How to Know if Your Software Developer is Overcharging You
When you're creating a core product or an app for your company, it's essential to hire experienced and reliable software developers to get the job done. However, if you've already started working with a software developer, it can be hard to know whether the amount they're charging you is reasonable or totally out of touch with reality.
One of the reasons it can be so hard to determine whether a developer's rate is fair is that the price range for development can vary enormously depending on the project's scale and the developer's experience. On top of that, the options of hiring a freelancer, an agency, or an in-house developer can make it even more difficult to figure out whether you're paying an acceptable rate.
While you want your digital product to be the best of the best, you also don't want to pay more than you need to for development. Let's take a look at how you can know if your software developer is overcharging you.
How Much Does It Cost to Hire a Software Developer?
How much it costs to hire a software developer can range greatly, depending on a number of different factors. It can be tempting to focus solely on hiring someone with the lowest hourly rate, but it's important to not tunnel-vision on this one aspect.
For example, it doesn't do you much good if a developer with a low hourly rate takes twice as long to finish a product as someone with a steeper rate that can do it in half the time. Higher rates typically (though not always) indicate that the developer has more experience. This means that they will likely be better able to deal with any of the thousands of little disasters that can crop up at any point during the process much more quickly than a less experienced developer.
If you only focus on the up-front and short-term costs of hiring a software developer, it could end up costing you more in the end. While keeping costs low is important, focusing on hiring the individual with the lowest hourly rate can mean that you are missing other important qualities that would produce the highest quality product in the shortest amount of time with the smallest amount of resources.
When you're searching for software developers, you can choose to hire an agency, a freelancer, or an individual to join your in-house team.
Equally important as understanding the cost of hiring a software developer is understanding how long it typically takes for a project to be completed. If you're dreaming up a web app for your company or as a product in its own right, you can learn more about how long it takes to build a web app here.
Hiring an Agency
There is a huge range in terms of pricing when it comes to hiring a software development agency.
Enterprise-class agencies generally work with Fortune 500 companies and governments to produce projects with budgets as high as $500,000-$1 million. These companies likely have hundreds, if not thousands, of in-house developers and freelancers in their network.
On the other side of the spectrum, small-class custom software development companies typically have between two and ten employees and often work with local small businesses, startups, and regional mid-sized organizations. It's common for small-class developers to work on projects that range from $10,000 to $500,000 and charge somewhere between $75 and $175 an hour.
In the middle are mid-market class software development companies. Usually working with small and medium-sized businesses, these companies often have somewhere between ten and one hundred employees. The projects they work on tend to range between $50,000 and $5 million, and the hourly rate is typically between $125 and $175 an hour.
Hiring a Freelancer
Hiring a freelance software developer can offer overall reduced costs compared to hiring an in-house team member and is appealing to many because of the flexibility and short-term commitment of the relationship.
You'll find that a freelance developer's skills, experience, and niche will usually reflect directly in their hourly rate. While it might be tempting to hire the developer with the cheapest hourly rate, it's possible that hiring a more experienced, faster-working developer will get the project done in fewer hours and ultimately be the more affordable option.
In North America, the hourly rate of hiring a freelancer generally ranges between $50 and $250 an hour. If you choose to outsource your software development needs to another country, you can pay even less to hire a freelancer. For example, the average cost of hiring a software developer in India ranges from $25 to $80 an hour.
It's worth understanding the potential downsides of focusing too much on saving money by hiring a freelancer, though. If you choose to hire someone in a different country, you can face issues having to do with the difference in time zones and cultural or language barriers.
How committed a freelancer is to your project can also be fairly hit or miss. In a worst-case scenario, a freelancer could completely stop responding to your emails or texts one day, disappearing with your code and leaving you to start over at square one.
For a more in-depth look at the cost of hiring a freelancer, check out our post about the average hourly rate of freelance software developers.
Hiring an In-House Team Member
Hiring an in-house team member is a more expensive approach to enlisting the skills of a software developer, but it can make sense in certain circumstances.
Not only do you have to pay an in-house team member a salary, but you also have to incur the expenses of:
- Hiring and onboarding
- Providing benefits
- Payroll costs
- Additional taxes
- Staff retention activities
- Providing a workplace
Hiring an in-house software developer can cost roughly $80,000-$200,000 a year, depending on your location and the specifics of the position.
How to Know if Your Software Developer Is Overcharging You
If you've hired a software developer and you feel like the price is a bit steep, you might worry that they're trying to pull the wool over your eyes. When you aren't an experienced software developer yourself, it can be hard to know what is "normal" when it comes to hourly rates and how many hours it takes to complete a project.
