The cost of an IT product: from idea to market entry
web/mobile development
This article offers a comprehensive analysis based on real-world experience and facts, helping you understand the Total Cost of Ownership (TCO) of an IT product.
Full Cost of Ownership includes not only direct development costs but also ongoing expenses such as maintenance, upgrades, staff training, and even downtime-related losses. Understanding TCO allows for more accurate budget planning and ROI estimation.
Maxim Belyakov
founder of Sailet and author of the article
Development phases and their impact on the cost
The first stage, where product requirements are formed, involves market analysis and competitor research. Expenses depend on the depth of investigation, but skimping here can lead to costly mistakes later on.
1. Research and planning
Creating a UX/UI design and prototype for a product entails investing in creative resources and tools. The cost can vary from a few thousand to tens of thousands of dollars depending on the complexity and uniqueness of the project.
2. Design and prototyping
The most expensive phase, where costs depend on chosen technologies, platforms, functional complexity, and geographical location of developers, ranges from $10K to millions of dollars.
3. Development
Quality testing is crucial for product stability. Costs depend on testing methodologies and product scope.
4. Testing and launch
Ongoing support, bug fixes, and releasing updates demand continuous investment, ranging from 10% to 50% of the initial development cost annually.
5. Support and updates
Product gradation by scale and cost
For a Minimum Viable Product (MVP), the cost can start at $20,000. This allows for a quick market entry and idea validation.
1. Startups and MVPs
Products for mid-sized businesses involve more complex integration and functionality, increasing costs to $100,000-$300,000.
2. Medium-sized businesses
Large-scale projects with high levels of customization and integration can cost anywhere from $500,000 to several million dollars.
3. Large corporate solutions
Examples of calculations and estimates
- Cost: $2,000 — $10,000
- Optimization: Leveraging open-source research and market analytics can lower costs.
1. Research and planning:
- Cost: $5,000 — $20,000
- Optimization: Using pre-built design systems and UX/UI templates can reduce development time and cost.
2. Design and prototyping
- Cost: $10,000 — $250,000+
- Optimization: Choosing flexible and scalable technologies can reduce costs.
3. Development
- Cost: $5,000 — $15,000
- Optimization: Automated testing and leveraging cloud-based test environments can reduce costs.
4. Testing and launch
- Annual Cost: 10-50% of the initial development cost
- Optimization: Implementing a feedback system from users to prioritize and manage updates efficiently.
5. Support and updates
Practical tips on optimization
- Minimizing functionality for MVP: Focus on key features that solve the user's main problem.
- Choosing technology: Cross-platform solutions (e.g., React Native for mobile apps) can significantly reduce development time and cost.
- Cloud solutions: Utilizing cloud services for hosting, testing, and deploying applications can cut infrastructure costs.
- Continuous optimization: Regular user feedback and analysis can help streamline functionality and reduce maintenance costs.
To illustrate the total cost of owning an IT product from conception to three years of life, let's consider a typical medium-sized project. These calculations are approximate and can fluctuate depending on project complexity, geographic location, and chosen technologies.
- Project type: Medium-business project
- Initial development: $100,000
- Annual maintenance and upgrade costs: 20% of the initial development cost
- Additional expenses (marketing, training, infrastructure): $20,000 per year
Initial data:
Initial development:
Research and planning: $5,000
Design and prototyping: $15,000
Development: $ 70,000
Testing and launch: $10,000
Total: $ 100,000
Annual costs for support and updates (20% of the development cost):
Year 1: $ 20,000
Year 2: $ 20,000
Year 3: $ 20,000
Total for 3 years: $ 60,000
Additional costs for 3 years:
Marketing, training, infrastructure: $ 20,000 * 3 = $ 60,000
Total total cost of ownership for 3 years:
Initial development: $ 100,000
Support and updates for 3 years: $ 60,000
Additional costs for 3 years: $ 60,000
Total: $220,000
Research and planning: $5,000
Design and prototyping: $15,000
Development: $ 70,000
Testing and launch: $10,000
Total: $ 100,000
Annual costs for support and updates (20% of the development cost):
Year 1: $ 20,000
Year 2: $ 20,000
Year 3: $ 20,000
Total for 3 years: $ 60,000
Additional costs for 3 years:
Marketing, training, infrastructure: $ 20,000 * 3 = $ 60,000
Total total cost of ownership for 3 years:
Initial development: $ 100,000
Support and updates for 3 years: $ 60,000
Additional costs for 3 years: $ 60,000
Total: $220,000
Calculations:
Conclusion
These calculations and tips serve as a general guide to understanding and managing the total cost of owning an IT product over the first three years. Although every project is unique, it's crucial to tailor these strategies to match your business's specific needs and goals.
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