Great, you have an idea for an app project! You may be an existing business looking to launch a new app product, or you might be a startup founder that would like to set up a brand-new startup business where creating an app is critical to its success.
You want to work out whether your project is commercially viable, what it will cost to build your app idea, and what fees are involved in maintaining it.
This article covers how much an app typically costs to make, what influences that cost, how to be prepared before approaching a development agency, qualifying the cost of your idea with a ballpark, what planning achieves, how to prioritise your requirements and ways you can finance your idea and your operational costs.
Topics covered in this article:
- How much does it cost to build an app?
- What impacts the app build cost the most?
- How to get an accurate app development cost.
- How to decide what to build for "Phase One" (Optimise your app development budget)
- What are the ongoing costs of building an app?
- How to fund your app development project.
- Summary.
- Get a Free Quote.
How much does it cost to build an app?
The exact cost to build an app can vary significantly based on a wide range of factors, such as how many users the app should support, the depth of features or the level of admin reporting functions in the back end, to name a few.
The cost of your app build process is not just about the number of features you want to include, but how complex you make each of those features.
Do you want the cheap no-frills option of a feature to prove the concept, or do you need something exceptional and feature-rich from day one? There are potentially hundreds of areas of your project where you'll have to choose whether to buy a trusty-reliable family car that gets the job done, or whether you need to pull out all of the stops and get a Ferrari. Metaphorically speaking, of course!
The short answer; App projects are measured in tens of thousands of pounds (or dollars). And you may need to budget for more over the life of the app once it is in the market and you get feedback from real users the inevitably drives you to want to implement new features and improvements.
That may sound a lot of money, but it is relative to the project's value to you.
If you have an idea that you think will make you a million pounds in revenue over three years, then is a thirty to fifty thousand initial investment to build the first version that unrealistic? Probably not.
However, if you are building a twenty-thousand-pound app intending to make just ten or twenty thousand pounds a year from it, then you probably need to rethink your plans! Reviewing your plans doesn't mean you need to drop the idea altogether, but it may mean you need to give more thought about how you make money from your app (or save money) and how you finance building the subsequent phases. Both of these questions we will address later in this article.
What impacts the app build cost the most?
Though your provider may give you a single one-liner cost to build your app, this cost is based on the following factors:
- How long will it take to build (multiplied by the hourly rate)?
- What is the quality of the build (e.g. is there a testing process)
- What is the risk that an estimate could be more complicated than expected?
- What licence costs are there to pay?
Most development companies will charge per hour or day. They will chunk-up your project into deliverables, build a small amount of contingency depending on the level of risk (if you want a fixed-price quote), and then add any licence costs for the technology you are building upon, such as their in-house frameworks or tools.
If a company has its own frameworks and tools, then the licence cost to use these will typically be much lower than if you wanted to build all of this functionality from scratch. So though it may seem like licence fees are an additional cost, they save cost. Building up the intellectual property that adds value is why development companies will often focus on a specific niche market – they can build up a suite of reusable code that saves similar clients money. Scorchsoft is an excellent example of this focus where we don't just specialise in apps, we also have a lot of expertise in building Software as a Service (SaaS) and online portal projects.
You should expect that most of the cost to deliver your project will come from how many hours or days it takes to build your project.
Now, please put yourself in our shoes, the shoes of the development company.
Imagine running a business that cleans people's houses – I use this example as it's much easier to understand what is involved than building a tech product! A client calls you and asks how much it will cost to clean their house; they need simple cleaning services and live in a typical home.
How might you calculate a cost for this job?
You might consider how much it costs to clean a typical house, using this benchmark to influence what you charge the client.
This approach to quoting raises many questions:
- How deep does the clean need to be?
- How many rooms?
- What if there is a big difference in price depending on the level of cleaning required?
- Is there the requirement for housekeeping services, such as making the bed or taking out the bins?
- What size are the rooms;
- Are there any special decorative items that are hard to clean?
