Understanding custom software costs is challenging. Businesses and you, the people running them, understand the importance of software and the role it plays in operations. Understanding the Total Cost of Ownership (TCO), however, is notably complex by comparison.
To truly understand overall costs, it's essential to calculate TCO, which includes identifying the long-term value and benefits the software will provide. The key question is, “Does the value justify the costs?”
Does your custom software set you up for success?
According to this 2025 report, the cost of developing a medium complexity app ranges from $50,000 – $120,000 USD. This price can vary greatly depending on the complexity of the software and the use cases driving it. Yet, it’s not uncommon for organizations to start the app development process with no idea of the total cost!
Our process for calculating the Total Cost of Ownership of developing custom software assets is a dependable, repeatable way to predict cost-effectiveness. The TCO directly impacts the return on your investment because it determines the profitability of a project over a stable, realistic period of time. To calculate the ROI correctly, however, you must first determine the TCO.
Do you want confidence that your “big idea” is worth the investment? We sure hope so! We believe you absolutely need this certainty to empower your business to unlock scalable growth. When it comes to mitigating risk in this development process, we also believe that using a consistent, calculated process is the only sensible option!
Seeking the aid of a professional software development companyis a prudent way to ensure custom software costs are balanced effectively. We at Red Hawk Technologies specialize in this process, and it’s part of what makes us unique. Specifically, your costs are calculated and allocated properly within the scope of your budget and timeline. Other vendors might not prioritize beyond the current tasks or projects. Only long-term, progressive partnerships can help you reach the lowest costs and highest returns from custom software development.
Has your business reached a point of maturity where growth is slowing, and you need “something more”? If you need to scale up and streamline operations, but you’re not large enough to have full-time software development teams—not to mention product, project, and support staff—then enlisting the aid of custom software developerscan provide your competitive edge. Before you dive into the work, however, you should first examine the total cost.
How do you calculate TCO for custom software?
Calculating the Total Cost of Ownership (TCO) for custom software development is a difficult, complex process. However, by applying it consistently and methodically, you can produce dependable results. Most of all, it can help you avoid unwanted, unexpected complications!
For example, a crucial—yet often ignored—aspect that impacts the TCO is planning for long-term maintainability. This includes factors like well-documented code, automated testing, planning for scalability, and mitigating technical debt. While initial development might appear cheaper, neglecting these essentials leads to significantly higher, long-term expenses for support, bug fixes, onboarding, and adapting to changing business needs. Overlooking post-launch needs like monitoring, security updates, and infrastructure costs—think cloud services like Azure, AWS, and GCP—can result in unexpected expenses surfacing later!
Addressing these elements early ensures software is not only functional, but also cost-effective and adaptable in the long run.
What Data Is Required to Calculate the Total Cost of Ownership for Custom Software?
Here's a breakdown of what's involved in calculating TCO for a custom software application:
Calculating TCO for Custom Software
The general formula to calculate your TCO:
It's crucial to:
- Define the timeframe:Typically 3-7 years for custom software.
- Be realistic about maintenance: Custom software often requires a higher percentage of its initial development cost for annual maintenance (e.g., 15-30% of the initial development cost per year) compared to off-the-shelf solutions.
- Account for future enhancements: Budget for ongoing feature development and improvements.
- Involve all stakeholders: Get input from IT, business users, finance, and leadership to ensure all relevant costs are identified.
- Document everything: Keep detailed records of all costs associated with the custom software throughout its lifecycle.
By taking this holistic approach, organizations can gain a far more accurate understanding of the true investment required for a custom software application, allowing for better budgeting, resource allocation, and strategic decision-making.
Remember: Neglecting to account for potential future costs doesn’t mitigate them in any real way, it just makes them more likely to be unexpected!
Determine total cost of ownership with Red Hawk Technologies
With Red Hawk, you can expect due diligence to arrive at a reasonable, “order of magnitude” estimate. We generate a forecast based on what you know today. We adjust that forecast based on the understanding that priorities and outside influences will require you to adjust as you develop the custom software. Don’t move forward with development if you’re expecting a one-time investment. That’s not how determining the total cost of ownership works!
Get help calculating TCO for custom software, the Red Hawk Technologies way!
FAQ: Understanding the Total Cost of Ownership for Custom Software
The Total Cost of Ownership (TCO) for custom software represents the complete financial outlay associated with a software solution from its inception to its retirement. Unlike simply looking at the initial development or purchase price, TCO provides a holistic view. It encompasses all direct and indirect expenses, including upfront development, ongoing maintenance, necessary upgrades, user training, infrastructure, and even the internal time your team dedicates to managing and utilizing the software. By thoroughly calculating the TCO for custom software, you gain a realistic and comprehensive understanding of the true investment required, enabling more informed decision-making and preventing costly surprises down the road.
Clarify and Define YourBig Idea
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