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How Much Does Developing Software Cost in 2022?
Developing software is now commonplace for businesses of every size basically everywhere. However, the prices for developing vary wildly and it is hard to know when something is too cheap to be trustworthy versus overpriced. Here, I try to set a few rules determining how much software should cost to develop and maintain.
The Value of Software
Before discussing the cost of developing software, it is reasonable to discuss its value. The value of a software can usually be measured as the cost-reduction, productivity (and therefore revenue) increase and risk-reduction that its existence brings to a company. Let’s consider three examples below.
1 — Cost Reduction
A last mile delivery operation with 100 vehicles currently creates their routes manually because off-the-shelf logistics software does not work for their particular use cases. Management decides to commission the development of a custom routing application.
A few months after the new software went online, they calculated that the new software reduced the average driven mileage by 5% resulting in a cost savings in fuel and maintenance of approximately $100 thousand annually.
The value this software brings this company is very easy to price given it has a tangible reduction in cost for the company.
2 — Productivity Increase
Consider that a hotel chain with one thousand call center agents is unable to further expand its call center due to hiring difficulties, training difficulties or budget limitations. As such, 10% of all initiated calls were hung up before reaching an agent. The chain estimates that 15% of the dropped calls would have resulted in a booking. Resulting in an estimated loss in revenue of approximately $100 million every year.
Management decides to create an app to complement their web booking system. The creation of the new app reduces the number of calls to the call center by 10%. Keeping the same ratios, the app results in additional $10 million in revenue per year. Additionally, customer retention and repeat buying increases.
Similar to the cost reduction scenario, the increase in revenue is a strong…
