The real costs of outsourcing the MVP

How much will it cost in the end? Why do the prices differ so much from company to company? What other costs do I have to prepare for? Even though the answers are apparent, I fully understand why questions like these appear so early in the discovery process.

We are surrounded by thousands of similar software development companies from all over the world that are incredibly interested in designing your product. Their prices differ, and the estimations you receive are far from accurate. You end up confused, wondering who will provide you with the correct answers to the most critical questions. I get you.

It took me a long time to fully understand what the software development process looks like from a business perspective, and I work in one of these companies.

I am here to reveal some of the "hidden" industry secrets. Let's begin with the question I often hear when clients come to us after several meetings with other software companies.

There are a lot of variables affecting the prize of a price of a digital product. Only a holistic approach makes it possible to know the actual costs.

Why do the prices differ so much?

There are numerous articles regarding the comparisons between freelancers and software development companies, and, you guessed right – a freelancer is a lone wolf. No matter how skilled they are, when it comes to resources, they won't stand a chance against a software company. Such comparisons will quickly tell you that you can't compare these two because it all depends on how big your project will be and how you plan to stay involved.

Let's assume that you already answered this question and don't consider a freelancer as a solution, but still, you wonder why some software companies charge more while others charge way less. Let's list some of the factors.

1. Location

The location of a software company might strongly determine the final costs of your MVP or your fully walking product skeleton. This is likely the most important (and underrated) factor out there. What is included in this factor are the wages, the costs of living, and general market conditions like the difficulty in hiring new developers. It is vital to also underline that the location must be related to the actual location of the developers participating in the project.

Bear in mind that many software companies have "hidden" developers abroad simply due to software development cost optimization. You might find a software company with headquarters in Berlin, Germany, but 99% of the team is located in Dhaka, Bangladesh. Even though your project shouldn’t necessarily be harmed in terms of delivery time or quality, you might find it challenging to communicate with the team or enforce legal consequences if your project heads in the wrong direction.

2. Team setup

Numerous software development companies will probably evaluate your project. Even though you will provide the same project description and materials to each of them, you will likely receive different team setup propositions. Some software vendors believe that two backend developers and one frontend developer will suit your requirements. Others will tell you that this project can't even start without a UX designer, Project Manager, and Team Leader. This happens because, very often, the concept and available materials are limited at this stage – we don't yet know what you really want. We can only assume what you are looking for based on your initial ideas. The project will evolve anyway, and the initial assumptions rarely remain the same until the end.

If the budget is your only concern, and you believe that good graphics are irrelevant in your mobile application, feel free to discuss a team setup. In the end, you have a clear picture of what this application should look like. What you can also do, is listen to some of the recommendations and discover what the downsides are for specific team setups. Cutting costs is understandable, but try to avoid sacrificing quality. If you want to pitch your new demo to investors, it must look rock solid.

3. Size of the project

You are just about to finish your business plan. You have thought it out well and the picture of what will happen next has never been clearer. You have created a well-detailed description of your idea, sent it to a couple of software companies, and you are waiting for the response. Because you are well prepared, you have checked the average time the MVP should be finished, around 3-6 months. You believe that your project shouldn't take longer than 4 months.

During the initial discovery meetings, you will probably realize that some companies understand your project better and some less. Maybe you’ve been there before and know the feeling when you describe your project to them and they just buy it. The feeling you have when exiting the call is the same you’d have when selling this idea to future investors. They just get it — you are all on the same page.

After a couple of meetings, you get the estimations. They say 8 months of total development—double the price of what you have planned for this stage.

Why is that?

Such estimations don’t mean that the software company does not understand your idea or that they want to rip you off. After delivering 100 projects in JMR, we discovered that there were a few MVP projects that could have been estimated as more significant projects. Overestimation, or underestimation, is a typical industry phenomenon. In the end, we want to give you an as accurate project timeline as it is humanly possible. If time is crucial, or your budget screams that the estimation is too big, it can also mean that the MVP needs to be reduced by a couple of functionalities, or some need to be downgraded to essentials.

Don't be afraid to ask where the project's length comes from and how we can tackle this if you have limited time/budget. Remember that your project design can be attacked from numerous angles - transparent and open communication might make miracles happen, especially during this stage.

4. Future Proofing and technology

Your project end goal defines the technologies we will pick for the entire project lifecycle. The selected technology may delay or accelerate the process. How?

Should you use paid or open source libraries? No matter what you choose, the advantage of picking established tools over the newest ones on the market is clear. Using open-source, regularly developed libraries and frameworks might help decrease the MVP's final price. These advantages are:

• helpful online content for the developers (shorter learning curve),
• more secure, stable code with fewer bugs,
• a final result with fewer errors,
• backed by big companies like Microsoft and Google for better standardization,
• hiring market availability of the technologies.

