Two factors determine the final price of a software development project: time and resources. Yet, companies and software developers encounter an enormous challenge in accurately estimating them. One common cause of these difficulties is a lack of communication between outsourcers and clients. Since every project is unique and requires individual components to bring it into existence, an effective exchange of information between outsourcers and clients is essential.

In this part of its series on various topics related to the software development process, Customer University, Mad Devs' experts share the details of effective project estimation. Based on their extensive experience, the team has developed a 5-stage process that incorporates communication and exchange throughout the entire process.

Stage 1. Receiving the request

Mad Devs believes in building long-term relationships with clients, which requires a thorough understanding of each client's project requirements. It also means an honest assessment of our ability to perform the necessary work. Our managers check the available expertise within the company, the project scope, and whether Mad Devs has the necessary resources to fulfilling project commitments. If the knowledge and skills correspond to the initial requirements, Mad Devs proceeds to evaluate the customer's product vision.

We have various customers who come to us for software development. Some of them are prepared with a clear vision and plan for their product, while others need assistance in forming the details. In both cases, our teams want to gain as much knowledge about the product as possible to deliver the most accurate estimates and service.

Without precise product specifications and requirements, engineers may find themselves trapped in a cycle of re-development, which in turn delays the project's completion and extends its budget. Mad Devs wants to avoid a situation like this, and customers can use the following questions to better understand their expectations for a project. Even a small answer is better than nothing, and Mad Devs is ready to help clients work out the details of any ideas that lack clarity.

7 questions to answer about a product before development

  1. What problems does the product/solution help solve?

    This question helps highlight the specific pain points a client wants to address with their solution, which helps our developers create relevant features. For example, if a product aims to streamline inventory management for small businesses, our developers want to identify pain points such as manual counting, stock discrepancies, and reordering delays to build appropriate automation and notification systems.

  2. What is the desired result?

    Clear expected outcomes ensure that development efforts align with the client's business objectives. This question gives us measurable success criteria and helps us avoid scope creep during the development process. Clutch.co, the successful B2B review platform, approached Mad Devs with the aim of improving its website’s performance, and our developers prioritized features that contributed to this goal.

  3. How will this system interact with other systems?

    This question emphasises the technical requirements, potential compatibility issues, and integration points that might affect development complexity and timeline. So if the client wants to implement a new CRM system to exchange customer data with their existing accounting software, our developers must consider the API requirements, data transformation needs, and security protocols between these systems.

  4. Are any integrations required?

    Specifying necessary integrations upfront helps us prevent costly rework and ensures compatibility with other technologies. For example, third-party services, APIs, or platforms that a solution must connect with to deliver its full value. When Mad Devs worked on a project with GoDee to develop software for their shuttle buses, the client requested integrations with payment options, GPS tracking, and other features. This information provided our developers with the necessary information to plan suitable connection points and data flows.

  5. Who are the users?

    Our team needs information about users that could influence the product's design. For instance, if the primary users are elderly individuals with limited technology experience, developers would prioritize larger text, simplified navigation, and clear instructions over complex features that might confuse this demographic.

  6. What are the main UI/UX design requirements?

    When clients express clear interface and experience expectations, developers can establish visual identity requirements, accessibility standards, and interaction patterns that should be consistent throughout the app. For instance, the Bilim, an app that educates women and girls on important health topics, required a simple and efficient design. Mad Devs' developers focused on minimalist interfaces with calls to action and streamlined user journeys rather than feature-rich screens that could overwhelm the app’s users.

  7. What are the key benefits and competitive advantages of the product?

    Understanding a product's unique value proposition helps our developers emphasize and enhance it in the software design. For example, if a product's main advantage is its ability to process data faster than competitors, our teams would prioritize performance optimization, efficient algorithms, and real-time processing capabilities to strengthen this key selling point.

Again, answers to these questions are nice to have, but our experts are available to help clients understand their aims and products when they lack an understanding of these details.

Stage 2: Understanding the factors that affect development

The next step involves four sub-stages and the following questions:

  • Research: Do any similar solutions exist?
  • Scope estimation: What are all the steps involved in the project?
  • Velocity: What is the timeframe for the scope?
  • Risks and uncertainty: What percentage of risk is suitable for this project?

Research

Our managers study the functionality that serves the customer's needs most effectively and search for any third-party solutions that we can use to deliver the expected results. Today, not all the elements of a software project need to be developed from scratch. Mad Devs prefers saving time and reducing development costs by using a ready-made solution without coding, if it works for a given product. 

