Oct 12, 2023
“Hidden” costs of running a startup: What’s involved in IT product development?
Article
Web Development
Oct 12, 2023
Building an IT product is a continuous cycle of creation, deployment, operation, and refinement. Even outstanding IT products need ongoing development. According to research from Blossom Street Ventures, SaaS companies allocate an average of 24% of their revenue to development, with some investing over 50%.
Every founder likely wants to invest solely in enhancing their product with new, valuable features. However, real-world experience reveals that this ideal is often unachievable. Regardless of the product type, additional expenses inevitably emerge. That is precisely why it’s crucial for us to illustrate this to our clients before starting a new project. In this article, we’ll outline the most common cost categories throughout the entire lifecycle of an IT product. Our intention is to assist startup founders in preparing for the development process, establishing realistic expectations, and protecting themselves against unwelcome surprises down the road.
Ensuring a successful project kickoff depends on the customer’s grasp of the IT product development process. This paves the way for setting practical expectations and steering clear of any unwelcome surprises down the line.
Roman Martirosyan, CEO Loovatech
Our company has been around for 7 years now, and each year, we encounter two common misconceptions:
You need a fixed amount of money to launch a product and can then solely focus on sales.
Funds will only be necessary for developing new features.
In both scenarios, founders often anticipate that once their product is developed, the associated development costs will decrease or vanish completely. However, they are in for a surprise when unexpected expenses arise after the startup launch. It's crucial to understand that an IT product evolves and transforms throughout its entire lifecycle. The cycle of its existence doesn’t stop at the launch stage; it continues forward.
What’s included in a product development budget for a startup?
Budgeting for startups can be challenging due to the uncertainty surrounding the project’s future. Typically, development budgeting starts by determining the customer’s monthly spending limit. Then, the contractor or in-house team creates a detailed work plan. As the founder of an IT startup, it’s crucial to have a full understanding of the components within the development budget and to track the allocation of funds.
Development of new features
When an IT product requires new capabilities, scenarios, or roles, development handles the task. There are various ways in which new features can emerge. For instance, startups often begin with an MVP containing a limited set of features. After release and feedback collection, additional features that users find necessary are integrated into the MVP.
Murtaza Bharmal. How much upgrade and mobile app maintenance costs?
Dealing with bugs
A bug refers to an error in a program or system that leads to unexpected behavior and results. Bugs can surface due to various reasons, including coding errors, unexpected user actions, flaws in pre-made libraries, and more. Naturally, no one wants to have bugs. Everyone expects an IT product to function flawlessly, without any hiccups or unusual behavior. However, the truth is that when a product goes beyond a single field with a single button, bugs become inevitable. No IT product is exempt from encountering them. Knowing this, the development team should have:
A quality assurance process to catch and address bugs before they reach the end user.
Mechanisms for detecting bugs in the production environment.
An efficient process for handling feedback from end users so that you could quickly respond to widespread and critical errors.
A quality control system that prioritizes and allocates bugs based on their impact on the business.
Don’t worry if it doesn’t work right. If everything did, you’d be out of a job.
Mosher’s Law of Software Engineering. www.ithistory.org
Managing user feedback
Throughout the product development process, user feedback is a constant presence. It arrives through support tickets, surveys, and research. While the majority of user requests are managed by the customer support service, certain tasks inevitably fall to the development team and require analysis. Additionally, based on user interactions, there’s often a need to rework specific functions. This doesn’t imply any shortcomings on the part of the UX designer. Testing every aspect of an interface before development isn’t always feasible, and developers continually gain access to new interface design techniques and technical capabilities.
Technical debt
These are issues that accumulate within the program’s code or architecture. Technical debt remains hidden from the end users of the product and is linked to challenges in continuing development and rectifying errors. It can be a deliberate, pragmatic choice when the development team opts for a solution that may not be perfect but addresses immediate business needs and speeds up product or feature launches. Moreover, technical debt may arise from choosing a solution that suits the current circumstances but may not be viable in the long run due to factors like new product requirements, increased user volume, unforeseen integrations, and more.
