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The Cost of Developing Custom Web Applications

First published on: 15 May 2015

In theory, estimating the cost of a web application is easy. You supply a detailed list of requirements to a team of talented software developers, and they provide an accurate estimate. In reality, a very accurate estimation of time (and therefore price) to develop an application is not practically possible, even when the high-level product is very well-defined. This is illustrated in Michael Wolfe’s Quora answer in which he elegantly shows how low-level details lead to obstacles that nearly always influence the amount of effort required to complete a project.

At Innolitics, many of the projects we work on are inherently complex and specialized solutions to meet a particular business need. Accordingly, sometimes not all features of the application are well-defined up front, and the developers or the client pose extra, highly desirable features amidst the development cycle. On smaller scale projects, this may not be the case, and the scope of the project is narrowly defined and unwavering throughout.

As a consequence of the varying sizes and scopes of project we work on, for some projects we entertain fixed-price contracts, but on others, we insist billing on a time-and-materials basis. In either case, we believe that both we and our clients benefit when our pricing rationale is transparent.

Fixed-price Contracts

When clients come to us with a well-defined project with well-defined scope, we entertain fixed-price contracts. Fixed-price contracts are a double-edged sword. On one hand, the client knows the full cost they will pay for the project, and they eliminate the risk of exceeding their budget. On the other hand, the developers assume the risk of underestimating the time to complete the project. As a consequence, the developers are incentivized to overestimate the time required to complete the project, and the client may ultimately end up paying more.

In addition, the project requirements for fixed-price contracts are much less flexible than in time-and-materials contracts. This can be a problem, as major changes to the project scope during the design and development iteration cycle are quite common. This can become a major headache for both parties unless the project requirements and scope are extremely well-defined before the project begins.

Time-and-materials Contracts

In a time-and-materials arrangement, the client pays for the developer’s time and thus has the ability to see progress as it is made, as well as make modifications to the project requirements throughout. This flexibility is an advantage of the time-and-materials billing approach. Of course, now the client assumes the risk that the project goes over budget due to project scope changes or feature additions.

Our typical approach to large projects is the following: First, we flesh out the project scope and prepare detailed design and technical requirements for a fixed price. Next, we enter the implementation phase in which we charge on a time-and-materials basis until the project is complete and deployed. Finally, we enter the support phase in which we are available to answer questions, fix any issues that develop with our software, and support our clients.

At Innolitics, our hourly rate for custom web application development is $150. This price is set such that we meet our margins to pay both salaries and the overhead associated with running our business, and so that can offer excellent support to our clients and their projects for years to come.

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We publish non-technical articles about software development. Topics include how to work with, hire, and communicate to developers, the benefits and liabilities of custom software for businesses, and trends in the industry.

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