Scope estimation

The next step is to estimate the project's scope in terms of the effort and time required. This is helpful for determining the cost of fixed-price contracts and useful when discussing a customer's needs. There are several important elements to identify in this process:

  1. Scope: Identify the scope of the project based on the provided requirements.
  2. Decomposition: Break the project into logical 'mini' releases that contribute to the whole product.
  3. Sizing: Determine the size of the team required to complete the project and the seniority level of the developers. 
  4. Review: Colleagues review the plan to confirm the estimation is correct.
  5. Finalization: We aggregate all the estimations from components and functions and have a baseline estimate.
Estimate variability.

Velocity

Velocity refers to a team's capacity to complete work within a given iteration (or sprint) and expresses this range, typically based on the start of a project. With a clear scope and path, the team adds up the effort estimates associated with the completed user stories during each iteration to understand the velocity, which managers use to plan releases and adapt workflows and processes as the project progresses. Regular review of velocity enables the Mad Devs team to adjust its forecast and limits the amount of work taken on in subsequent iterations.

Risks and uncertainty

All software projects come with a certain level of uncertainty, which decreases as development progresses and the client approves features. Mad Devs includes a 15-20% risk "cushion" in project estimations to account for unforeseen situations. For example, if a project suddenly requires specific expertise or more experienced engineers to deliver a function, this cushion provides the desired level of flexibility to make necessary adjustments in work scope. The percentage Mad Devs uses is based on extensive experience with various projects, and our teams understand how to mitigate risks if they occur.

This also involves a "development tax" that refers to technical debt, quality assurance tests, and keeping up-to-date documentation. These additional processes are necessary investments to ensure a product's stability and scalability.

The sizing and the productivity stages in the context of general cost estimation.

Stage 3: Choosing the cooperation model

The steps above help create an accurate picture of the project and the work that needs to be done. The next part of the process involves selecting the right cooperation model that best suits the client and their project. Mad Devs uses various models that account for a customer's preferences. For some, the right model may be clear, while others may require an understanding of the available options. Below, please find a description of each cooperation model:

  • Staff augmentation: Individual specialists from Mad Devs are assigned to a client's team to complete tasks. 
  • Project-based dedicated team: An entire team (which typically includes a project manager) is provided to the client to undertake the project from start to finish. 
  • Temp to hire: Similar to staff augmentation, but clients look to hire temporary specialists as full-time employees.
  • Technical assessment & consulting: Mad Devs' technical experts perform analysis for the client and provide recommendations.
  • Team supervision: Managers and team leads from Mad Devs supervise the client's current team and help manage it more effectively.
  • Legacy software management & project transfer: Mad Devs takes on projects that other teams have worked on but failed to deliver desirable results.


While each model is unique in what it delivers to a client, the basic elements of the calculation are the same: team size and time.

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Stage 4: Calculating the cost

Mad Devs' 3 best practices for successful software cost estimation

Even with the Mad Devs' plan, estimating the cost of a software development project can be difficult. Here are the 3 best practices Mad Devs uses to ensure accurate forecasts and price estimations that deliver better customer experiences and build trust for long-term relationships.

  1. Use data: Businesses can use AI-powered data collection, such as Enji, to gather data from previous projects for accurate estimations based on similar features.
  2. Build in a learning curve: Include the time required for developers to learn new tools or topics into timeline predictions.
  3. Embrace AI tools: The modern software engineer is more than a coder. AI tools can reduce the time spent on a project and free engineers' time for creative approaches.

Once all the information mentioned above is clear, there are different ways to calculate the cost for a software development project.

Traditional approach

This approach fixes the project's scope and keeps time and budget as variables that can change. In this case, the logic is straightforward, but if the time spent on the project becomes flexible, there is a risk that important deadlines may be missed or the timeframe may extend beyond any reasonable return on investment. Likewise, a flexible approach to cost may result in unexpected changes that increase the amount on a client's invoice.

This approach is too rigid to account for changes that can occur in a project's scope as development progresses; for example, when market and user research identify a feature that needs to be added or removed.

Agile approach

Unlike the traditional approach, this means of estimating project cost fixes the time and cost to allow the scope flexibility to account for expected adjustments. In this scenario, the project's scope is broken down into results that can be delivered as separate packages. Clients pay for each package and can decide to stop development once they receive everything for a viable product.

The agile approach increases transparency within the estimation process and provides room for adding new features if the client decides they are needed. Likewise, when a project is divided into packages, it's easier to estimate the cost of additions to the project's scope based on data and experience.

