Custom Software Development 101: From Definition to Delivery – Everything You Need to Know

You can't thrive in business unless you have software that helps you run your operations; it's simply a truth these days. While small companies and startups may get by with off-the-shelf and even open-source solutions, when it comes to growth and scaling, custom software development is a must.

Custom software development has grown in popularity, especially since 2020, as companies strive to gain a competitive advantage and optimize their operations by leveraging technology.  Every industry, from finance to logistics, is relying more and more on software solutions to streamline their operations and improve workflows. While there are many off-the-shelf software solutions available, companies frequently prefer custom software to achieve their specific business objectives.

Some of the factors that contribute to the constant growth of the custom software development market are increased demand for industry applications for real-time data analysis, growing need for flexible workspace to improve productivity, and growing use of the low-code development platforms for faster software development like Appian.

What is custom software development?

Custom software development is the process of developing software that is precisely built to match the objectives and requirements of a certain company. This may involve creating new software from scratch or changing existing open-source software.

Developing custom software is an extensive process that includes identifying a unique business need, developing and building technological solutions to meet that need, and integrating them into the current operating structure.

This process goes beyond initial development and deployment, and includes scaling and maintenance of the software to align with the company's development goals and objectives.

Custom software development categories

Unlike off-the-shelf solutions created to meet the needs of a broader audience, custom software is created with flexibility and customization in mind.

In general, we can classify custom software solutions into following categories:

Management-specific software – created to help companies to manage their resources (employees, customers, etc.)

Technology-specific software – software built around a single technology.

Industry-specific software – created to meet the needs of a specific industry. For example, manufacturing, logistics, finance, retail, etc.

Key industries using custom software development

Healthcare

The healthcare industry includes a wide range of different services. Hospitals, pharmaceuticals, health insurance, home healthcare and telemedicine are just some of them, and all of them need or will need certain types of software customized for their needs.

Managing huge amounts of data, protecting patient privacy, and enhancing care coordination are some of the difficulties this sector confronts; these issues were brought to light during and after the COVID-19 pandemic.

By enhancing data security, efficiency and regulatory compliance, custom software solutions—like Electronic Health Record (EHR) systems—can help solve these issues.

By evaluating data for individualized treatment, AI and machine learning can further enhance patient outcomes. When backed by specialized software, telemedicine systems can also help lower hospital admission rates.

In the end, developing bespoke software is crucial to overcome the obstacles facing this sector and promoting patient-centered care.

Finance

Today's increasingly digital and globalized world brings several new problems to the financial industry. Cybersecurity is one of the major concerns. According to a Boston Consulting Group analysis published in 2020, financial services companies, like banks, insurance companies and similar, are 300% more likely to be attacked by a cyberattack than any other industry.

Besides cybersecurity, this industry faces several other challenges, including regulatory compliance and risk management. An additional challenge that is not related to external threats is customer experience. Automation, personalized approach and customization have become a mandatory part of a good service, and without them, financial companies can hardly stay competitive. Custom software solutions offer a way to address all these challenges. For example, custom created cybersecurity systems can adapt to specific threats. An AI-powered tool can automate regulatory compliance. Advanced analytics can enhance risk management. Additionally, custom software can improve customer experience by offering personalized services and approach.

Retail

In this industry, the growing popularity of online shopping has drastically increased competitiveness. Today, there are more than 27 million ecommerce websites on the Internet, with around 2.71 billion people shop online globally. In 2024, approximately 20.1% of retail purchases are expected to take place online. And this share is expected to rise to 22.6% by 2027.

Besides the challenges that e-commerce brings, retailers are faced with inventory management challenges. Balancing supply with shifting demand is difficult and can result in overstocking or stockouts, both of which reduce profitability. Furthermore, with the rise of omnichannel shopping, ensuring a consistent consumer experience across all platforms without a good software solution customized to the needs of retailers can be a huge problem.

Custom software development can help retailers address these challenges with systems that track stock levels, forecast demand, and automate restocking, as seen with Walmart. It also can enhance customer experience with personalized recommendations, streamlined checkouts, and after-sales support.

Custom software development vs. Off-the-shelf software

Custom software development is a process that creates software tailored to a business's unique needs, either from scratch or based on open-source or proprietary software.

Off-the-shelf solutions are pre-existing software products available to a wide range of companies, often less expensive. But the lower price brings some drawbacks.

Unlike off-the-shelf solutions, custom software offers better integration with systems the company already uses. It can increase efficiency and improve security measures. It can also accommodate the company’s growth and scale without requiring a complete overhaul.

Choosing custom software development or an off-the-shelf solution will depend on a business's specific needs and requirements. Custom software can offer greater flexibility, but it can also be more expensive and time-consuming to develop. Off-the-shelf solutions are typically less expensive and easier to implement, but sometimes provide a low level of much needed customization.

