How much does a custom software application cost?

I don’t know about your industry, but in mine, I run across potential customers who think that we are actually a charity dedicated to the overall betterment of mankind.  That, or we are wealthy beyond anyone’s wildest dreams, and just work out of the goodness of our hearts.  (Bill Gates developed software and now runs a charity.  We develop software, therefore…)  Not that we don’t care about mankind, or have good hearts.  We do.

I am passionate about helping our customers enjoy running their businesses again. But, we charge a fair price for our work.  In recent years, I’ve positioned the company so that it generally attracts customers that are a good fit for what we do.  We are fortunate to have a really good set of clients who run great companies and value the work we do for them.

When I was first getting started, though, I charged about $500 for one particular project.  I should have charged $10,000 for the amount of effort it took to complete.  Even with that 95% discount, my client told me that my price was “too high.”  “After all,” he continued, “I can buy all of Microsoft Office for $400. I should have responded, “Yes, and Microsoft has spent billions getting Office to the point that it can sell it to you and millions of other people for $400 a piece.”  That was my introduction into the world of custom software pricing.

The most egregious example that I’ve run across was an ad on Elance.com that wanted “something like AirBNB.com” for between $1000 and $5000.  Granted, he probably didn’t want a duplicate of their entire system, but AirBNB at the time had raised about 850 MILLION DOLLARS.  $5000 isn’t even a rounding error in comparison.

So what IS a fair price for custom software?

Generally, the amount that you’ll pay for a custom software package (or anything, for that matter) is related to the size and importance of the business problem it fixes.  The larger the business problem, the more complex the software usually needs to be to address it effectively.  That complexity drives up the cost of the package.

Also, an important business problem deserves a piece of software that has had each feature massaged, refined and worked over. Each screen should be fast and intuitive enough that an inexperienced employee can immediately understand what to do next.  That refinement takes time, which also drives up cost.  But, the added cost is well worth it when you compare it to the return you’ll receive.

In the end, you can pay anywhere from a few hundred dollars to many millions of dollars for custom software.  Generally speaking, you get what you pay for.  Here are some of the drivers that determine the final cost.  You’ll need to consider each one as you decide on a budget for your project

• How intuitive does the software package need to be?
• How complicated will the final product be?
• How many systems will it affect (consider both people and computer systems)
• How important is the business problem you’re addressing?
• Do you want to manage software developers directly?
• Do you want to deal with a language and culture gap between you and your developers (consider that intuitiveness is culturally driven)
• Can you write detailed technical requirements?
• What return are you expecting on your investment, in dollars?
• Consider that custom software projects that make sense generally pay a return of 5 to 20 times the size of the investment.

If you have any questions about any of this, feel free to contact me.  I’d be glad to help walk you through the process and answer any questions you might have.