How Much Does It Cost to Build an MVP?

20 February 2020 Writer: Lera Grechanik 1106 views

Do you believe that a few articles from Google search are a good way to accurately calculate MVP development costs? Unfortunately, the results of such research will raise even more questions than you have before. Some examples of misleading opinions are: 

  • the minimal cost of MVP development - $500 (utopia);
  • MVP software development costs may reach $1.5 million (you will need this amount of money only if your project is a space flight);
  • a prototype of a project is a subcategory of MVP (it’s two different concepts). 

Despite the fact, there is an exceptional situation, but it confirms the rule. Another example is the case when the development cost of a randomizer application for the US Transportation Security Administration was $1.4 million. Typically, it takes less than an hour to develop such an application. So, does this mean that the cost of a randomizer application is $1.4 million? 

Our article is a realistic guide to help you understand MVP pricing (usually, the average cost is from $15,000 to $50,000).

You need to properly understand the distinctive features of MVP to accurately calculate the budget and its components. 

Hint: If you are an expert in MVP, we advise you to go directly to the pricing part.

The theoretical background of “MVP Concept”

Even though businessman Frank Robinson developed the concept of MVP back in 2001, Eric Ries and Steve Blank helped it to become truly popular afterward.

Minimum Viable Product (abbreviated as MVP) is a project version containing a special set of features aimed at solving the issue of the target audience as well as receiving feedback for the subsequent improvement and refinement of the project using MVP. 

Below are the benefits of developing an MVP compared to alternative project creation approaches. 

Arguments for developing an MVP

Test your idea in action by interacting with the targeted audience. Releasing an MVP is the best way to test the relevance and success chances of your solution. 

Keep growing your MVP-based project by collecting and analyzing feedback from the first users.

Optimize your financial and time costs with a minimalist approach to MVP development. Use a minimal set of features to check the reaction rate of your application among the targeted audience. This way you can save time and money by proving the viability of the project. 

Get a competitive advantage by bringing a working product to market earlier with less time and money spent on MVP development. 

Attract additional financing for your project. MVP is more of an investment than a simple idea. Having an MVP may be a key factor in promoting it among the potential audience or attracting investments from corporations and individuals.

Read Also: 5 not-obvious Reasons Why You Need an MVP for Your Startup

The MVP-concept itself is the main source of information about how much money it will cost to build an MVP. As we said earlier, $500 is not enough to create an effective product that can meet the audience's demands. In turn, the multimillion-dollar cost for creating an MVP is not reasonable due to the minimum set of features for such an application.  

You must remember the point about differences between the concepts of MVP and Prototype at the beginning of the article. These concepts, as well as PoC (Proof-of-Concept), relate to 3 separate stages of project development:

PoC

The initial model of project creation, the purpose of which is to prove the technical applicability of the main concept. In this way, the developers will support the selection of the best technological tools for subsequent development. This version of the project is not available for use by a wide audience. 

Prototype

Visualized interface for checking user interaction with the product. The prototype helps refine the interaction with the product through reviews from users, but it does not solve their main problem in contrast to the MVP

MVP

MVP is the first operating version of the product available for wide use among the targeted audience. Although MVP solves the main problem, it is not the final version of the product. Thus, developers take advantage of the user feedback to evolve the product later. 

Therefore, MVP is the first full-fledged example of how to bring your project's capabilities to the widest possible use. In turn, PoC and Prototype are the stages for testing both technical implementation and quality level of user interaction with the product. 

Now, when you have figured out the nuances behind MVP's definition, we invite you to return to the questions related to the development costs!

What influences the cost of an MVP?

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?

  1. Estimation of time required for project implementation (in hours).
  2. Multiplication of time by the hourly pay for the team. 
  3. So, now you know the cost of MVP 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 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 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! 

Summary: estimated MVP development evaluation

Back at the beginning of the article, we stated that the average cost of MVP is $15,000-$50,000. This information is based on our estimates, considering the completed projects by Celadon. To turn hours into $, we used the average hourly rate for developers from Eastern Europe ($35\hour).

Moreover, you can see the estimates for FrontEnd mobile application development. These calculations are appropriate for MVP projects designed on React Native (a platform for developing mobile applications for Android, iOS, Web, and UWP).

You' re welcome:

App Type Approximate Hours Approximate costs, $
Construction Services Marketplace 820- 940 23,780 - 30,080
Endurance Riding Timing Application 450- 540 13,050 - 17,280
Audio Streaming App 920- 1090 26,680 - 43,880
Sports Social Network 290- 325 8,410 - 10,400
Food Ordering App For Restaurants Network 356- 448 10,324 - 14,336
Personal Coach App With AI 740- 852 21,460 - 27,256
Risk Assessment Analytics 470- 580 13,630 - 18,560

Short conclusions

As we mentioned, the optimal MVP cost for your project should vary from $15,000 to $50,000, which is about $30,000 on average. Anyway, you should independently estimate the MVP cost level depending on the scope of work, team, type of contract and so on for your project.

In our opinion, the best choice for start-ups is to hire an outsourced development team from Eastern Europe (due to the ratio of low price to high quality), adjusting the cooperation with Time & Materials Contract.

Need a precise calculation of MVP costs? Then we will be happy to prepare a detailed analysis taking into account the distinctive details of your project!

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