Custom Software

Budgeting for Your App

One of the most important considerations when undertaking custom app development is determining your budget. We give a few pointers on how to budget for an app

One of the most important considerations when undertaking custom app development is determining your budget. Like many types of endeavors—from building a house to planning a wedding to creating a custom mobile app, the operative question on most clients’ minds is, “How much will it cost?” And, unless the scope and specifications are fully defined and not subject to change, nine out of ten times the less definitive answer is, “It depends.” What seems like a simple question is actually quite complex, especially when it comes to custom app development. Ultimately, the wild variations in price across different developers comes down to two main factors—location and experience.

Counting the Cost

In the restaurant business, “location, location, location” is the answer to the question, “What are the three most important things about starting a restaurant.” Similarly, location plays a large role in terms of establishing a budget for your project. Rates for a developer in Pakistan and a developer in San Francisco are likely to vary significantly. Ultimately, your comfort level with the second factor (experience) is apt to drive your decision relative to location.

In the custom software development industry, experience is typically divided into three main levels: junior, mid-level, and senior. As you would expect, these three levels command differing price points commensurate with the developer’s experience and expertise. Senior developers typically can charge twice as much as a junior developer.

Further complicating the pricing models is a developer’s individual approach and familiarity with the project category. This is why “apples to apples” comparisons are so challenging. An individual’s creativity, experience, and first hand knowledge of the material are intangibles that impact how a developer approaches a project. Just as a veteran Lyft driver knows how to navigate their city—taking back roads, skirting traffic and construction zones, avoiding tolls—to reach a destination quickly and efficiently, a veteran developer will understand how to provide similar value and cost savings to their customer. A less experienced provider is apt to take the most direct route without accounting for factors that ultimately cost you more money. You might arrive a few minutes sooner, but have to pay a hefty toll that might have otherwise been avoided.

Another variable is the make-up of the development team. Imagine two different providers arrive at the exact same estimate in terms of hours. One team is comprised of three mid-level developers and the other team assigns one senior developer. The first option might be quicker and cost less money, but the product quality will likely be lower. The second option may involve more time and expense, but is likely to produce a higher quality product.

Furthermore, one must also weigh the trade-offs involved with adding a project manager, quality assurance engineer, and a designer. Each of these roles significantly increases the probability of success, mitigates risk, and lowers your level of stress, but they also impact the budget. However, we find when clients choose a provider that does not value design, project management, and quality assurance, a great many of their projects end up failing. In fact, nearly 40% of our business comes from “rescue” projects where these success factors were omitted or glossed over, resulting in buggy code and a poor user experience that all too often require starting from scratch the right way.

How to Budget

The first step is to decide how much you want to spend. A good rule of thumb is to consider your revenue potential or your cost savings over time. If your app is a revenue driver, we like to see clients have a one-year return on investment (ROI). However, with community engagement apps we are seeing a trend toward positive ROI in one quarterjust three months!

For example, a typical community engagement/content delivery application costs between $200K-$300K. If you have 10,000 followers or prospects, we know you can convert 50% of them into paid subscribers. Assuming a subscription fee of $20 per month, 5,000 subscribers yields $100K per month in sales. Annually, that equates to $1.2M sales and $990K in revenue ($850k in revenue up to your first million in sales + $140k in revenue on sales from $1M-$1.2M), which would deliver a positive ROI in a single quarter.

The value of serving a community connected by highly relevant, highly targeted content goes well beyond an enhanced user experience. We see community engagement apps delivering ROI significantly faster than standard applications. Apps built around content such as personal coaching, personal improvement, fitness, cooking, learning a language, etc. often command subscription rates higher than the industry average of $10 per month. Even at this average rate of app subscriptions across all categories, your sales would be $50K per month, or $600K annually.

To help clients better understand the quality/cost continuum, AppIt Ventures has performed its own competitor analysis to serve as another input to the budgeting process. Our research model found that off-shore, developer-only firms would charge $30K-$50K for a project scope that would typically cost $300K in the U.S. AppIt’s hybrid model sits right in the middle, delivering the optimal combination of high-quality products at a reasonable investment.

At AppIt Ventures, we create high-value apps that enhance impact and improve people’s lives. We believe so strongly in technology’s potential to enhance client impact and improve people’s lives that we are willing to share in the up-front risks of development. That includes helping you budget appropriately to avoid cost overruns and misaligned expectations.

Talk to our team to scope your next project.