Algorithmic cost modeling

This approach to cost modeling uses a mathematical formula to predict project costs based on estimates of the project's size, the number of software engineers involved, and other process and product factors. In its most general form, this model can be expressed as:

Algorithmic cost modeling

Stage 3. Choosing the cooperation model

Over the last years, Mad Devs gained experience in 50+ large-scale projects. In the light of the knowledge gained, we developed 360-degree expertise and suggested solutions that fit customers' business needs. 

Outsourcing and outstaffing are traditionally two of the most common cooperation models. Let’s elaborate on them before addressing the more advanced and modernized classification. In some instances, we incorporate a hybrid cooperation model. 

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  • A: A constant factor that depends on local organizational practices and the software type being developed.
  • Size: Either an assessment of the software’s code size or a functionality estimate expressed in function or object points.
  • B: Refers to the challenge of the task, and its value is between 1 and 1.5.
  • M: A multiplier made by combining process, product, and development attributes, such as the requirements for the software and the development team's experience.

As a software's size increases, additional costs appear that are associated with the communication overhead of larger teams and other factors. This ties in with common difficulties of all algorithmic models:

  1. Estimating the Size is a challenge at an early stage in a project. It's easier to estimate the size of functions and objects than code size, but they are often still inaccurate. 
  2. The estimates of the factors contributing to B and M are subjective and can differ depending on an engineer’s background and experience with the system.


Despite challenges in the early stage of a project, companies use cost estimation algorithms and create a range of estimates (worst, expected, and best) that they can apply to their calculations. As the software process continues, more information becomes available to make the estimates more accurate.

Mad Devs' strategy

Mad Devs uses the Time & Material model to provide greater flexibility. In this arrangement, clients pay for the time our teams spend on their projects, and Mad Devs applies time tracking to both internal and external projects. With the Time & Material model, a project enjoys a stable monthly budget, while the scope and tasks can be reconsidered. The alternative—the fixed price model—is rigid, and any changes in the initial plans require revising the contract. In some cases, clients prefer the second approach, and our teams are happy to work with them. Click here to learn more about the differences in pricing models.

The basic formula is:

Formula of software development price.

The first essential element in the formula above is time. We include estimates of the whole product development process, including dealing with technical debt and real users' feedback when calculating it. 

The second element is the team. The team can consist of developers with different seniority levels (Junior, Middle, and Senior), which affects the rates. Our managers work to match our developers' expertise with a project to find the best balance that ensures both high quality and a reasonable price. Then, we explain the reasons for a team's composition in the proposal.

Stage 5: Proposal agreement and negotiation

The proposal that a client receives reflects all the information gathered in the previous steps. Still, it's essential to dedicate time to crafting the proposal and negotiating the details. The client needs to review the proposal and determine if it matches their short and long-term vision for the product. They should also see a clear estimation of the project's cost and duration. At Mad Devs, managers present the plan, after which the client can adjust it as needed. This may require multiple interactions and re-estimation, but the aim is to find a result that satisfies both parties.

A Mad Devs proposal breaks down the prices and includes the following sections:

  1. Project goals
  2. Project brief
  3. Detailed information on tasks
  4. Team composition
  5. High-level project roadmap
  6. Development plan and duration
  7. Cost procedure and quotation assumptions

Trusted IT partner

Mad Devs applies these approaches and techniques to build trust between team members and allow customers to see how much time and resources it will take to build a product. Mad Devs is focused on delivering value through software development that addresses end-users' wants and needs, which is one of the reasons why customers choose Mad Devs over other software development companies. Others include:

  • Expertise in long-term, stable, scalable, and complex products.
  • Transparency in organizational and development processes.
  • Value-oriented development. 
  • Commitment and determination to achieve project results. 


Proposals outline the optimal approach for a project, including the required time and resources. Then, Mad Devs gives clients visibility into our plans, processes, and calculations from start to finish during a project.

If you have questions or want to discover more details, get in touch with us.

Pricing Strategies in Custom Software Development.