- Is the house occupied by a messy owner or a clean one?
You get the idea.
This analogy transfers to development. Let's pick a common feature – user accounts. If you want a user to sign-in to your platform, then the simplest way to implement this requirement is to store their email and encrypted password on the server, have a simple email address and password registration process, and that's it.
A more complex user account function might have login buttons for Apple, Facebook and Google, with two-factor authentication functionality for security purposes. Once logged in the user has a five-step onboarding process collecting more information, integrating with their phonebook so that the app can synchronise their contacts. Then, once logged in the user can update their profile information and see a score of how complete their account is.
You can see that one of these is a vastly more straightforward implementation that the other, with the second option likely to take ten times longer than the first to implement. So if you approach a development company with "I want user accounts", how are they to know how complex you need this requirement to be to estimate the cost correctly? They can try, but it may be off by some margin.
How to get an accurate app development cost
The process of arriving at a cost is going to be iterative. I would recommend the following steps:
1. Write a short scope first
A scope is an outline of what you would like to build for your project. You don't need to go into too much detail at this early stage of the process, as your ideas might change once you start collaborating with your chosen supplier. There will be time to write a full specification later.
This early scope may be useful enough if only half to one A4 page in length, it's essentially a mid-length email to put your ideas down in writing. You should be clear of your business objective, including the commercial outcomes you want to achieve and list the features or app outcomes you would like to achieve.
A simple scope contains the following sections:
Background - A brief description of the company, the problem that needs solving, and a couple of sentences describing what the project aims to achieve.
Target milestones and budget - What milestones do you want to achieve, when, and for what cost (if you already have an approximate budget). These are approximations at this stage as you have not yet planned the finer details.
Objectives - What outcomes would are you aiming to achieve. This can expand on what you raise in your background section.
Features/requirements - A bulleted list of everything that you believe is required in your project to meet your objectives. For example User login accounts, admin portal for administering data, online payment system accessible to end clients, etc.
It's completely fine for your scope to be in note-format at this stage. For now, focus on getting your ideas into writing in a way that makes the most sense to you.
2. Send your scope to an app development provider that you like
Your primary motive at this point is usually to get an idea of how much it will cost to build your project.
You can generally email suppliers via the information on their website, or a contact form. I would, of course, encourage you also to consider Scorchsoft for your project! (Get a free quote here).
We can deliver your innovative, technically complex project, using the latest web and mobile application development technologies. Scorchsoft develops online portals, applications, web apps, and mobile app projects. With a decade of experience working with hundreds of small, medium, and large enterprises, in a diverse range of sectors, we'd love to discover how we can apply our expertise to your project.
3. Have the short call with the supplier
It's unlikely that a supplier will provide you with a quote immediately after the first email you send. There are so many ways to implement each requirement in your scope, and different assumptions from the commissioning agency can result in wildly different prices.
Your supplier will want to talk to you and ask some questions before giving you their best estimate. From their perspective, the last thing they want to do is miss-quote and then expect to be held to that price later. You also don't want to receive a way-off quote and plan your project budgets based on incorrect data.
So expect them to request to schedule a phone call with you.
4. The supplier will provide a ballpark price
Some suppliers will give you this ballpark price immediately on the initial phone call. Though they may want to give your conversation more thought after the call, providing a ballpark cost on another call or via email, sometimes accompanied by a draft proposal.
When Scorchsoft speaks with prospective clients who want to work with us, we will always try and give an initial ballpark price on the first call if we can. We recognise that you need an indicative price to decide if the project is commercially viable or not.
However, we caveat such ballpark quotes with a disclaimer that any ballpark costs provided are based on our early assumptions, which might be wrong. The final price might end up different once the project is fully specified.
5. The supplier sends you a full proposal right away (NOT REALLY!)
Proceed with caution if your supplier sends you a full proposal after only speaking to you once on an initial phone call. Sending a proposal to early usually is a sign of inexperience. A short high-level proposal is fine.