Some selected tools allow for faster prototyping - obtaining a basic version is more accessible but may result in reduced scalability later. On the contrary, some technologies take longer to code and extend the time needed to create an MVP but are more stable in the future. It all depends on your goal for the project.

5. Additional costs

Additional variables will affect your final price although they won't change it as drastically. However, you should be aware of their influence on the price. To name just a few:

• hosting,
• communication tools,
• management tools,
• paid assets,
• additional specialist ad hoc support,
• licenses, subscriptions, etc.

Remember that using your hosting instead of a cheaper cloud might increase your monthly maintenance and upkeep.

The prices for task management tools, Jira, Slack, CI/CD support, or additional software-related tools also affect MVP costs.

If you are creating a content heavy product, prepare to pay for additional assets, sounds, and graphics which will also increase the final cost.

Will the project generate a lot of data or not? Will it be visited by hundreds of thousands of users? Will it have enough capacity to store all the necessary files (photos, documents, PDFs, movies, etc.)? Database or storage types will also affect the price.

Is that all?

Not necessarily. Software companies rarely put themselves in the clients' shoes. They will present their professional, well-done presentations and pricing models with ready-to-sign online PDFs. Still, they will not mention how much of your time you will need to sacrifice in order to build your solution with them. Even the best-described project won't just happen without your regular involvement. Questions arise from developers/project managers all the time during the development process. Some questions are so crucial that the whole development process will slow down or even stop unless they’re answered. Your availability during the entire project depends on how the cooperation between you two is established from the beginning, and how the software company understands your project.

How much will it be then?

On average, the price given by most software development companies in Europe will oscillate between €30,000 and up to €135,000 for a 3-6-month MVP project. As mentioned above, be prepared to receive different pricing models. Don't be surprised if you hear the cost of the developer teams per month and their hourly rate in addition to the total cost. It will help you plan and prepare for any additional expenses if the MVP development period is somehow extended (god forbid).

What to expect in JMR?

Prepare for an unforgettable experience and a wild ride with no seatbelts. Jokes aside, at JMR, we emphasize the period before signing the contract. We believe discovery and the initial calls are essential to gathering as much information as possible about your project. This period allows us to not only suck all the data from you but to challenge your idea and your perspective from a technical point of view. This might change your perception of your newest product, or at least slightly adjust it.

We also make sure you will receive transparent information on whether we can help you or not, pointing out our strengths and weaknesses. Ultimately, we are not experts in every kind of technology and possible solution. JMR has specialized in Python & .NET technology for more than 12 years, connecting it with the Data Engineering team. This makes us a good choice when you want to create an advanced web application or heavy desktop application.

At JMR, we believe that building an MVP is a joint effort that requires both parties to engage in a collaborative type of work. Over time, this effort is shifted to us, and your involvement decreases; hence the beginning is crucial. Check out what our MVP building process looks like in "MVP Building and Consulting".

How will you be charged?

Depending on the complexity of the project, we work on three types of pricing: Modules pricing - where the project is divided by modules with a price per module. Stages pricing - where the project is divided by stages with a price per stage. Monthly cost - where the project is divided by the cost of each month of an entire dedicated team assigned to the MVP.

Based on that, you will receive a total price (fixed price) or monthly fee (time & material).

Examples of projects

1. If your project is a simple web application, let's say an insurance platform with basic functionalities for end-users to purchase numerous insurance packages and for sales administrators to manage their sales activities and sold packages, the project can be finished within three months. With one frontend developer + one backend developer, and a little bit of graphic designer help, the total cost should be around €45,000-€100,000.
2. If you plan to build a mobile game based on Unity 3D from the ground up, where we must create all the designs and the gameplay thoroughly tested by the QA team, prepare for a higher cost. The MVP might take up to 8 months, and involve QA, Graphic Designer, Unity developer, Backend developer, Project Manager, and UX designer. You should prepare for at least €130,000-€250,000.
3. Let's say you have a breakthrough idea, a new Spotify with functionalities that haven’t been seen before, and gives access to artists who couldn't make it to the larger platform. You believe in your idea, have prepared all your designs and graphic interfaces, and have it all with you. Because your friend is a UX designer, you need a backend. You also want to test it yourself; you just need somebody to manage the developers' work. We understand. Two backend developers + Project Manager are at your disposal. 4-5 months should be sufficient. The price? €65,000 - €95,000.

As you can see, final costs vary enormously from project to project. Each company might use its approach and architectural ideas to evaluate your new product, so don't feel offended if somebody hands you a way more expensive offer. They might be the ones who truly understood the logic behind your idea. Look for a partner that you can communicate with on the same wavelength, you can trust, and is transparent.

Do you need a cost estimation for an MVP or your custom software? Contact us. We'll invite you to a short (about 15 minutes) online discovery call. Schedule an online meeting with JMR expert.

This article was prepared in cooperation with Michał Sut (Python Developer) and Patryk Rudziński (Frontend Developer).