First do it, then do it right, then do it better!
Addy Osmani, Software Engineer Google
Addressing marketing and sales requests
Marketers, sales representatives, and product managers frequently delegate tasks to the development team that extend beyond enhancing product functionality. These tasks involve analyzing user behavior, implementing onboarding processes, conducting A-B tests, and more. One such example is altering the pricing structure. This isn’t merely about adjusting the tariff price (which is straightforward); it pertains to cases where tariffs vary in terms of the included functionality. In such instances, the product must adhere to a new set of logic, consuming valuable development team resources.
Research
The development landscape is very dynamic. We encounter fresh challenges nearly every day, not due to any lack of expertise on the team’s part but rather because of the novelty of the functionality, innovative solutions, intriguing use cases, etc. To gauge the viability of a specific feature, understand the constraints surrounding its implementation, and estimate the labor required, research is indispensable. In certain cases, the time spent on research may be on par with, or even exceed, the time needed for implementing the feature itself. For instance, if a decision is made to create a prototype to validate a concept’s functionality and potential.
DevOps
Part of an IT startup’s budget is consistently allocated to running the solution and managing the rollout of updates in both testing and production environments. DevOps engineers play a key role in maintaining the application’s stability, resilience under heavy usage, data security, and handling incidents.
Infrastructure
An aspect that can consume a substantial portion of a startup’s budget is procuring or renting the computing resources needed for running applications and services. This includes servers, virtual machines, storage space for data, and specialized services like DDoS attack protection, SMS or email sending, and CDN to enhance the loading speed of images and videos.
How can you optimize your development process?
To identify areas for cost reduction, you should start by measuring expenses. Categorizing development costs provides insights into where the bulk of the funds are being allocated and whether these investments yield returns. For example, you might discover that 100 hours spent on a particular feature had no discernible impact on the product or company revenue. To obtain precise data on the project’s economics, the development team should follow specific guidelines for task management and time tracking. This can be done through an in-house team or by engaging the right development contractor.
Here’s how our process goes. Project work is divided into stages based on planned product releases. We allocate each task into one of the three categories:
Business tasks, which involve developing additional product functionality that aligns with the customer’s business requirements.
Bug fixing, technical debt, research, and other categories, as described earlier.
Other tasks, which are assignments that don’t neatly fit into one of the other categories, such as stand-up meetings, team communications, and onboarding new project team members, among others.
We ensure that all top-level tasks are categorized through regular automated checks and alerts. Subtasks and tasks within epics automatically inherit the category of their parent.
For business tasks, we structure them as epics. In the beginning, an epic consists of tasks focused on preparing specifications by analysts and layouts by designers. Then, based on these specifications, the epic is further broken down into one or more user stories. Each user story includes tasks for developers and any defects identified by the QA team during testing. As a result, each business task is broken down into multiple subtasks, which are assigned to one person and a designated QA responsible party.
One of the key factors is the accuracy of our time tracking process. Our technical specialists employ direct time tracking while managers manually record their time. We ensure the completeness of time logging through automated checks and notifications, which are communicated in a dedicated channel within our corporate messenger. We also assess the quality of time recording and planning during our routine resource planning meetings, which form the foundation of our workflow.
Our approach allows us to offer clients various types of analytics:
Cost breakdown analysis within the work phase. This shows the distribution of the budget across development categories and distinct business objectives.
Specialist role analysis within a work phase and throughout a single workflow. This sheds light on the team’s workload in different areas.
Plan-versus-actual cost analysis for each specific business task and the team’s average estimation accuracy based on it. This helps reduce risks during the planning phase.
The process methodology is straightforward and applicable to any development team, including an in-house one. While it does demand an investment of time and expertise for tool setup, team training, and process implementation, it ultimately empowers the customer to efficiently oversee the development process.
Feel free to reach out with any inquiries. We’re available to offer guidance on outsourced development or discuss effective management strategies for your in-house team.
