Inside Software Development Costs: budgeting in project management

Effective cost management is important for the success of eCommerce projects in today’s competitive market. Many assume that a higher price equates to better quality, but that isn’t always the case.
If you're a business owner, CEO, or product owner, you understand how critical budgeting is when developing new software. Costs can quickly spiral out of control, impacting project success and financial sustainability. However, cost management isn’t just about cutting expenses, but also about maximizing return on investment (ROI) through strategic planning.

While there’s no one-size-fits-all solution to software budgeting, Kiwee has spent over 13 years refining cost management strategies that provide structure and clarity for clients.

Common software development budget pitfalls

Many challenges arise during the development of an eCommerce Project, such as:

• Budget Overruns – Costs exceed initial estimates due to scope creep or insufficient planning.
• Unexpected Expenses – Infrastructure upgrades and unforeseen technical needs can drive costs up.
• Inefficient Time Allocation – Poor resource management leads to wasted developer hours.
• Lack of Communication – Misalignment with stakeholders results in costly revisions.
• Ignoring Risk Management – Unidentified risks can escalate into expensive problems.
• Overlooking Maintenance Costs – Long-term maintenance is often underestimated, leading to financial strain post-launch.

While these challenges are common, they can be mitigated with structured planning, clear communication, and an adaptable budgeting process.

How Kiwee delivers smart software project budgeting and pricing

Many clients approach us with a broad vision for their product but lack detailed specifications. This is completely understandable, as businesses often focus on the bigger picture and may not have every technical detail figured out. However, without clearly defined requirements, providing an accurate cost estimate becomes challenging.

Step 1: Discovery Calls

During this initial phase, we discuss the project's objectives and expected complexity. To provide a high-level estimation, we use analogous estimation, leveraging historical data from similar past projects to estimate duration, cost, and resources. This gives clients an early budget range, helping them gauge feasibility before committing to a more detailed analysis.

Clients do not pay for this phase.

Step 2: Discovery & Planning

For complex or large-scale projects, we refine the estimate through deeper analysis using:

• Event Storming: a highly visual and interactive workshop designed to help teams define project requirements by mapping out workflows, dependencies, and challenges.

• Feature Prioritization using the MoSCoW method:
  Must-have - Essential features
  Should-have – Important but not critical features
  Could-have– Nice-to-have but non-essential features
  Won’t-have – Features that are excluded from the scope

• Time and Cost Estimation – Using PERT (Program Evaluation and Review Technique) to calculate realistic timelines and budgets:
  Once we have a clear project scope, we use PERT to estimate the time and resources needed. This method provides a weighted average using three time estimates:

  • Optimistic (O) – Best-case scenario
  • Most Likely (M) – Realistic estimate
  • Pessimistic (P) – Worst-case scenario

  This allows us to calculate a realistic timeline and budget while identifying potential risks and opportunities.

• Project Roadmap – A visual timeline aligning objectives with development phases.
  Next, we create a roadmap, which is a visual timeline aligning project objectives with development phases. This ensures transparency between the client and the development team.

Step 3: Choosing the right payment model

Kiwee, in collaboration with the client, selects a payment model that depends on project complexity, risk factors, and preferred level of involvement:

• Fixed-Price Model – Best for projects with well-defined requirements. The budget and scope remain stable, with minimal client involvement during development.
• Time and Materials Model – Ideal for evolving projects requiring flexibility. Clients receive deliverables in stages and pay for actual work completed, with full transparency via detailed work logs.

Step 4: Development Phase and payments

Once the project scope, priorities, and cost estimate are defined, development begins based on the agreed-upon work. The execution phase follows the selected payment model:

• Fixed-Price: A down payment is made upfront after planning is completed and then the rest is paid after delivery of the work.
• Time and Materials: Pay the monthly cost after each delivery based on detailed work logs.

Let’s Talk Real Numbers: project budget examples from Kiwee

When selecting a service provider, it's essential to understand the breakdown of costs to ensure you're getting the right value for your investment. Here's an overview:

• Software Development Costs (80%)
  This covers planning, design, development, and testing of your software. The hourly rates for developers and testers in Europe vary widely and depend on multiple factors, a few to mention, the experience level, technology stack expertise, and the specific region.
• Project Management (10%-15%)
  This cost covers the coordination and communication with your external team, ensuring the project stays on track and aligned with the goals.
• Infrastructure and Tools (10%)
  The team needs the right tools and environment to work efficiently. This includes costs for software licenses, servers, and necessary subscriptions, among other things.

