How to Budget for a Software Project When You Have No Idea What It Should Cost

You have a business idea. You know it needs software. You have no clue what that software should cost. You Google it and find answers ranging from "you can build it for $5,000 on Fiverr" to "enterprise solutions start at $500,000." Neither of those helps. What you need is a framework - a way to think about software budgeting that gets you to a realistic number without requiring a computer science degree. This article gives you that framework.

Budgeting for software starts with outcomes, not feature lists.

We have worked with dozens of non-technical founders who started exactly where you are. The ones who budgeted successfully followed a consistent pattern. They started with the business outcome, worked backward to the minimum product needed to achieve that outcome, and then allocated budget across categories with built-in flexibility. Here is how to do the same thing.

Step 1 - Start With the Outcome, Not the Features

Most people start budgeting by listing features: "I need user accounts, a dashboard, payment processing, notifications, an admin panel, reporting..." Then they send that list to five agencies and get five wildly different quotes because each one interprets the list differently.

Start with the outcome instead. What does your software need to accomplish in its first 6 months to justify the investment? Be specific. "We need to process 200 customer orders per day with 50% less manual work than our current spreadsheet system" is a useful starting point. "We need a platform" is not.

The outcome defines the scope. If the goal is 200 orders per day, you do not need a system that scales to 50,000. If the goal is replacing a spreadsheet, you do not need a complex analytics engine on day one. Every feature should connect directly to the 6-month outcome. If it does not, it goes on the "later" list.

Step 2 - Categorize Features Into Must, Should, and Could

Once you have your outcome defined, list every feature you think you need and sort them into three buckets.

• Must have - the product literally cannot function without these. For an e-commerce platform: product catalog, cart, checkout, payment processing. Without any one of these, the product does not work.
• Should have - important for a good experience but the product works without them at launch. For e-commerce: saved payment methods, order history, product reviews, wishlist.
• Could have - nice additions that can wait for version 2. For e-commerce: AI-powered recommendations, loyalty program, advanced analytics dashboard.

Your initial budget should cover all of the "must haves" and roughly half of the "should haves." The remaining should-haves and all the could-haves go into Phase 2, which you fund from revenue or the next investment round. This approach typically reduces the initial budget by 40-60% compared to building everything at once.

Step 3 - Use the Budget Allocation Framework

Once you have a rough scope, allocate your total budget across four categories. This ratio comes from analyzing cost breakdowns across hundreds of successful projects and it holds remarkably well regardless of project size.

• 60% - Development (frontend, backend, infrastructure, deployment)
• 15% - Design (UX research, wireframes, UI design, prototyping)
• 15% - Quality assurance (testing, bug fixes, performance optimization)
• 10% - Buffer (scope changes, unexpected complexity, integration issues)

If your total budget is $80,000, that means $48K for development, $12K for design, $12K for QA, and $8K as a contingency. If an agency quotes you $80K for development alone and does not mention design or QA separately, ask where those costs are. They are either hidden in the development number (meaning development is actually $55-60K) or they are not included at all (which is a red flag).

Why 10% Buffer Is Non-Negotiable

In our experience, 85% of projects encounter at least one significant unexpected issue - a third-party API that works differently than documented, a performance bottleneck that requires architectural changes, or a compliance requirement that surfaces mid-project. Without a buffer, these issues force you to cut features or go over budget. A 10% buffer absorbs most surprises without the stress of emergency fundraising or scope crisis.

The 60/15/15/10 allocation framework works across project sizes and types.

Step 4 - Set Your Budget Range Before Talking to Anyone

Before you contact a single agency, determine your budget range. Not a single number - a range with a minimum and maximum. Your minimum is the amount you can commit to without external funding. Your maximum is the absolute ceiling including any investments or loans you could access. Knowing this range protects you from two traps: underspending (building something too limited to be useful) and overspending (committing more than the business can justify).

Here is a practical formula: take the annual value of the problem your software solves (revenue it will generate or costs it will eliminate) and allocate 30-50% of one year's value as your budget. If the software will save your company $150,000 per year in labor costs, a budget of $45K-$75K makes strong business sense. The software pays for itself within 6-12 months. If you cannot quantify the value, that is a signal that the project needs more business validation before you invest in development.

Step 5 - Use Phased Budgeting

Never budget for the entire product at once. Break it into phases, each with its own budget, timeline, and success criteria.

1. Phase 0 - Discovery and Planning ($3K-$8K, 1-2 weeks): Define requirements, create wireframes, validate technical approach. This phase prevents the most expensive mistakes.
2. Phase 1 - MVP Development ($15K-$60K, 6-14 weeks): Build and launch the minimum product with must-have features only.
3. Phase 2 - Iteration ($10K-$30K, 4-8 weeks): Improve based on user feedback, add should-have features, optimize performance.
4. Phase 3 - Scale ($15K-$50K, 6-12 weeks): Add could-have features, improve infrastructure for growth, expand to new user segments.

Each phase has a gate. You only fund Phase 2 if Phase 1 proves the concept works. You only fund Phase 3 if Phase 2 shows the product has traction. This approach limits your downside. If the concept fails in Phase 1, you have invested $20K-$70K total, not $200K. Phased budgeting is the single most effective financial strategy for software projects.

Step 6 - Get Three Quotes and Compare Correctly

With your scope and budget range defined, get quotes from three agencies or development teams. But do not just compare the bottom-line number. Create a comparison grid that includes total estimated cost, what is included (and excluded), team composition, estimated timeline, technology stack, testing approach, post-launch support terms, and payment structure.

The most informative data point is the spread. If all three quotes are within 20% of each other ($55K, $62K, $68K), the market is telling you what the project costs. If one quote is dramatically lower ($55K, $62K, $28K), that outlier is either cutting scope, cutting corners, or underestimating the work. In each case, it is a quote to question, not to celebrate.

Common Budgeting Mistakes to Avoid

• Budgeting only for development and ignoring ongoing costs (hosting, maintenance, iteration) - add 80-100% on top of development for the first year
• Comparing quotes by hourly rate instead of total project cost and included scope
• Not having a budget range before talking to agencies, which lets the first quote anchor all your expectations
• Allocating 100% of budget to Phase 1 with nothing left for iteration based on real user feedback
• Treating the budget as fixed when scope is still flexible - it is better to fix the budget and flex the scope
• Ignoring the cost of your own time in meetings, feedback, and decision-making - budget 5-10 hours per week of your time during active development

Quick Reference - Budget Ranges by Project Type

These ranges cover the full first-year cost including development, design, QA, infrastructure, and initial iteration. Use them as sanity checks, not precise estimates.

• Simple internal tool (1-2 user roles, basic CRUD, no integrations) - $20K-$45K
• Customer-facing web app (3-5 user types, payments, email notifications) - $50K-$120K
• Mobile app (iOS or Android, API backend, push notifications) - $60K-$150K
• SaaS platform (multi-tenant, billing, admin tools, reporting) - $80K-$200K
• Marketplace (two-sided, payments, messaging, reviews) - $100K-$250K
• Enterprise system (complex workflows, compliance, multiple integrations) - $150K-$400K

If your quote falls below these ranges, dig into what is excluded. If it falls above, make sure the scope justifies the premium. These ranges represent the middle of the market - professional teams delivering production-quality software with proper testing and documentation.