Building an IT product is a continuous cycle of creation, deployment, operation, and refinement. Even outstanding IT products need ongoing development. According to research from Blossom Street Ventures, SaaS companies allocate an average of 24% of their revenue to development, with some investing over 50%.
Every founder likely wants to invest solely in enhancing their product with new, valuable features. However, real-world experience reveals that this ideal is often unachievable. Regardless of the product type, additional expenses inevitably emerge. That is precisely why it’s crucial for us to illustrate this to our clients before starting a new project. In this article, we’ll outline the most common cost categories throughout the entire lifecycle of an IT product. Our intention is to assist startup founders in preparing for the development process, establishing realistic expectations, and protecting themselves against unwelcome surprises down the road.
Ensuring a successful project kickoff depends on the customer’s grasp of the IT product development process. This paves the way for setting practical expectations and steering clear of any unwelcome surprises down the line.
Roman Martirosyan, CEO Loovatech
Our company has been around for 7 years now, and each year, we encounter two common misconceptions:
You need a fixed amount of money to launch a product and can then solely focus on sales.
Funds will only be necessary for developing new features.
In both scenarios, founders often anticipate that once their product is developed, the associated development costs will decrease or vanish completely. However, they are in for a surprise when unexpected expenses arise after the startup launch. It's crucial to understand that an IT product evolves and transforms throughout its entire lifecycle. The cycle of its existence doesn’t stop at the launch stage; it continues forward.
What’s included in a product development budget for a startup?
Budgeting for startups can be challenging due to the uncertainty surrounding the project’s future. Typically, development budgeting starts by determining the customer’s monthly spending limit. Then, the contractor or in-house team creates a detailed work plan. As the founder of an IT startup, it’s crucial to have a full understanding of the components within the development budget and to track the allocation of funds.
Development of new features
When an IT product requires new capabilities, scenarios, or roles, development handles the task. There are various ways in which new features can emerge. For instance, startups often begin with an MVP containing a limited set of features. After release and feedback collection, additional features that users find necessary are integrated into the MVP.
Murtaza Bharmal. How much upgrade and mobile app maintenance costs?
Dealing with bugs
A bug refers to an error in a program or system that leads to unexpected behavior and results. Bugs can surface due to various reasons, including coding errors, unexpected user actions, flaws in pre-made libraries, and more. Naturally, no one wants to have bugs. Everyone expects an IT product to function flawlessly, without any hiccups or unusual behavior. However, the truth is that when a product goes beyond a single field with a single button, bugs become inevitable. No IT product is exempt from encountering them. Knowing this, the development team should have:
A quality assurance process to catch and address bugs before they reach the end user.
Mechanisms for detecting bugs in the production environment.
An efficient process for handling feedback from end users so that you could quickly respond to widespread and critical errors.
A quality control system that prioritizes and allocates bugs based on their impact on the business.
Don’t worry if it doesn’t work right. If everything did, you’d be out of a job.
Mosher’s Law of Software Engineering. www.ithistory.org
Managing user feedback
Throughout the product development process, user feedback is a constant presence. It arrives through support tickets, surveys, and research. While the majority of user requests are managed by the customer support service, certain tasks inevitably fall to the development team and require analysis. Additionally, based on user interactions, there’s often a need to rework specific functions. This doesn’t imply any shortcomings on the part of the UX designer. Testing every aspect of an interface before development isn’t always feasible, and developers continually gain access to new interface design techniques and technical capabilities.
Technical debt
These are issues that accumulate within the program’s code or architecture. Technical debt remains hidden from the end users of the product and is linked to challenges in continuing development and rectifying errors. It can be a deliberate, pragmatic choice when the development team opts for a solution that may not be perfect but addresses immediate business needs and speeds up product or feature launches. Moreover, technical debt may arise from choosing a solution that suits the current circumstances but may not be viable in the long run due to factors like new product requirements, increased user volume, unforeseen integrations, and more.
First do it, then do it right, then do it better!
