Software project budget: how to calculate the real cost

The board has approved DKK 200,000 for a new customer system. The vendor is chosen and the project goes well. Then comes the first year after launch: hosting, updates, a new integration sales would like, and a bill for the hours the IT lead spent moving data. None of the items is large on its own, but none of them was in the budget. It is the most common budget mistake we see: budgeting for the build and forgetting to budget for owning the solution.

A good software budget covers the whole lifetime. This guide goes through the lines that belong in it, typical price levels in the Danish market, how large a contingency makes sense, and a worked example of the total cost over three years. Finally you get a method for setting a ceiling based on the value the solution has to create.

What should a software project budget include?

The line most people forget is internal time. It never appears on an invoice, yet it often sets the pace. A project where the client has set aside time for decisions and testing typically moves faster and costs less, because the vendor is not left waiting. The line most people underestimate is running costs, which we look at in depth below.

What does it cost to build? Typical price levels in Denmark

Hourly rates are typically DKK 500–900 for a freelance web designer, DKK 800–1,400 for a senior web developer and DKK 1,100–1,300 at an agency. If you need more detail on each type, we have price guides for websites, web apps and apps.

What do running costs come to, and why are they forgotten?

Software keeps moving after launch. Frameworks and libraries get security updates, browsers change, Apple and Google release new operating systems, and integrations with e-conomic or carriers get new versions. A common rule of thumb is therefore 15–20 % of the build price per year. For a DKK 150,000 solution that is DKK 22,500–30,000 a year. Running costs get forgotten because they come after the decision to build, and because they are often split across many small invoices.

The last point in both columns is the most important. When both the build and the running costs have a fixed price, most of the three-year budget is known before you sign. We have a full guide to maintenance costs if you want to compare agreements, and to fixed price vs hourly billing if you are weighing the pricing model.

How much contingency should a software budget have?

The contingency depends on how much is unknown. With a fixed price and a clear scope the risk on the build itself is low, yet surprises still come from data, integrations and internal decisions. With uncapped hours the risk sits with you, and the contingency needs to be larger. The table is our recommended starting point.

What is the total cost over three years? A worked example

An installation company with 25 employees wants a customer portal with booking and a connection to its accounting system. The build price is DKK 150,000 at a fixed price with one new integration, so the contingency is set at 15 %. The solution launches halfway through year one. Internal time is costed at DKK 450 an hour, running costs at 18 % of the build price per year, and DKK 30,000 a year is set aside for further development from year two.

So the company needs a three-year budget of about DKK 369,000, even though the proposal says DKK 150,000. That sounds like a lot until it is set against the value. If the portal saves three employees five hours a week each for 46 weeks a year, that is 690 hours or DKK 310,500 a year at DKK 450 an hour. Over three years, with half a year live in year one, the value is around DKK 776,000. That is a budget management can approve with its eyes open.

How do you set a budget before you know the price?

Step four matters more than it looks. When the vendor knows your range, they can propose a solution that fits, and you get proposals that can be compared. Without a range everyone guesses, and you risk three proposals that solve three different problems. Read more about comparing proposals in how to choose a software company and red flags in a software quote.

Which budget mistakes do we see most often in software projects?

• Only the build is budgeted; running costs and further development are missing.
• Internal time is set to zero.
• The contingency is spent on new wishes instead of the unforeseen.
• Data migration is “part of the project” with no hours or owner.
• Third-party fees for payments, SMS and maps are forgotten.
• The first version has to do everything, so the budget is spent before launch.
• Running costs sit in another department’s budget, and nobody asked them.

If you are a smaller business, it can be worth looking into grants. SMV:Digital is a Danish grant programme for digitalisation, and we have collected the essentials in the SMV:Digital guide. Always check the current rounds and conditions before counting the grant into the budget.

What does the budget look like with a fixed price at Ceptiv?

With a fixed one-time price and a fixed monthly price, both the build and running costs are known in advance, and the 15–20 % rule is already built in. The plan can be cancelled with 30 days’ notice; cancelling within the first 15 months carries a one-off fee stated in the proposal. What remains in the budget is your own time, third-party fees and further development. See the details under pricing, or describe the project here and get a written figure to budget from within 24 hours.