Explore the chapters

2. Software Development Pricing Models Guide

2. Software Development Pricing Models Guide

Historically, organizations approached software development outsourcing as a black box where you throw away things you don't want to do. The field is changing as the emerging markets have proved to provide quality and shown the advantages of higher dollar purchasing power.With so much at stake, traditional outsourcing engagement models thus moved towards partnership models. So now, businesses increasingly outsource things they can't do.As a result, the emerging cooperation models have created numerous pricing models.However, once you start digging deeper with your research and evaluating IT contractors' proposals, you'll start to see not only the big difference in total cost but also the difference in pricing models used to calculate the cost.Ultimately, you may feel like companies are trying to take advantage of your lack of experience, and you can't identify a potential long-term partner.In this publication, Mad Devs Customer University addresses your puzzling questions about pricing models with clarity and transparency.Unfortunately, it can be hard to determine the exact cost of a software development project. Unlike building products from an assembly line, estimating the cost of a software development project involves taking into account various factors.1. Human resourcesThe number of people who are involved in the project will have a huge effect on the cost of the project. You will need to hire a team of developers if you are not outsourcing the project. The size of the team depends on how complex the project is and how experienced the individuals are.Your team's work environment will also affect how productive they are. Having a good working relationship with one another will help them become more efficient. There may be issues that they need to resolve, but the more projects they work on, the more they will be able to improve their efficiency.The ability of your team to avoid conflict and work efficiently will have a huge impact on the project's budget. Make sure that everyone on the team is qualified and has the necessary skills to carry out their duties. Overworking the team can cause them to waste time and make them more prone to errors.2. Project complexity & sizeThe complexity of a software application is also a factor that will affect the cost of the project. It can be very challenging to develop a complex program due to the number of steps and calculations that it requires.The size of the software that you're developing will also be influenced by the number of screens that will be built. Having too many screens will increase the cost of the project.3. Software functionalityOne of the most important factors that will affect the cost of a software project is the functionality of the application. Having too many features will increase the cost of the development. It can also take longer to build and test a large number of applications.4. Scope of workThe larger the scope of the project, the more expensive it will be. Although the project will likely have a fixed schedule and human resources, the scope can change over time. This is because constant stakeholder feedback will help determine the cost and the quality of the project.5. UX/UIThe cost of a custom design depends on the features and scope of the project. Having a well-designed and engaging user interface is very important for a successful software development project. The right mix of animations, visual elements, and unique navigation elements will keep your users coming back.6. IntegrationsAnother factor that can affect the cost of a software project is the integration of its features with other business applications. For example, having multiple third-party tools such as CRM will increase the cost of the project.7. MigrationDifferent migration techniques and the unique requirements of different storage vendors can also add to the complexity of the process. Having a customized approach is also important to ensure that the data that you're moving will fit seamlessly into another system.8. Extra expensesEven though you're paying for the software, you should also consider the additional costs that the service provider might charge. These costs might not be related to the developers' hourly rates. It can be necessary if the complexity of the project increases or there is technical debt.Aside from the hourly rate, there are also additional costs that the service provider might charge. These additional costs can pile up and add up to a huge bill.Some businesses will also require that they pay for the licenses that the developers will need to complete the project. Others will require that they pay for the infrastructure costs associated with buying or leasing software.Most people don't realize that there are also maintenance fees that are included in the cost of a software development project. These fees can range from minor repairs to security updates.So when we've covered the major factors that influence project cost, we can move to pricing models. It can be overwhelming to build software from scratch. Not only does it involve writing code, but it also involves various phases such as architecture, design, testing, and deployment.To avoid getting bogged down by the various steps involved in building a robust software solution, companies should keep in mind that there are various pricing models available. They should also be aware of the premium options that are available for their project.With pricing models, companies can easily understand what they are paying for and what benefits they will get from their projects. There are several types of pricing models that can help companies develop software: fixed price, custom software development, time and material, outstaffing, dedicated team, hybrid, milestone and gain-sharing model.Let's look closer at each of them.

How Developer Seniority Level Matters to Software Development Cost

3. How Developer Seniority Level Matters to Software Development Cost

In this article, Mad Devs Customer University addresses the main factor in the cost of software development: the software developer seniority level. The hourly rate of a top-level developer can be dramatically different from (sometimes even a few times higher than) the rate of an entry-level one. Here, we want to help you figure out what these levels are and how they affect the price.Picture it: you have a project in mind, but you have no idea what software developer qualifications are required for it. Some IT contractors offer you Senior developers (so the rate and the price immediately soar), and others suggest that Mid-level developers or Juniors will do just fine. How do you know what’s right? Your best interest is to make sure that the team working with you does not have underqualified or overqualified professionals in it. If they are overqualified, you’ll end up paying more than necessary. If they are underqualified, the development will take longer than it could, and you’ll end up, again, overpaying.The problem, however, is that the qualifications you’re interested in are not easily defined. The widespread hierarchy goes: Junior, Middle, Senior, Team Lead. But there are no universal criteria in the industry for who falls into which category. Each IT company has its own understanding of what knowledge, skills, competencies, and experience a developer must obtain to climb up this ladder.Therefore, we will look at the question of qualification from two angles. On the client side, when he/she needs a certain level of expertise. And from the developers' side, how the career ladder of Software engineer levels looks like.Let’s start with first part.