Addy Osmani, Software Engineer Google
Addressing marketing and sales requests
Marketers, sales representatives, and product managers frequently delegate tasks to the development team that extend beyond enhancing product functionality. These tasks involve analyzing user behavior, implementing onboarding processes, conducting A-B tests, and more. One such example is altering the pricing structure. This isn’t merely about adjusting the tariff price (which is straightforward); it pertains to cases where tariffs vary in terms of the included functionality. In such instances, the product must adhere to a new set of logic, consuming valuable development team resources.
Research
The development landscape is very dynamic. We encounter fresh challenges nearly every day, not due to any lack of expertise on the team’s part but rather because of the novelty of the functionality, innovative solutions, intriguing use cases, etc. To gauge the viability of a specific feature, understand the constraints surrounding its implementation, and estimate the labor required, research is indispensable. In certain cases, the time spent on research may be on par with, or even exceed, the time needed for implementing the feature itself. For instance, if a decision is made to create a prototype to validate a concept’s functionality and potential.
DevOps
Part of an IT startup’s budget is consistently allocated to running the solution and managing the rollout of updates in both testing and production environments. DevOps engineers play a key role in maintaining the application’s stability, resilience under heavy usage, data security, and handling incidents.
Infrastructure
An aspect that can consume a substantial portion of a startup’s budget is procuring or renting the computing resources needed for running applications and services. This includes servers, virtual machines, storage space for data, and specialized services like DDoS attack protection, SMS or email sending, and CDN to enhance the loading speed of images and videos.
How can you optimize your development process?
To identify areas for cost reduction, you should start by measuring expenses. Categorizing development costs provides insights into where the bulk of the funds are being allocated and whether these investments yield returns. For example, you might discover that 100 hours spent on a particular feature had no discernible impact on the product or company revenue. To obtain precise data on the project’s economics, the development team should follow specific guidelines for task management and time tracking. This can be done through an in-house team or by engaging the right development contractor.
Here’s how our process goes. Project work is divided into stages based on planned product releases. We allocate each task into one of the three categories:
Business tasks, which involve developing additional product functionality that aligns with the customer’s business requirements.
Bug fixing, technical debt, research, and other categories, as described earlier.
Other tasks, which are assignments that don’t neatly fit into one of the other categories, such as stand-up meetings, team communications, and onboarding new project team members, among others.
We ensure that all top-level tasks are categorized through regular automated checks and alerts. Subtasks and tasks within epics automatically inherit the category of their parent.
For business tasks, we structure them as epics. In the beginning, an epic consists of tasks focused on preparing specifications by analysts and layouts by designers. Then, based on these specifications, the epic is further broken down into one or more user stories. Each user story includes tasks for developers and any defects identified by the QA team during testing. As a result, each business task is broken down into multiple subtasks, which are assigned to one person and a designated QA responsible party.
One of the key factors is the accuracy of our time tracking process. Our technical specialists employ direct time tracking while managers manually record their time. We ensure the completeness of time logging through automated checks and notifications, which are communicated in a dedicated channel within our corporate messenger. We also assess the quality of time recording and planning during our routine resource planning meetings, which form the foundation of our workflow.
Our approach allows us to offer clients various types of analytics:
Cost breakdown analysis within the work phase. This shows the distribution of the budget across development categories and distinct business objectives.
Specialist role analysis within a work phase and throughout a single workflow. This sheds light on the team’s workload in different areas.
Plan-versus-actual cost analysis for each specific business task and the team’s average estimation accuracy based on it. This helps reduce risks during the planning phase.
The process methodology is straightforward and applicable to any development team, including an in-house one. While it does demand an investment of time and expertise for tool setup, team training, and process implementation, it ultimately empowers the customer to efficiently oversee the development process.
Feel free to reach out with any inquiries. We’re available to offer guidance on outsourced development or discuss effective management strategies for your in-house team.
Building an IT product is a continuous cycle of creation, deployment, operation, and refinement. Even outstanding IT products need ongoing development. According to research from Blossom Street Ventures, SaaS companies allocate an average of 24% of their revenue to development, with some investing over 50%.