If your development project is 500 hours of work, how can anyone put together an accurate proposal considering what is best for your business after a 30-minute call? They can't, and in my opinion, it's irresponsible to try. If just 20% of the assumptions they've made are incorrect, then that's potentially 100 hours of loss, rework, or missed expectations.
Projects of this scale require a properly conducted planning process. The exception to this rule is if your requirements are relatively simple, say within 80 hours to build and test. In this rare case, it may be possible for the supplier to send a proposal based on similar small projects that they have worked on in the past.
6. Arrange a planning/discovery process
Most development companies who are worth their salt will ask you to pay for a planning process of some kind before providing an itemised cost. Some may ask you to agree to the ballpark project cost and enter into a contract with them where planning is the first phase.
At Scorchsoft we split planning out from the main project and bill for it separately. Here is a short three-minute video on the process we follow:
Be cautious about engaging with suppliers who don't charge for planning as to do this properly will take several days, often weeks to complete. If someone is offering to do it for free, I would question how thorough their process will be.
Remember that changing your mind about how and what features to build in the planning phase is vastly cheaper than changing your mind half-way through the project development cycle. A stitch in time, indeed saves nine. Well, I think that a minute of planning time saves nine... days!
Ideally, you want the supplier who planned your project also to be the one who delivers it, as the process of planning aligns minds and makes sure everyone involved is ready and capable to complete the project. So if you have spoken to several suppliers at this point, then now is the time to pick which one you want to work with and proceed to the planning stage with that chosen supplier only.
You may have gone to the effort of writing much more detail in your plans than simple scope document, or have a full requirements specification (maybe accompanied with wireframes?). If this describes you, we would still recommend going through some form of planning, as this process is about challenging your assumptions and ensuring understanding as it is about creating the end plan and project documentation.
7. You'll receive your accurate quote
Once planning is complete, and your project is well defined, your chosen supplier should provide you with an itemised cost. Now you can pick which requirements you want to implement, and which you'll hold off on building to optimise your budget.
How to decide what to build for "Phase One" (Optimise your app development budget)
Now is time to decide what should go into your Minimum Viable Product (MVP). Prioritising you MVP is such an important topic that there are several books on the subject! We would recommend you check out "The Lean Startup" by Eric Reis.
In short, your minimum viable product is the smallest set of features that you can build, or actions to conduct, that you can begin to test that your assumptions are correct. The goal is to reduce waste, as you can create something smaller sooner, get it into the market, and see how users react. User feedback post-launch drives your business priorities. If you developed too large of a project too soon, then you may realise at this point that many of the features you created aren't crucial to the user. You may have better spent your development time building different features.
Once you have a vision of what you're MVP should look like, you can plot the features on an impact-effort matrix to help guide your decision of what should be included or delayed for later.
Here are some criteria that might help refine and filter your list.
- Will people use it regularly?
- How long will it take to develop?
- Will it need to be removed or replaced later?
- Does it add enough value?
- Does it support our business goals?
- Will people use it immediately, or in a few months?
- Is there a manual approach you can replace later?
- Is this the right time to launch this feature?
Each of the above criteria contributes to each feature's difficulty or the impact of each business requirement.
In this context, I use the term 'difficulty' more broadly to include all forms of business risk. If something takes longer to build, risks lots of redevelopment later, or costs a lot, it's considered more difficult.
The impact is a measure of how important the feature is towards meeting your business goals. If a feature helps you achieve a goal more quickly or in a more significant way, its impact is high.
The effort is a measure of the total cost required to deliver the feature. The effort might be measured in the amount of time to implement, the number of resources necessary to build or support the item, financial cost or the amount of risk it introduces to the business.
Here is an example of what an Impact-effort matrix might look. Each number on the impact-effort diagram represents a feature or strategy. Each items impact and effort score determines it's positioning on the matrix. In this example, you can see that item #2 is a low effort but delivers a high impact; therefore prioritise it over low impact, high effort items, such as item #3 below:
If something is high effort and low impact, then this should prioritise features that are high effort and low impact. You can create an impact effort matrix to help influence your initial Scope document. However, you may only be able to develop this matrix accurately once you have a quote from your chosen supplier, as a great measure of the effort is the design and development time.
