to set an approved budget and work within that range, ensuring that resources are allocated efficiently to meet business objectives.
Our Custom Software Cost Estimation Process
At Level 12, we use a structured, transparent approach to estimating software costs. Our process helps establish clear expectations and delivers estimates that align with your business needs.
1. Project Discovery
Every project begins with a complimentary discovery meeting. Our goal? To understand your business and determine if a custom software solution is the best fit. Sometimes, an existing software solution can be customized at a lower cost, making a fully custom build unnecessary.
We focus on building partnerships based on mutual trust. If we don’t see a clear return on investment for you, we’ll let you know upfront.
2. Engineering a Custom Solution
If a custom build makes sense, we move into the engineering phase. Think of this as architectural planning before construction begins.
Our team collaborates with you to deeply understand the problem and craft a solution. This phase includes:
- Project Requirements
- Technical Recommendations
- Software Architecture
- User Interface (UI) Wireframes
- Cost Estimate for Development
Fixed-Bid vs. Agile Estimation
Some clients request a fixed-bid estimate. While we can provide one, it often results in higher costs than our agile approach, which prioritizes flexibility and efficiency.
We use the MoSCoW prioritization methodology to categorize features into:
- Must-haves
- Should-haves (if time allows)
- Could-haves (optional)
- Won’t-haves (excluded based on budget)
If you don't have a budget, our Think First can help you estimate the scope, budget, and timeline for your project. We'll give you an outline of where to go, and act as your GPS to outline how to get there.
Cost vs. Value: Is Custom Software Worth It?
Consider this: If your business is losing $500,000 per year due to inefficiencies, and a $150,000 software solution eliminates that loss, is that expensive? The net value is significant and grows over time.
Our first step in evaluating any project is determining its potential value. If the value proposition isn’t strong, we'll advise against moving forward.
The Total Cost of Ownership
Beyond development costs, there are ongoing expenses to consider:
1. Software Hosting
Hosting is a relatively low-cost but essential part of software deployment.
2. Software Maintenance
Just like a vehicle requires oil changes and tire rotations, software needs regular maintenance to stay reliable and secure. Budgeting for this ensures long-term success.
Should You Build Custom Software?
A custom software project should be treated like any major investment. If the total cost of ownership is lower than the cost of the problem it solves or the revenue it generates, it makes sense to proceed. If not, it’s best to explore other options.
At Level 12, our goal is to help you make the right decision for your business—not just sell you software. Ready to explore your options? Let’s talk.