To figure out whether your software developer is overcharging you, you'll need to consider the baseline price and the supplementary attributes the developer brings to the table.
For a quick and easy way to get a ballpark sense of whether your software developer is overcharging you, you can request quotes from several different comparable developers and see if what your developer is charging you is reasonable within the same range.
For a more thorough analysis of whether you're being overcharged, let's take a look at the formula outlined in Ben Liebert's book How to Know If Your Software Developer Is Trying to Kill You.
Find the Baseline Price
When you strip away all the attributes and characteristics of the specific developer you're working with, you're left with the baseline price.
Basically, you'll want to conduct an online search for developers that:
- Work in the same country as the developer you hired
- Build software using the language and platform you chose
- Quote prices based on similar services to those you hired your developer for
Now it's time to pick up the phone (or fill in online quote request forms) and call some software developers to grab quotes for the project you're working on. When you've collected several, take the two highest quotes and average them. Then, take this number and halve it. This is the baseline price we will begin with.
Consider Additional Attributes
Next, it's time to look at the attributes that are specific to your developer to find a reasonable price.
Experience
The first element we'll want to look at is experience. Developers with more experience will charge a higher hourly rate, but that doesn't necessarily mean you will incur a higher overall cost. This is because experienced developers will build your software more quickly and with fewer bugs, as well as the fact that they will be more likely to make design choices that save you money down the road when you expand your system.
For every year of experience a software developer has, you can add 2% of the baseline price up to a maximum of 20%.
Reputation
The next aspect is reputation. The better reputation a software developer has, the more they will charge. Finding a software developer with a solid reputation can help give you peace of mind that they can and will do what they agree to do.
If you can't find anything about the developers you hired online, don't add anything to the baseline price. If you hired them thanks to a word-of-mouth recommendation, add 10% to the baseline price.
If more than 80% of the feedback you find online about the developers is positive, add 20% to the baseline. Lastly, you can add 30% to the baseline price if more than 80% of the feedback is positive and you know and trust the people (or companies) that offered positive reviews.
Staff, Office, and Overheads
There are benefits to having a number of developers working on your project, including potential cost savings. However, hiring a team rather than an individual developer means that the hourly rate will likely be higher.
For an independent contractor that works alone, don't add anything to the baseline price. For companies with less than five people on staff, add 10%. Add 15% to the baseline price if there are five or more people on staff at the agency.
If your developer works from a home office, add 5% to the baseline. For a team with a modest office, you can add 10%, while a super snazzy office means you should add 20%.
Additional Factors
Additional important factors will influence how smoothly the development process goes and how low you can keep your costs. These include communication and responsiveness. For example, the value of a developer that charges an extremely low hourly rate is significantly reduced if you can't reliably get in touch with them when needed.
Based on your interactions with the developer, you can add anywhere from 0% to 15% to the baseline price.
Once you have made your final tally, you can look at whether your assessment of how much the developer should be charging based on the baseline and additional attributes lines up with how much the developer is actually charging you.
Additional Tips
When you're trying to determine if your software developer is overcharging you, there are a few more factors you'll want to keep in mind.
Firstly, you'll want to know the potential for price escalation. Some developers will give you an initial low price with the expectation that they can increase these rates over time as they become more involved in your project.
Second, it can be a good idea to ask your developer for a breakdown of how their time is spent if they are charging by the hour. It's common for developers to use time-tracking apps, so this isn't an unusual request. However, it can be best to ask for this information at the beginning of the relationship.
Third, if you're offering 'sweat equity' as partial payment for development services (i.e., paying developers in interest or shares in your company), it's important to consider the drawbacks of this route. For example, they might tend to prioritize other clients that are paying full price upfront. Additionally, the more invested they are, the more they may want to have a say in how the product unfolds. Sweat equity as payment can also become an issue if you replace the developer down the road.
Are You Ready to Turn Your Software Idea Into Reality?
Choosing a software developer to turn your idea into a reality is a huge decision, and there are a lot more considerations to keep in mind than cost alone. At the same time, the last thing you want is to learn that you hired a developer that is overcharging you compared to other developers with similar experience and skills.
At Planetary, we follow three basic rules when working with our clients, whether they're a startup or a Fortune 500 company. These are:
- The user comes first
- Foundation over fads
- Collaborate early and often
Through the application of these principles, we've been able to create the highest-quality products that achieve the goals of both the customer and the company.
It's possible that we're the partners you've been looking for to help you create your next app or digital product. Drop us a line today and tell us about your project.