By Ken Yarmosh
Factors to Consider When Pricing App Development
Costs obviously vary. For example, there’s a significant difference between engaging a freelancer, offshore development team, or an agency. Similarly, having an app that requires a back-end server built or APIs integrated versus one that is completely standalone can differ drastically.
Because costs can vary, I’m going to approach the answer to this question several ways. First, I’m going to highlight what some of the smartest venture capitalists today believe are the necessary amounts of money to raise for a new venture. Many startups today are either exclusively or heavily app-focused. While the VC data points are for “big ideas,” these types of budgets are instructive to addressing the cost question.
Secondly, and somewhat related, I’m going to highlight either the known costs or the actual funding raised for well-known apps or app-focused companies. While that’s arguably informed investor perspectives, seeing the actual dollars required to build an app like Instagram, for example, makes the first category somewhat more tangible.
Lastly, I’ll use data from what we’ve seen in the last year. Lumped into this category will be anecdotal data from what I know or have heard similar firms charge.
What I will not address, however, are the costs for working with freelancers or offshore companies. Even five years later, my $10,000 demarcation point is useful. If you have less than that, you will most assuredly not be able to work with a reputable firm.
App Development Costs for Startups
Jason Calacanis recently had a great post outlining the amount of money startups should raise in their first round of funding. The total first round raise for 18 months he suggested is $750,000. That’s not necessarily how much an app has to cost though (although some apps do, especially over their lifetime).
The $750,000 includes $120,000 of operational dollars for legal, accounting, and comparable fees. He further breaks down the remaining $630,000 as follows: $35,000 per month for a team of four, which I would consider a very standard team size for building an app. The timeline to build a v1.0 app is usually anywhere between 4-6 months. So taking that monthly spend and multiplying it times that timeline, we have our first answer: a v1.0 app should cost anywhere between $140,000 to $210,000.
To back up Jason’s perspective, Manu Kumar outlined what he believe is the new “pre-seed” round last April. He suggested ~$500,000 should be “used for building team and initial product/prototype.” Using a similar breakdown to Jason’s for operational dollars (around 16%), runway (18 months), the monthly product budget would be $23,333.33. Even in this example, a v1.0 for 4-6 months would come out to $90,000 to $140,000.
Keep in mind, that Manu described that first round as “pre-seed.” If you consider his seed funding amount of ~$2M, the numbers go up significantly. Compare Snapchat’s seed round in 2012 at $485,000 to Yo’s $1,500,000 in 2014 and you can see there’s data to support a seed round starting in the seven figure range in 2015. For another data point, Fred Wilson recently had a detailed writeup on USV’s seed investments.
Twitterific, Instagram, and Uber
Craig Hockenberry penned an influential StackOverflow answer in 2010 on how much it would cost to build Twitterrific. The answer was $250,000 on both the iPhone and iPad. Admittedly that was the opportunity cost since Twitterrific is built by Iconfactory in-house. While that was on two form factors, includes heavy API consumption, and an involved interface, as he noted, it did not include a server element.
With advancements since then, relying on backend-as-a-service providers like Parse or Firebase, makes adding in a server component more efficient. Still, any server-related development time drives up cost considerably.
Like Craig, I regularly point prospective customers to Instagram’s initial launch and funding. They’re a great example of an app that is much more than software that’s installed on a smartphone with a robust back-end server. That initial $500,000 funding did not include budget for Android either (more on that later).
One of the most popular requests we had in 2014 was to create an Uber clone. Those emails went straight to the trash. Uber’s initial funding was for $1,500,000 (Seed plus Angel), with another much higher follow-on round. There’s clearly a heavy server element again and that’s an important point: most apps require a server behind the scenes to operate.
With this survey, we have another answer: apps that are built for a smartphone and tablet, that have a complex user interface, or that require a significant backend can cost anywhere from $250,000 to $1,500,000.
Comparing App Development Cost: Small Shops vs. Agencies vs the “Big Boys”
Some of the largest app-focused firms, the “big boys” if you will, won’t give you the time of day if your budget is not at least $500,000. I’ve heard prospects tell me they were given quotes for $900,000 or more and those were just ballpark estimates provided within a quick, 15-minute discovery call.
A somewhat typical budget for a v1.0 buildout in 2014 was just around $150,000. The total spend per customer was often higher than that because our customers continue to have us design and develop new features, month after month. All of those apps are either integrated with an API or required a server to be built. We see very few apps that are actually standalone. In 2014, we built zero standalone apps. In 2013, we built 2-3.
As shown above, we’re not the highest in industry by far. We do try to make referrals to peers who are smaller than us, that we know do great work. Because of their size, they may be able to do similar work for 40%-60% the cost.
So, with this last category completed, we have yet another answer:
Apps built by the largest app companies, the “big boys”, likely cost anywhere between $500,000 to $1,000,000.
Apps built by agencies ours cost anywhere between $150,000 to $450,000.
Apps built by smaller shops, possibly with only 2-3 people, likely cost anywhere between $50,000 to $100,000.
Considering the Cost of Less Complex Apps
Even apps without any server component or API integration can be complex and challenging. We’ve built standalone apps for six figures. We’ve also built apps that integrate with an API for five figures.
It really comes down to the specific feature set of the app. As a rule of thumb though, you can probably take some of the numbers above and cut them in half to understand the cost of apps without a server or API component being involved. To get a quality app with any professional firm, you’re still usually starting around $25,000 or so.
The Android Tax (or Why Android Apps Cost More to Develop)
I’ve largely been platform-agnostic in this post. Even with all the advancements over the last several years, especially on the design side, Android apps are still much harder to build. Anecdotally, our experience is that Android apps take 2-3x longer than iOS apps. Steve Cheney, now at Estimote, had similar findings in late 2013. For this reason, the typical approach is still to start with iOS and then move to Android
More Than Apps
Remember that the cost to bring an app to market go beyond a simple v1.0 budget. The costs are much more than the initial, UX, design, development, or project management dollars. There will be at a minimum budget required for ongoing updates and potentially, some server costs.
If you’re really going to give your app—and yourself—a chance, other considerations need to be made. You have to pay yourself, evaluate the cost for support time (if you’re doing that yourself), consider any hard costs for marketing and advertising, and comparable items. These other costs are part of what Jason included in his total suggested first year raise. If you’re an existing company hiring an outside firm to build an app, these costs are likely accounted for already. If you’re an individual or early-stage venture, just ensure you include those costs to truly evaluate the bottom-line for bringing an app to market.