In today’s technologically advanced world, the term “software” can refer to everything from weather apps to enterprise software that serves millions of clients. Businesses employ a variety of software to help them run smoothly and manage specialized tasks.

However, every project owner wants to know the financial implications and timeline for completing their project from the start. Regardless of how little or straightforward a project may appear, the estimation process is always a huge matter due to its importance.

The custom software development cost cannot be determined until the software project’s specific requirements are specified. Before proceeding further, knowing what exactly custom software means is crucial to understand.

Custom Software: Specially developed for some specific organization

Custom software is a user-specific product, as opposed to generic off-the-shelf software such as Microsoft Office. It includes features that meet the company’s needs. Custom software includes, for example, a custom-built banking desktop program or ERP software.

The requirements analysis, coding, testing, and deployment phases in the process of developing the customized software are all included. Users get a more personalized experience with customized software, which reduces software development costs and boosts ROI. Furthermore, custom software has superior scalability than commercially available software.

Despite the fact that each custom software project is unique, many firms still prioritize execution. Organizations must consider the following factors while making decisions:

  • Market-fit product
  • Software features
  • Deployment platforms
  • Budget & Development planning
  • Execution plan

Organizations create budget plans to lessen execution limitations, but predicting custom software development expenses is not that simple.

The following are some of the most effective ways to estimate custom software development cost:

Analogy-Based Estimation

To conclude an estimate by analogy, historic production costs from similar projects (analogy projects) are evaluated and compared to the current project. It is highlighted how the projects differ. Complexity, project scale, expected delivery date, location, inflation, current exchange rates, and so on are examples of such issues.

If a good comparison can be found, the project estimate can be fairly accurate. It’s essential to keep in mind that no two projects are the same. Systematically estimate the software development project and provide justifications to project stakeholders.

It is critical to understand that if the scope, capacity, or performance of an anticipated project is double that of a similar project, the analogy estimate must be “scaled up.

” There is a significant thing to remember here is that double the size does not always mean twice the price. The size-to-cost ratio must be comparable.

When there is limited knowledge of the project to be estimated, this strategy is best.

Bottom-up Estimates

The project is segmented into various tasks and subtasks that can be readily specified and handled in this manner. As a result, estimating gets easy. All of the jobs are separately evaluated and summed to get a final software project estimate from the bottom to the top.

This bottom-up method takes longer to estimate, but it provides the highest level of accuracy when all component details are taken into account.

Project Evaluation and Review Technique (PERT) or Three-Point Estimates

Three ranges of estimates from three data points are first presented in this procedure. “Best scenario,” “worst scenario,” and “most likely scenario” are the three data points. The weighted average of the estimates is the final estimate.

The advantage of the three-point estimate is that it reduces the likelihood of an inflated estimate. It is also one of the most straightforward but accurate methods of project estimation. For more precision, the three estimations to be averaged can be completed by different people

Parametric Estimating

This method is comparable to analog estimates; however, it is more precise. A statistical or mathematical technique is used in parametric estimation:

The first phase is to identify the development factors, such as business or functional needs, non-functional needs, project complexity, and technology.

The next step is to gather information from similar historical projects on the amount of effort required to finish one unit and then relate it to the total number of units pertinent to the current project.

Finally, the cost is calculated using an empirical link between the elements involved and the project’s total units. The accuracy is then determined by scalability.

Cost of Quality

Money spent during the project to avoid failures and money spent during and after the project due to failures is included in the Cost of Quality (COQ). Assumptions concerning the COQ might be included in the project cost estimate during the cost estimating.

Project Management Estimating Software

Cost estimating software, spreadsheets, simulation software, and statistical software tools are all examples of project management estimating software. This type of software is particularly beneficial for comparing cost estimation options.

Vendor Bid Analysis

The Vendor Bid Analysis method is used in situations where a product is delivered by vendors or service is outsourced. When vendors are available, the company can request a quotation to estimate the cost of a given software product or service.

The proposal is sent to a few vendors the organization knows are qualified and trustworthy for this type of job. This request for proposal should provide a detailed description of the project as well as the required level of quality so that vendors can provide an accurate estimate. It is the suppliers’ responsibility to estimate costs after the proposal has been sent.

Use Case Studies

This method is used to estimate the size of software for a development project, particularly when using the Unified Modeling Language (UML) or Rational Unified Process (RUP) techniques for software design and development.

The use of use cases to define requirements allows for estimation. The software’s size is determined by taking into account parts of the system’s use cases and technological and environmental considerations. The resulting size is then used to compute the project’s projected effort.

Factors Affecting Custom Software Development Cost

Estimation is used to account for the production and management of a project. It calculates the number of resources, effort, cost, and time it will take to complete and deliver a project successfully.

A standard estimate should be open and ethical. It should include the following information:

  • Tasks include what needs to be done
  • Resources include the count of experts and their efforts
  • The rate includes the cost-to-time ratio, payment currency, and discount
  • The duration of production is measured in hours or days.
  • Third-party services if additional services are required that do not directly involve the software vendor


To conclude, in comparison to the production of standard off-the-shelf software, calculating the custom software development cost is harder. However, if the project planning and strategy for estimating the cost of custom software development are executed flawlessly, anticipating the cost of custom software development may be done with ease, resulting in significant cost savings.

Harikrishna Kundariya

CEO, eSparkBiz

Harikrishna Kundariya, a marketer, developer, IoT, chatbot and blockchain savvy, designer, co-founder, Director of eSparkBiz @Software Development Company where you can Hire Software Developers. His 12+ experience enables him to provide digital solutions to new start-ups based on Web app development.