Every founder likely wants to invest solely in enhancing their product with new, valuable features. However, real-world experience reveals that this ideal is often unachievable. Regardless of the product type, additional expenses inevitably emerge. That is precisely why it’s crucial for us to illustrate this to our clients before starting a new project. In this article, we’ll outline the most common cost categories throughout the entire lifecycle of an IT product. Our intention is to assist startup founders in preparing for the development process, establishing realistic expectations, and protecting themselves against unwelcome surprises down the road.
Ensuring a successful project kickoff depends on the customer’s grasp of the IT product development process. This paves the way for setting practical expectations and steering clear of any unwelcome surprises down the line.
Roman Martirosyan, CEO Loovatech
Our company has been around for 7 years now, and each year, we encounter two common misconceptions:
You need a fixed amount of money to launch a product and can then solely focus on sales.
Funds will only be necessary for developing new features.
In both scenarios, founders often anticipate that once their product is developed, the associated development costs will decrease or vanish completely. However, they are in for a surprise when unexpected expenses arise after the startup launch. It's crucial to understand that an IT product evolves and transforms throughout its entire lifecycle. The cycle of its existence doesn’t stop at the launch stage; it continues forward.
What’s included in a product development budget for a startup?
Budgeting for startups can be challenging due to the uncertainty surrounding the project’s future. Typically, development budgeting starts by determining the customer’s monthly spending limit. Then, the contractor or in-house team creates a detailed work plan. As the founder of an IT startup, it’s crucial to have a full understanding of the components within the development budget and to track the allocation of funds.
Development of new features
When an IT product requires new capabilities, scenarios, or roles, development handles the task. There are various ways in which new features can emerge. For instance, startups often begin with an MVP containing a limited set of features. After release and feedback collection, additional features that users find necessary are integrated into the MVP.
Murtaza Bharmal. How much upgrade and mobile app maintenance costs?
Dealing with bugs
A bug refers to an error in a program or system that leads to unexpected behavior and results. Bugs can surface due to various reasons, including coding errors, unexpected user actions, flaws in pre-made libraries, and more. Naturally, no one wants to have bugs. Everyone expects an IT product to function flawlessly, without any hiccups or unusual behavior. However, the truth is that when a product goes beyond a single field with a single button, bugs become inevitable. No IT product is exempt from encountering them. Knowing this, the development team should have:
A quality assurance process to catch and address bugs before they reach the end user.
Mechanisms for detecting bugs in the production environment.
An efficient process for handling feedback from end users so that you could quickly respond to widespread and critical errors.
A quality control system that prioritizes and allocates bugs based on their impact on the business.
Don’t worry if it doesn’t work right. If everything did, you’d be out of a job.
Mosher’s Law of Software Engineering. www.ithistory.org
Managing user feedback
Throughout the product development process, user feedback is a constant presence. It arrives through support tickets, surveys, and research. While the majority of user requests are managed by the customer support service, certain tasks inevitably fall to the development team and require analysis. Additionally, based on user interactions, there’s often a need to rework specific functions. This doesn’t imply any shortcomings on the part of the UX designer. Testing every aspect of an interface before development isn’t always feasible, and developers continually gain access to new interface design techniques and technical capabilities.
Technical debt
These are issues that accumulate within the program’s code or architecture. Technical debt remains hidden from the end users of the product and is linked to challenges in continuing development and rectifying errors. It can be a deliberate, pragmatic choice when the development team opts for a solution that may not be perfect but addresses immediate business needs and speeds up product or feature launches. Moreover, technical debt may arise from choosing a solution that suits the current circumstances but may not be viable in the long run due to factors like new product requirements, increased user volume, unforeseen integrations, and more.
First do it, then do it right, then do it better!
