Software Development Budget: Key Things to Consider When Planning in 2025

When it comes to software development, the first question that comes to mind is: how much will it cost? Unfortunately, there is no precise answer to this question, as each software project is a unique case. There are various factors that shape the budget, starting from the scope of the work to the specific skill set required.

Backed up by 15 years of experience in software development, we at Lemberg Solutions are keen to share details on how to estimate your software project budget and what key things to consider before doing so.

Elements That Influence Software Development Costs

Below, we collected the key factors you need to pay attention to while creating a budget for software development:

Team Size

The number of people in your team directly influences the software development cost. The idea is quite straightforward: the more people work on your project – the more you have to pay. Apart from the number of experts, their seniority level is another determining factor that increases the price. However, do not try to save money by hiring several junior developers instead of senior ones. This may negatively impact the quality of the product, as junior developers still lack some experience in handling certain processes. Instead, try to build a team consisting of senior, mid-level, and junior experts to make the development process more efficient and budget-friendly.

Type of Development/Product

Do you want to upgrade the existing product or create something new? Are you planning to build a web, mobile, or embedded project? If you want to develop an app, do you want it to be native, hybrid, or cross-platform? Answering these questions can help you define what type of product you want to see at the end of development. Each of these types of development requires a specific tech stack and team composition, which, in turn, affects the project cost estimation.

The Size of the Project

The project's size and complexity are other crucial elements that impact the software development project budget. Usually, when you imagine your final product, you also have specific wishes on how it should function. In reality, all of these features have specific prices linked to the amount of resources, both human and tech, needed for their implementation. The more features you want to pack into the product – the more complex and expensive it will be.Besides, if you want to add some trendy AI or ML features, be prepared that the project's total cost will increase massively.

Technology Stack

After you are done outlining project functionality, it is time to choose the appropriate tech stack. Depending on the project specifics, you can choose to work with either well-established languages and frameworks or go for niche tools.

Well-established languages, like Java or Python, already have a vast community of developers and all the resources to accelerate the development process and make it relatively cheaper. However, if your project requires less popular frameworks to implement specific features, it will certainly be more expensive. The reason is the market may experience a shortage of developers with the niche expertise you need, and therefore, their rates will be higher.

5 Key Steps in Software Development Cost Estimation

Once you know what elements affect the cost of the project, now it is time to move to the actual budgeting process. Check these five steps to have a better understanding of how to approach software development cost estimation:

#1 Start with requirements.

45% of IT projects experienced a budget overrun, says the McKinsey team in their report. The key reasons are a lack of clear objectives and defined requirements. Without these two pillars, most companies fall into the trap of scope creep, adding unnecessary complexity to their product.

The more precisely you define all technical and non-technical requirements, the closer you'll get to estimating the cost of your project. Engage in discovery workshops with key stakeholders to identify the core functionality and prioritize the scope of the work. Ask yourself: do your users need all these features, and how do they shape the user experience? This approach will help you concentrate all your resources on "must-have" functionality, leaving all "nice-to-have" elements for future sprints.

#2 Divide the requirements.

Once you have the list of key requirements and features, divide the process into logical stages, each with well-established deliverables. To make the plan more accurate, partner with a reliable software service provider. As they have more hands-on experience, they can guide you in estimating the amount of human effort required for the specific task and the development hours.

#3 Estimate the cost of resources.

Now, when you have a straightforward development roadmap, you can estimate how much each feature will cost you. Start your calculations by concentrating on technological aspects. Estimate how much special equipment (for example, for embedded projects), software programs, plugins, and other tools you need.

When it comes to human resources, the price depends on whether you choose to hire in-house or outsource. With an in-house team, you will have more control over the process, but it will be considerably expensive as you need to cover all hiring expenses. In this case, outsourcing proves to be more cost-efficient as you do not need to spend additional money on onboarding. As all outsourcing teams come with different cooperation models varying in prices and team composition, you can choose the best fit for your budget.

#4 Access all risks.

No software project is safe from risks that can appear unexpectedly. There are many factors that can endanger your project, be it technical issues, human-made errors, or communication problems. Unfortunately, there is no way to predict when things will wreck and what the culprit will be.

However, you still need to devote some part of the software development budget to these unforeseen issues. Discuss with your development team what potential pitfalls can occur during the process and how much they will cost.

#5 Keep everything documented.

Based on collected information, create different budget estimates for optimistic, realistic, and pessimistic development scenarios. The optimistic scenario must contain the cost estimation in case everything goes according to the roadmap without any issues. The realistic case must oversee the extra budget for at least one of the major issues. The pessimistic approach must set a budget to cover all possible risks you identified with your development team. Keep everything properly documented so you can monitor whether you stay within the budget or you are dangerously close to exceeding it.

Summary

Project cost estimation is a tricky matter as it conceals many hidden factors that affect the budget. Take budget planning as a serious matter as it directly influences the success of your project, guaranteeing that you will not run out of money before it's even complete. Following our guidelines, evaluate the scope of work, resources required, and risks you may face to create the most accurate estimate possible, which will help your project stay on schedule and within the budget.

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