What are the ongoing costs of building an app?
There are other costs you will need to consider when building a new app. If your app connects to the internet, you will need a server to store your app data, such as user accounts and other information. For small apps, this cost may be no more than hosting a simple website, between £25 and £100 per month, though these costs can grow to become a significant overhead if your app collects a lot of data.
The good news is that high server costs typically mean high app usage, so this can be an excellent problem to have providing you have designed your business plan so that more use means you are making more money.
You will also need a support and maintenance arrangement with your chosen supplier. If all you need is ad-hoc support and maintenance, then anywhere between 2 hours and 20 hours should be enough for most small to medium-sized apps, scaling up beyond this as app usage grows, and the amount of support and maintenance grows with it. Multiply this time by your provider's hourly rate to get an idea of the cost to implement this.
Though not appropriate for micro app projects, if you're a startup where the app is core to your business model, then there is a good chance that once you've launched your phase-one MVP that you will want to switch to an agile way of working. Agile involves setting a monthly budget to develop new features, with an agreed allocation of hours (or days) to go towards design, development, testing and project management. Though for an agile approach to working to be effective, you'll likely need to approve at least a week or two of time each month as a minimum for it to be worthwhile.
How to fund your app development project
The ideal way to raise money for your app project's ongoing development is to make the business as profitable as possible. The sooner you can get to profitability, the sooner you can re-invest revenues to develop your product and business further.
You may be interested in our article which covers different revenue models ideas for your app or portal project.
Though self-funding your app via organic revenue is not always possible, and some business models may see you making a loss for several years before you finally turn a profit.
Consider marketplace businesses, where your app connects the buyer and seller, facilitating a transaction. Examples of this nature of business are Amazon, Uber and Etsy. It is typical for such marketplaces to take three years to get going! I highly recommend that you read the excellent VersionOne guide to marketplaces if you consider launching an app business in this category.
If your business takes a long time to pull meaningful revenues, this doesn't mean that your business idea is terrible. Still, you will need to think very carefully about how you finance the company, and your app development, over this period.
Normally there are ways that you can re-think your business model to ensure you can fund your operations organically. But just in case, here are some common ways to finance app development projects to give you inspiration:
Existing business surplus profits
Unsurprisingly most of our clients are existing businesses that have an app idea to complement their existing operations. This characteristic allows them to use their current organisation profits to fund the new app project's development.
Personal savings or partnering
Many startup entrepreneurs will raise the capital to kick-off their app project by saving. Some client ear enough to save up the money to build their app, and some raise their funds by working additional hours.
Growing personal savings is the most accessible way to raise money, but it could take a long time to finish raising funds depending on the project's size. You can balance his long time-to-raise funds by partnering with others who believe in the idea and forming a founding team to split the financial risk and the workload.
Friends and family
As you might expect, these are people that you know and trust who might want to help you out by giving you some money to get you started. Besides building your savings, the family and friends approach is often the easiest way to raise money, but you need to be careful that they understand the risks as should your idea fail then you might never be able to repay them. And even if you can repay, then it might take several years.
Individual angel investors.
Angel investors are typically wealthy individuals looking to own a share in your business. Like any investor, they will want a return on their money, but often their motivations for investing can be their passion for entrepreneurship. Based on what I've seen from investors in the UK, most small individual angel investors have the appetite to invest £10,000 - £100,000 of their own money. You can find investors looking for investment opportunities larger than this, but those opportunities are rarer.
Many governments across the world have incentives to encourage investors to risk their money investing in startup businesses. For example, in the UK, a government scheme called the Startup Enterprise Investment Scheme (SEIS) allows investors to invest up to £100k per year in startup businesses (£50k per company) under the initiative, qualifying them for Capital Gains tax relief. This initiative means if an investor is due to pay capital gains tax on one of their investments, such as selling a property that has appreciated in value, then investing in one of these schemes can reduce their tax liability.