To help you understand the budget needed during development, here are some key services that can enhance your project's success, along with their typical costs.

• Event Storming Workshop:
  This collaborative, interactive workshop helps define the project requirements and results in a detailed roadmap. The cost for an Event Storming session typically ranges from €3,000 to €5,000 covering workshop set up, facilitation, and digitalization of all requirements. The final cost, however, is highly dependent on several factors, including the complexity and scope of the project, team size, number of days required, and whether the session is held in person or virtually (with travel costs applicable for in-person sessions). For larger or more complex projects, pricing may extend to €10,000 or more.

• Website Performance Audit and Implementation of Improvements:
  A performance audit includes a general evaluation and an in-depth analysis of a website's functionality, speed, loading time, image optimizations, SEO, user experience, and technical aspects to meet industry standards.
  The improvements are prioritized (Critical, Major, Minor, Idea) followed by the implementation of the most critical improvements, this service may cost approximately between €5,000 and €15,000.

• Migrating to another eCommerce platform
  Let's take an example; migrating a shop from Shopware 5 to Shopware 6 involves a range of tasks, from updating Shopware's core functionalities to ensuring a smooth transfer of data and integrations without any additional features. For a project of this nature, the cost generally ranges between €18,000 to €22,000 per month as a budget cap, based on a Time & Materials (T&M) payment model. In the T&M model, billing reflects the actual time spent each month, allowing flexibility for any adjustments that may be necessary as the project progresses.

The team included in this budget is a senior full-stack engineer and a mid-level full-stack engineer, both skilled in front-end and back-end development (100% involvement), along with an intermediate project manager (10% involvement) and a software architect (15% involvement). The software architect ensures the platform's technical architecture aligns with best practices and is optimized for performance, security, and scalability.
Conducting workshops such as event storming, project scoping, and setting up priorities play crucial roles in estimating the project's total costs. These activities help understand the project's scope, define requirements, ensure alignment between stakeholders, and provide a more accurate budget estimation.

9 strategic steps to keep your software project budget on track

Managing a software project budget can be challenging, but it's possible to stay within budget while delivering a quality product with the right approach. Here are some important topics that clients and service providers should focus on to keep costs under control and optimize their project budgets;

• Ensure the Project Has a Dedicated Owner
  Having a Project Owner (PO) is crucial. The role of the product owner involves assessing all project requests, filtering them, and setting priorities. PO ensures only essential features are developed, saving hundreds of hours of developer work.

• Planning and Scope Definition
  Make sure the project scope and requirements are clarified with the Product Owner before any work begins. Clear planning prevents unexpected changes and budget overruns during development, ranking project requirements based on the value they add. If budget constraints arise, prioritizing the essential features and postponing or removing less critical ones is the right thing to do.

• Use Agile methodologies for Flexibility
  Agile methodologies, like Scrum or Kanban, help manage projects in iterations. This flexibility allows us to adjust priorities as the project progresses and react swiftly to unforeseen circumstances to get the most out of the budget.

• Estimation Techniques
  Breaking down project features and using estimation methods like three-point (PERT) estimation helps forecast costs. This will give stakeholders a realistic view of the budget.

• Cost Contingency
  Unplanned expenses are common in software projects. Set aside 20% of the budget as a contingency fund for risks or unexpected costs. Having a reserve lets you manage unforeseen issues without jeopardizing the entire project.

• Risk Management
  In software development, risk management means preparing for things like unexpected changes, delays, or technical challenges. It means finding potential problems early, planning how to handle them, and taking action to avoid them. By proactively identifying, assessing, and mitigating risks, projects can stay on track, avoid extra costs, and run more smoothly.

• Implement Change Control
  Changes to the project should always go through an evaluation. Evaluating each change for its impact on the budget before approval. This keeps the project focused and prevents costs from increasing with each small change.

• Track Costs in Real-Time
  Monitor expenses continuously. Regularly reviewing cost reports helps catch any deviations early, allowing quick adjustments to stay on budget.

• Maintain Regular Communication with Stakeholders
  Schedule regular check-ins with stakeholders to discuss the project's budget and progress. Keeping everyone informed of changes or cost adjustments reduces misunderstandings and ensures alignment.

Conclusion

A commitment to budget transparency and delivering value is essential for building trust and ensuring long-term success in software projects. Clear, upfront communication about costs, combined with realistic and detailed budgeting, helps clients stay informed throughout the project's lifecycle.
At Kiwee, we emphasize this approach by providing transparent cost breakdowns and working closely with our clients to ensure that each project delivers maximum value within the given budget.