Custom Application Development Costs: Pricing the Right Problem

Whenever we begin a conversation with a business owner about developing custom applications, the question of cost is often raised—as in, “This sounds nice, but what is this going to cost me?”

These business owners are presumably looking for a ballpark price. They want to know if the custom system we envision is even within their budget and whether they can justify the expense, given an expected ROI.

We like discussing cost, price, and budget upfront. One of the first things discussed should be a candid conversation about the value of a solution and the budget needed to make that solution happen.

But there are three things to keep in mind when having that discussion:

  1. Custom application development does not have a “sticker price.”
  2. The cost to develop an application—whether in-house or by a third party—depends critically on which problem you choose to solve.
  3. Which problem is worth solving might not be obvious at first. Thus, it pays to consult with a partner who can analyze the problem and offer options. This will clarify the true costs involved.

Custom Application Development Does Not Come with a “Sticker Price”

Set prices make sense when you have a fairly commoditized product (or standard service) that you can provide at scale. But that is the exact opposite of having something custom-built for your specific needs. Pricing for custom application development can vary from a few thousand dollars to half a million dollars, depending on requirements, system complexity, and so on.

There are also activities outside of development itself that will need to occur, and that should be considered when discussing the budget. Discovery, pilot projects, licensing, and ongoing maintenance are all part of the “cost” of a software solution, even though they are not part of the development line item per se.

Pricing custom application development is not a matter of getting a set number but of having a conversation. What problems need solving, and what is it worth to solve them? What resources can be marshaled to do so? How much would the various options for a solution disrupt current processes or alter the tech stack? Only by discovering the answers to these questions can one understand the “pricing landscape.”

The Total Costs Depend on Which Problem You Choose to Solve

With any workflow, your team will likely encounter numerous issues and inconveniences. Which ones are worth fixing? Is it worth fixing an immediate annoyance, or is time better spent revamping the system to eliminate several problems simultaneously? To what degree can you go “upstream” to prevent problems from arising?

Which problem you choose to solve can mean the difference between having a solution that doesn’t move the needle in your day-to-day business and something that fundamentally changes how you operate for the better.

Every solution is an investment. So the question is: “If we invest money in this solution, will we see a return that exceeds that investment?” Consider: A $10 hammer from the hardware store does fine for driving nails into a wall. But if a worker for the city needs to break up a section of sidewalk or road, they will spend days doing it with a typical hammer—and taxpayers would be footing the bill for all that time. It is more than worthwhile for the city to invest in a jackhammer, given the amount of street maintenance they do annually.

The same goes for software. Some problems are tantamount to needing a nail in a wall, while others are more akin to ripping up a section of road to improve city infrastructure. Given the scope of the problem, organizations need to be ready to invest in the right tools.

The first step, then, is making sure you are solving the problems most worth solving—and that requires a consultative approach.

The Consultative Approach: Prioritizing Problems and Outlining Options

Many businesses come to us with a problem they feel needs to be solved with some urgency; and after evaluating their operations, we may come back with a different take on what should be tackled first. That can be confusing to some—why not scope the solution that was requested?

Our approach goes back to the need to assess the value being produced. We understand the urge to hire a developer that builds exactly what is requested of them… but when the project is done, you’ll never know if you satisfactorily dealt with the problem in a way that maximizes value (and minimizes opportunity cost). To put it another way: What didn’t you do that might have had a bigger impact?

As consultants, we don’t want just to build new applications for their own sake. We want to understand our clients’ businesses from top to bottom to ensure we provide solutions with the biggest impact possible. The worst-case scenario for us is when a client leaves with a solution that doesn’t treat the underlying problem or provide maximum value.

Of course, we have to be careful here when talking about transformation. Transformations are not always wholesale changes of systems and workflows. Sometimes, the best transformation involves finding ways to simplify and automate tedious processes. Consider, for example, a manufacturer that commits three costly mistakes a month, on average—to the tune of $5,000 per mistake—because they’re relying on paper forms and manual tracking. That’s $15,000 in avoidable losses per month ($180,000/year). Even if the company spent 10 times that amount ($150,000) to move to electronic forms with proper data validation, they would see a return on their initial investment in less than a year.

Mistakes are an obvious cost center, but so are time and productivity losses. Consider sales software that is slow and not user friendly. What if it could be remodeled so that you reduce the time your sales team spends in the application by, say, 10%? That may not sound like a lot at first, but if they can reinvest that time directly back into activities that generate sales—and hence revenue—the upgrade can be a massive boost to your business. And that boost can be had without having to hire another salesperson.

As consultants, we want to help you find the best-possible outcome. To do that, we want to “right size” the transformation involved. In our extensive experience doing so, we’ve found that scrutinizing your workflow and discovering the problems most worth solving makes for the best return on technology investments.

Back to the Conversation About Budget

So let’s return to our initial question: “What is a custom application going to cost?” Sure, there is a way to price a custom application development. But if you are thinking about the price tag for an application, or for a “bucket of hours” of development, you are already thinking about a commoditized solution with a standard known value. And that is information that simply is not available when beginning the journey of developing something new.

This is why some business owners get “sticker shock” when they look into custom solutions of the kind we develop here at Skeleton Key. We might well uncover a deeper need or a more-pressing problem that requires a more-involved solution. And that involved solution—along with discovery, maintenance and so on—might cost a lot more than what you were hoping to budget.

However, if a solution costs twice as much as hoped but produces 10 times the value, that’s a tremendous deal—in which case, it might be worth considering upping the budget to get that value. On the other hand, there is something to be said for a smaller, more-immediate fix as well, to allow time and resources for that more costly solution. The value of having that should be part of the conversation, too.

So forget price for the moment, and let’s begin that deeper conversation. Our goal is always to help our clients solve business workflow problems, and we’ve helped dozens of companies do just that—many of which have been with us for years. We believe a big part is that our clients trust us to steer them in the right direction and not try to make a quick buck on something that won’t move the needle for them. So, if you’re ready to start solving your biggest problems, including the ones you may not know about yet, contact us today.