But it gets better, in a scenario where your idea fails, and they lose all of their investment they can offset even more of their capital gains tax as a result. At the time of writing the total relief if there is a total loss equates to 72.5%! This means should an investor (who has a large enough capital gains tax due) invest £100,000 under the scheme and lose it all, they can recover about 72.5% of that loss against their capital gains tax, meaning their real net loss is only £27,500. This write-off means investors can leverage £100,000 of capital for only £27,500 of real financial risk.
The most an investor can invest in a SEIS-eligible company in any given tax year is £100k, which is why most individual investors look to invest between £10k and £100k.
You can find connections to independent Angels in the UK via the UKBAA network.
Angel groups (syndicates)
Angel groups are where several angel investors get together to pool their funds. They usually do this to spread their investment across several startup businesses to reduce their risk of any one company failing.
The SEIS scheme also encourages investors to form a group, as the most that a single investor can invest per year under SEIS is £100k, but the most an eligible SEIS business can raise under the scheme is £150k. So, angel groups also benefit the company by raising a more considerable sum of money under the initiative.
In our experience, most local angel groups seem to look to invest between £50k - £300k. For amounts over £150k, they will generally combine SEIS with another similar scheme called EIS. I appreciate all of these different acronyms might be challenging to follow. I wouldn't get tied up with the jargon; it's not essential. All you need to focus on is that angels invest less than angel groups, and there are tax reasons why.
Venture capitalists (VC's)
VC's are more formal investment companies looking to invest in startups. They will typically inject much more cash than angels or an angel group, usually £300k - £1m. But! It's a big but: VC's are looking for companies that have the prospect of a substantial return on their investment. If you are looking to grow a company worth £50m+, then a VC might be interested, anything less than this vision and you will be lucky to hear back from them.
VC's are also much stricter on what they expect from you. When you raise money via this channel, you will have to agree to their strict terms and conditions. This give's VC's a great deal of power over you, and they can even fire you from running your own business if they feel you aren't performing.
So, though you can raise more money this way, it also has significant down-sides.
Crowd Funding
Crowdfunding is also smart for startups to raise money to fund a new business launch or ongoing operational costs. Crowdfunding involves creating marketing assets to promote the vision of your app, such as a video and other brand materials
Founders then create a campaign on a popular Crowdfunding platform to raise small amounts of investment from many investors that adds up to a much more considerable amount overall.
Popular crowdfunding platforms include Seedrs, UKCFA, CrowdCube, and CrowdFunder.
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This section is a very brief insight into the world of startup funding; you could write a book on this by itself. If you'd like to learn more about how to fund your idea, then I would recommend that you check out "The Startup Funding Book" by Nicolaj Nielsen.
But a word of warning, if you plan to involve investors in your project, can result in lots of paperwork and coordination. Fortunately, websites like SeedLegals vastly simplify this process, making it easier to arrange the paperwork and keep track of the percentages of equity that each investor owns in your business as you raise each round of funding.
Summary
Here is a TL;DR summary of this article:
- Apps cost tens of thousands of pounds to build.
- The cost varies based on the number of requirements and complexity.
- Write a short scope before approaching developers.
- Qualify the spirit of your idea by asking for a ballpark (but be aware that is a rough guess).
- Make sure you pick a supplier who has good planning processes.
- Pay for a separate planning process, and get an accurate itemised quote after.
- Prioritise your itemised quote with an impact effort matrix.
- Identify a financial plan that covers initial development plus ongoing operational costs.
Get a Free Quote
If you think this post has been helpful, are serious about your project, and like our approach's sound, please request a free quote. Our team will be in contact to arrange a call to give you a ballpark price or schedule our planning process to help make your project a success and work out an accurate itemised cost breakdown for you.