Addy Osmani, Software Engineer Google
Addressing marketing and sales requests
Marketers, sales representatives, and product managers frequently delegate tasks to the development team that extend beyond enhancing product functionality. These tasks involve analyzing user behavior, implementing onboarding processes, conducting A-B tests, and more. One such example is altering the pricing structure. This isn’t merely about adjusting the tariff price (which is straightforward); it pertains to cases where tariffs vary in terms of the included functionality. In such instances, the product must adhere to a new set of logic, consuming valuable development team resources.
Research
The development landscape is very dynamic. We encounter fresh challenges nearly every day, not due to any lack of expertise on the team’s part but rather because of the novelty of the functionality, innovative solutions, intriguing use cases, etc. To gauge the viability of a specific feature, understand the constraints surrounding its implementation, and estimate the labor required, research is indispensable. In certain cases, the time spent on research may be on par with, or even exceed, the time needed for implementing the feature itself. For instance, if a decision is made to create a prototype to validate a concept’s functionality and potential.
DevOps
Part of an IT startup’s budget is consistently allocated to running the solution and managing the rollout of updates in both testing and production environments. DevOps engineers play a key role in maintaining the application’s stability, resilience under heavy usage, data security, and handling incidents.
Infrastructure
An aspect that can consume a substantial portion of a startup’s budget is procuring or renting the computing resources needed for running applications and services. This includes servers, virtual machines, storage space for data, and specialized services like DDoS attack protection, SMS or email sending, and CDN to enhance the loading speed of images and videos.
How can you optimize your development process?
To identify areas for cost reduction, you should start by measuring expenses. Categorizing development costs provides insights into where the bulk of the funds are being allocated and whether these investments yield returns. For example, you might discover that 100 hours spent on a particular feature had no discernible impact on the product or company revenue. To obtain precise data on the project’s economics, the development team should follow specific guidelines for task management and time tracking. This can be done through an in-house team or by engaging the right development contractor.
Here’s how our process goes. Project work is divided into stages based on planned product releases. We allocate each task into one of the three categories:
Business tasks, which involve developing additional product functionality that aligns with the customer’s business requirements.
Bug fixing, technical debt, research, and other categories, as described earlier.
Other tasks, which are assignments that don’t neatly fit into one of the other categories, such as stand-up meetings, team communications, and onboarding new project team members, among others.
We ensure that all top-level tasks are categorized through regular automated checks and alerts. Subtasks and tasks within epics automatically inherit the category of their parent.
For business tasks, we structure them as epics. In the beginning, an epic consists of tasks focused on preparing specifications by analysts and layouts by designers. Then, based on these specifications, the epic is further broken down into one or more user stories. Each user story includes tasks for developers and any defects identified by the QA team during testing. As a result, each business task is broken down into multiple subtasks, which are assigned to one person and a designated QA responsible party.
One of the key factors is the accuracy of our time tracking process. Our technical specialists employ direct time tracking while managers manually record their time. We ensure the completeness of time logging through automated checks and notifications, which are communicated in a dedicated channel within our corporate messenger. We also assess the quality of time recording and planning during our routine resource planning meetings, which form the foundation of our workflow.
Our approach allows us to offer clients various types of analytics:
Cost breakdown analysis within the work phase. This shows the distribution of the budget across development categories and distinct business objectives.
Specialist role analysis within a work phase and throughout a single workflow. This sheds light on the team’s workload in different areas.
Plan-versus-actual cost analysis for each specific business task and the team’s average estimation accuracy based on it. This helps reduce risks during the planning phase.
The process methodology is straightforward and applicable to any development team, including an in-house one. While it does demand an investment of time and expertise for tool setup, team training, and process implementation, it ultimately empowers the customer to efficiently oversee the development process.
Feel free to reach out with any inquiries. We’re available to offer guidance on outsourced development or discuss effective management strategies for your in-house team.
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book a 30-minute call to get feedback and a budget estimate from our expert team
let's talk
book a 30-minute call to get feedback and a budget estimate from our expert team
let's talk
book a 30-minute call to get feedback and a budget estimate from our expert team
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our address
Tornimäe, 5 10145 Tallinn Estonia
contact us
our address
Tornimäe, 5 10145 Tallinn Estonia
contact us