Top countries to outsource software development

4. Top Countries to Outsource Software Development

Mad Devs Customer University continues its series of publications about pricing strategies to help customers in the IT industry maximize benefits in their work with contractors. Here, we will address the issue that many customers are implicitly or explicitly concerned about: does it matter where your team of developers is from? If so, how will geography affect your work with the team? What regions to choose from?First, it's important to stress that geography matters, but it's not the number-one factor. We want to take it off the table right away: you can find the right team for your project or organization anywhere on the globe. Modern communication technologies have made it possible to reach talents anywhere. Companies are shifting away from the traditional rule book when it comes to hiring and managing development teams, as the rise of remote work has forced many to rethink their approach. Working with a remote team can be very easy, as more data protection and distance work software have emerged.However, in some regions, you may be more likely to find a team that fits you in terms of approaches and culture. Things to consider include:And one of the main points—don't overestimate the importance of your team's location. Let's elaborate on this.Assumption: countries with higher dollar purchasing power charge lower prices. In fact, it's not always the case. Skills and experience are more important, and a high-rate developer from a developing country can cost as much as a high-rate developer from a developed country.Why doesn't the developers' location play a major role in influencing the cost of the software? Is it fair to pay a developer from San Francisco the same amount as a developer from Vietnam?They can deliver the same quality of work, so everything's fair.Naturally, the towering leader in terms of senior developers' average salaries is the United States, but it in no way suggests that the work of developers from elsewhere will be necessarily cheaper or of poorer quality.Too many factors shape average salary: taxes, cost of living, and income level, to name a few.Conclusion: check the skills and experience ahead of the actual location or the legal address. (And if you still want to narrow down your search to the region, jump right into the middle of the article.)

Red Flags in Custom Software Development.

7. Top Common Pitfalls of Outsourcing Software Development

In the early days of the software industry, developers were working alone on their products for years. And one day, their products have taken over the market and made their creators rich and famous. Of course, this was deserved. But it is worth noting that this was not because their products were the best, but rather because they were unique at the time. However, the software industry was rapidly changing, becoming more extensive and complex. The competition was growing, and the struggle for users' attention becoming much fiercer. So the market became filled with better and better products and services. And we got more and more used to the constantly increasing quality and amount of them. Now we're not willing to compromise at all, knowing that we can always find something better. This is all possible because more professionals from different fields, not only technical, are getting involved in development. Now any competitive product is the combined work of developers, designers, analysts, marketers, and managers. This is just a short list of specialists who have found a new home in the software industry. For example, when Steve Jobs was creating the Macintosh, he even invited zoologists who understand the anatomy to help him find the best proportions for the future device that fit perfectly. But the more specialists are involved in software development, the more processes it includes, and the more difficult it is to manage them. And each process must be treated with special attention. Because each of them can be the main factor of success and failure of the future product, you need to know the pitfalls of software development in general, and particularly the main pitfalls of project management.At Mad Devs, for example, we pay individual attention to each process in development. From specifying goals and the most suitable means to achieve them to using the best design, development, testing, and support practices. And this careful attention makes our customers want to contact us again and again. After all, they can always trust transparency, flexibility, stability of development, and the high quality of the final product. You can see this by looking at any of our cases.

Software Development Cost Estimation at Mad Devs.

10. Software Development Cost Estimation at Mad Devs

Two factors determine the final price of a software development project: time and resources. Yet, companies and software developers encounter an enormous challenge in accurately estimating them. One common cause of these difficulties is a lack of communication between outsourcers and clients. Since every project is unique and requires individual components to bring it into existence, an effective exchange of information between outsourcers and clients is essential.In this part of its series on various topics related to the software development process, Customer University, Mad Devs' experts share the details of effective project estimation. Based on their extensive experience, the team has developed a 5-stage process that incorporates communication and exchange throughout the entire process.Mad Devs believes in building long-term relationships with clients, which requires a thorough understanding of each client's project requirements. It also means an honest assessment of our ability to perform the necessary work. Our managers check the available expertise within the company, the project scope, and whether Mad Devs has the necessary resources to fulfilling project commitments. If the knowledge and skills correspond to the initial requirements, Mad Devs proceeds to evaluate the customer's product vision.We have various customers who come to us for software development. Some of them are prepared with a clear vision and plan for their product, while others need assistance in forming the details. In both cases, our teams want to gain as much knowledge about the product as possible to deliver the most accurate estimates and service.Without precise product specifications and requirements, engineers may find themselves trapped in a cycle of re-development, which in turn delays the project's completion and extends its budget. Mad Devs wants to avoid a situation like this, and customers can use the following questions to better understand their expectations for a project. Even a small answer is better than nothing, and Mad Devs is ready to help clients work out the details of any ideas that lack clarity.