How Do You Budget For Your Software Product?

As the leader of a startup or a business team at a technology company, you must be able to understand how much it costs to build a particular piece of software. However, this is easier said than done. If you do not have significant prior experience budgeting for software development, this process can be particularly challenging. Find in this article key factors to set your budget.


When budgeting, you may find yourself wondering where the best place to begin is. In addition, you may be confused about how to accurately keep track of and estimate the numerous variables that can influence the cost of product development.

Here are some important factors you should consider if you would like to set a realistic and effective budget for your software product and avoid some common pitfalls.

Set a Realistic Budget

As a leader, you will be responsible for setting, managing, and overseeing a number of software development product budgets. In the process of thinking about how to set a budget, keep in mind that your projections must be realistic. If they are not, you will find that you shoot over your limits very quickly, or are woefully under target, in which case you could have allocated valuable resources to improving aspects of your product and teams.

If you are not sure where to begin, a helpful place to start is to ask yourself how much of your stated vision can be transformed into operational software with the budget you already have. This will help you identify what deliverables and timelines are realistic. 

Take advantage of the agile development framework

The agile development framework allows for companies to test and validate early stage ideas in the market by using cross-functional teams and incremental workcycles. This methodology also helps you conserve resources. When you are testing out proposals and early stage ideas using the agile development approach, you can dedicate a limited amount of resources to these projects. If and once they are validated, you can then allocate a greater amount of resources to these ideas and features. In addition, as you develop your budget, you should also ensure that you are borrowing from the agile development framework’s collaborative and cross-functional structure. This means that you should be soliciting input from a cross-functional range of teams and individuals so that you can acquire a comprehensive understanding of budgetary needs and capabilities.

Use the “man-hours” metric sparingly: Although many businesses use the “man-hours” metric as a key measure when budgeting, it is important to recognize that software engineering is an art. As a result, the level of productivity between software engineers will vary significantly depending on the individual’s skills and experience and depending on the task. It is therefore important that you use the “man-hours” metric sparingly, and do not rely on it as a core metric when creating your budget for your software product.

Be cognizant of cloud-related costs

Previously, most companies stored and executed their software assets on computer servers in a datacenter, which required a significant amount of capital expenses. Today, most companies engage in software development in the cloud using services such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud. These cloud service providers enable developers to develop, modify, and execute “virtual” storage and processing power rapidly. They also allow for companies to reduce their administrative requirements and operational risk. A number of these service providers allow their clients to pay for their services as they use it. While this can help save money, it also makes monthly budgeting for computing infrastructure challenging. The best way to address this problem is to set a monthly budget for computing infrastructure at the beginning of your project, and ask your teams to evaluate whether this budget is feasible. As you create and implement this budget, be cognizant of additional charges or fees for services that you may not need, as well as free resources and services that you may have access to when you initially begin working with a provider. Most large cloud service providers recognize how frustrating budgeting for cloud infrastructure services can be and offer a suite of helpful resources and advice to help you identify the ideal configuration for your organization.

Consider the function and structure of your teams

As you think through your software product development budget, you may find that your organization is lacking individuals with certain skills or experiences. Integrating such individuals into your organization can be tricky, especially if you do not have immediate access to them or if you do not have the budget for these new team members. In such situations, you could consider using remote employees, including ones who are outsource, off-shore, or near-shore employees. Typically, working with such employees is straightforward in terms of budget. You will approach a coordinating provider with a budget and the tasks you would like completed and they will identify and coordinate remote employees who can help you achieve these goals within your stated budget. Research has indicated the location of a team or team member has no significant influence on the quality or nature of outcomes. However, if you do turn to this option, you must ensure that you are able to effectively manage a remote team.

Account for technical debt

Technical debt is related to software functions that have yet to be optimized and refined and that will at some point need to be revisited. As you think through your software product development budget, you must consider the costs associated with getting the software product right the first time around compared to returning to the product later to fix certain issues. Technical debt can be created accidentally or deliberately, and generally technical debt arises once you begin making architectural decisions. It is important to recognize that all projects have technical debt, and that not all technical debt is bad. As you think through your software product budget, do your best to account for technical debt-related costs. 

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