Benefits of custom software development

Security

Off-the-shelf software may have a different level of security than custom software. With custom software development, businesses can implement specific security measures to protect their information and data. Some of the ways custom software can improve security are:

• Encryption - software can be built with encryption to protect sensitive information such as credit card numbers, personal data and login credentials.
• Network security - Custom software can be created with features such as firewalls and intrusion detection systems to protect against cyber-attacks.
• Auditing logging - Custom software solutions can be built with auditing and logging features that allow companies to track and monitor access to their information and data.
• Compliance - Custom type software can be built to comply with industry-specific regulations and standards such as HIPAA, PCI-DSS, and GDPR, which can help companies to stay compliant and avoid fines.
• Regular updates and maintenance - Custom software solutions are regularly updated to ensure that any vulnerabilities or bugs are fixed promptly.

Scalability

Scalability is an important factor in custom software development. Scalable software allows companies to grow without needing a complete system overhaul. It can handle increased number of users, transactions, or data efficiently, helping companies to adapt as they expand their business.

Creating software with scalability in mind ensures that costs remain manageable, even with growing operational demands.

Competitive edge

Custom software helps companies gain a competitive edge through automation, unique features and cost efficiency. By automating tasks and streamlining processes, companies can operate faster and more effectively.

Software like this can offer unique features and improved user experiences, while also reducing costs to support competitive pricing. Additionally, it can integrate seamlessly with existing systems and be optimized for mobile devices, boosting accessibility.

Flexibility and integration

One of the most significant benefits of custom software solutions is the flexibility they provide. Each company has its own set of specific requirements, procedures and processes. Off-the-shelf software may provide a general answer, but frequently fails to meet the unique requirements of individual businesses.

Unlike the off-the-shelf solution, custom software can be easily modified or updated to accommodate changes in business operations or implement new features. This allows companies to easily adapt and grow, without having to replace the entire system with a new solution.

The process of custom software development

Requirements gathering and analysis

This is the initial stage of the process. The requirements gathering often consists of multiple meetings to understand the business needs and the project itself.
It's an opportunity to build a shared language with the team working on the project. Everyone engaged can understand objectives, specs, what the program needs to perform, and who will use it.

After obtaining all the requirements, they are compiled into a thorough strategy outlining how to effectively address those demands. This process includes establishing the project scope, developing a project timeline, and detailing the software application's needs.

Design and prototyping

Once the software developers have determined what they need to create, they must select how to do it. This is the stage at which all the previously mentioned abstract thoughts and ideas begin to take shape.

The fundamental principle of system design is to architect the software solution. Senior software engineers and architects collaborate to establish the software architecture type, components and modules. They define how data flows and how system components interact.

This is also the stage where UI/UX design takes place. While engineers build the technical foundation for the solution, designers plan the visual layout for your responsive software application.

Development

The phase that takes the longest, but is also the most important one. This is the actual work of developing the project. Developers work with designers and product owners to build the infrastructure, develop code, and construct the web application, following the steps outlined in previous phases.

Testing and deployment

The testing phase that comes after the development identifies and resolves bugs and defects to ensure the software complies with quality standards. Testers conduct both non-functional tests, to evaluate aspects like reliability, security and performance, and functional tests, to confirm that all features perform as intended.

After the testing phase is completed and all bugs are fixed, it’s time to deploy and let the end-users experience the software for the first time and provide feedback.

Methodologies used in custom software development

A software development life cycle (SDLC), often called the application development life cycle, is the process of planning, creating, testing and deploying software. It consists of several phases, each of which builds on the outcomes of the preceding one.

The SDLC is a critical component of any software project management methodology. The specified software development life cycle often determines the project management result. Many SDLC models, such as Traditional Software Development, take a systematic approach to development, whilst others do not, emphasizing speed and flexibility.

When developing custom software, choosing the right methodology is an important part of the project. Here are some of today's popular choices.

Waterfall

In the software development life cycle, the Waterfall model is used for linear and sequential system design. This model is known as Waterfall because it advances in a systematic downward manner from one phase to the next. The output of one step is used as the input for the following one.

One of the model's key features is that each phase must be completed before the next one can begin, and the phases must not overlap. The sequential phases of the Waterfall model are:

1. Requirement Gathering and Analysis
2. System Design
3. Implementation
4. Integration and Testing
5. System Deployment
6. Maintenance

The phases do not overlap in the Waterfall model, which often leads to inflexibility which can cause issues with the software development process because it does not offer feedback between the development phases.  The requirements are set in stone from the start. No newly found knowledge can be used to improve the requirement once the analysis has been completed.

The Waterfall model is suitable for the following situations:

• The client does not want to be included in the development process, but wants to be informed at the start and provided with a working product at the conclusion.

• Requirements are well-documented and well-defined.

• The definition of the product is consistent.

• Technology is well-understood and unchanging.

• There are no unclear criteria.

• The product is supported by many resources with the necessary knowledge.

• The project is not long.

• The speed of project delivery is not a priority.

Agile

Agile methodology as an iterative approach to project management. This methodology focuses on collaboration, flexibility and delivering small, incremental improvements instead of one final product. It promotes adaptive planning, evolutionary development and continual feedback. Teams work in short cycles called sprints, prioritizing tasks and adjusting based on changing needs. Agile contrasts with traditional "waterfall" methods, offering faster responses to change, continuous delivery, and more efficient use of resources.

Custom software development examples

Our first example is a company we all know – McDonald's.

