What influences the MVP costs?
Since the MVP development cost varies depending on a large number of components, prices will differ based on the specialists you contact. The main factors affecting the price are:
- amount of work;
- type of development team;
- hourly rate;
- contractual obligations.
Amount of work
The work scope is a key factor in determining the MVP cost since this aspect covers the core functionality of the application. Besides, it is also necessary to analyze the difficulty of implementing an app as well as the need to use specific features.
Calculating the potential amount of work can cover development stages as well as tasks that are not directly related to the coding process. Usually, they relate to the Project Discovery stage.
How to calculate the cost of MVP development startups?
- Estimation of time required for project implementation (in hours).
- Multiplication of time by the hourly pay for the team.
- So, now you know the cost of MVP product development!
Type of development group: In-House vs Outsourced
Nowadays, both in-house or outsourced options are equally common.
The in-house approach implies having a development team within the company for direct management and task fulfillment. Besides, this approach implies work, not for a short-term project, but the global goals of the company, meaning the "employer-employee" rather than the "customer-executor" relationship model. Typically, this approach requires higher costs.
Outsourced teams are cheaper. This approach means cooperation with an independent team externally. Among other things, you also do not need to spend a lot of time searching for a similar team by yourself.
Of course, if you have a technical background, you may consider establishing a personal development team in preparation for scale-up. Anyway, it is useless at the MVP stage.
Now let's analyze the team's impact on the MVP product development cost!
In-house Developers
Outsourced Developers
Monthly salary - year + long contracts
Taxes
Sick and vacation payments
Office rent and equipment purchase
Insurance
Services provided by a third party
Project management
Hourly rate for the development team
Services provided by a third party
We have mentioned the hourly rates of hired developers so many times for a special reason. Further, we will explain how the hourly rate for developing the same programs can start from $15 and even exceed $150.
Hourly rate
Hourly rate format is very advantageous because payment is based on actual work. However, what affects the diversity of pricing policies? We suppose that it's all about the geographical location and qualification level of developers!
Geolocation
It may be surprising, but sometimes the team location affects the level of payment even more than the qualification or other aspects. The reason is that $50 in the USA, Poland, and Taiwan mean different options for the population considering the living standards of a country.
Therefore, the monthly income of a Belarusian developer with a rate of $35 per hour will exceed the minimum wage of his country approximately 7.5 times. A developer from New York at the same rate will receive just $200 more than the minimum wage. To achieve the 7.5 times superiority as a Belarusian developer, an American must earn at least $250 per hour.
In other words, the monthly salary of an American developer is equal for a Belarusian developer for at least half of the year.
Average hourly rates in different countries (image by EasternPeak)
According to Qubit Labs, the average hourly pay of developers depending on the region is approximately this:
- Western Europe - $110-200;
- Eastern Europe - $20-50;
- North America - $150-230;
- South America - $30-50;
- Africa - $20-40;
- Australia - $100-180;
- Asia - $15-40.
Qualification level of developers
The experience and skills of the development team also affect the amount of money they earn. As a rule, developers are divided into 3 groups depending on the amount of experience:
- Juniors (up to 1 year).
- Middle (from 1 to 5 years) - the best option regarding the ratio of cost to result.
- Senior (no less than 5 years).
Also, the necessity of special experience or skills may influence the payment amount.
Contractual obligations
Contractual obligations are another important component of MVP costs. The most common type of contract for hiring a development team is the Time and Material Contract, which implies actual payment per hour. Here are a few advantages of this approach:
- It provides flexibility for the project - you can make corrections even after the work starts.
- It is the minimum possible cost of paying for a quality MVP development startups because it follows the principles of actual payment of a pre-agreed amount.
There are also alternative types of contracts. For example, a Fixed Price Contract. We do not use these types of agreements because they have such disadvantages as the necessity of prior precise scoping and a list of developer responsibilities. Such an approach complicates making adjustments during project development.
Also, according to our estimates, the overpayment under such a contract is very often about 15-40% of the total contract value. This is another reason why we do not use FPC!