They revolutionized customer service by using specialized software to conveniently handle the customer’s experience through the entire process. This idea was a step toward increasing order volumes and facilitating contactless payments.

Their self-serve kiosks and contactless payment systems are simple, yet effective, providing optimal results. These kiosks have been essential in raising customer loyalty and satisfaction. McDonald's has enhanced the overall customer experience by giving customers more control over their ordering process.

According to data, McDonald's started rolling out self-service kiosks in 2015 and witnessed a 5%-6% sales growth within a year.

Air Canada

Air Canada's customized ticketing and finance application revolutionized revenue management and operational efficiency.

By breaking free from the limitations of outdated technology and investing in custom software, the airline paved the way for a sophisticated ticket pricing strategy throughout its wide-ranging network of sales agencies.

Pricing was only one aspect of this specially designed system; it was a comprehensive solution that blended in well with back-office functions. The revenue management and simplified financial reporting, which provided Air Canada with an overview of its financial health, were the true game-changers.

Netflix & Amazon Prime Video

Videos, music, and live events can all be streamed using specialized streaming software. Even under difficult network situations, this software is usually able to provide high-quality audio and video streaming.

Examples of well-known streaming software are Amazon Prime Video and Netflix.

For instance, Netflix's streaming software is based on Open Connect, a specially designed content delivery network (CDN). This CDN is made up of specialized servers strategically positioned across the world to guarantee that Netflix can promptly provide its users with localized content.

The program is also used by Netflix to collect information about user preferences. After that, the business uses algorithms to evaluate the data and provide custom recommendations.

MayoClinic

CareLink from the Mayo Clinic is a well-known example of healthcare software. CareLink gives medical professionals access to clinical standards, patient data and best practices to help them make decisions.

Additionally, the Mayo Clinic makes use of the software's proprietary online application platform which uses machine learning and artificial intelligence to support individualized treatment plans, identify and anticipate health concerns, and enhance patient outcomes. Additionally, there is software for clinical trials, research, development, training, etc.

Custom software development cost estimation – In-house vs. Outsourcing

In-House Development Costs

A team of developers, designers, testers and project managers. Here are the key cost components:

Salaries

Example positions and average salaries (U.S. estimates):

• Software Developer: $105,000 - $167,000/year

• UX/UI Designer: $92,000 - $160,000/year

• QA Engineer: $89,000 - $135,000/year

• Project Manager: $103,000 - $183,000/year

Recruitment and onboarding:

Hiring a specialized team is costly and time-consuming. Recruitment fees, training and onboarding costs can add up to $10,000 - $20,000 per new hire.

Ongoing costs:

Full time employees come with additional costs, such as healthcare, paid time off, different benefits, etc., which can add up to 20-30% on top of salaries.

Maintenance and long-term support:

With an in-house team, you also need to maintain the software over time, handle updates, bug fixes, and scale the solution as the business grows.

Infrastructure and tools:

Building software internally requires investment in development tools, software licenses, and office infrastructure (servers, hardware, etc.).

Outsourcing Development Costs

Outsourcing involves hiring a third-party team (or company) to handle the development process. Here’s how outsourcing costs typically break down:

Hourly rates by region

Outsourcing costs vary depending on the region. Here’s a general range of hourly rates for outsourced developers:

• North America: $55 - $125/hour

• Western Europe: $40 - $80/hour

• Eastern Europe: $30 - $70/hour

• Asia (e.g., India, Philippines): $20 - $50/hour

Time required for app development can vary, depending on the complexity:

• Basic apps: 300 to 600 hours (example: simple to-do list, weather apps, etc.)

• Moderate-complexity apps: 600 to 1,200 hours (social media apps with basic features, simple e-commerce app, fitness tracking app with user profiles)

• Complex apps: 1,200 to 2,500 hours or more (enterprise apps, complex social networking platform, etc.)

Scalability and flexibility

With outsourcing, you can scale up or down based on the project’s needs without the long-term commitments of salaries, benefits and other additional costs.

If the project requires niche skills or additional team members temporarily, it’s easier and faster to onboard them through outsourcing.

Lower overhead costs

Since the third-party firm handles infrastructure, recruitment, tools and ongoing costs, you can eliminate many of the overhead costs associated with in-house teams.

Cost Comparison Summary

Conclusion

Custom software development empowers businesses to address unique challenges, improve efficiency, and gain a competitive edge. While off-the-shelf solutions offer quick and cost-effective options, custom software delivers tailored functionality, scalability, and robust security. Whether developed in-house or outsourced, the investment in custom software can drive growth and innovation by aligning with a company’s specific goals and operational needs. In an increasingly digital world, the right software solution can be the key to sustained success.

Are you looking for a custom software development partner?

We take pleasure in creating custom software solutions that meet our clients' specific business objectives. Our emphasis on open communication and cooperation guarantees that we work effortlessly with our clients to meet their business goals.

By keeping up to date with industry trends and adopting continuous learning, we allow our clients to successfully exploit cutting-edge technology. We aspire to preserve our reputation for dependability, functioning as a long-term software development partner. If you are looking for a custom software development partner, do not hesitate to get in touch.