Cost Formula for Developing Magento Store

Cost Formula for Every Project – Not Just Magento Store

Consider the simple project cost formula: Project Hours x Hourly Rate = Project Cost

Assuming that both the client and the provider are competent, any digital project, including Magento software development work, essentially depends on two things: 1. the number of work hours required multiplied by 2. the hourly rate. We will explore the hourly rate for Magento Development further, so let’s consider the project estimation part first.

Project Scope Estimation

It takes two to tango, so the project estimation of your Magento development depends on both your understanding of your business needs and the accuracy in resource estimation by the provider of your choice. In fact, projects failure risks are compounded when unclear project specifications meet incompetent execution: missed project deadlines and runaway costs happen exactly for these reasons.

This is why developing a technical specification document is a good idea if you’re planning to build an online store based on the Magento platform from scratch – or to make a major upgrade to your existing store. Remember that errors and inaccuracies in your ability to understand and specify what Magento work you need done will result in padded project estimates and unnecessary costs, so a cost-effective solution is to hire a third-party provider to help you develop a project specification.

As a customer you don’t necessarily need to be technically savvy, but you do need to be willing to spend some time delving into functionality of your project. Why is this important? When you cannot pin down exactly which features you need, your provider “pads” the project estimate with additional hours to account for the lack of clarity. Reputable developers know about this risk, and often insist on a Discovery Session or a Workshop to mark at least a few project signposts that allow for more accurate project scope understanding.

Requirements engineering is not easy, so be prepared that transforming your idea into a formal technical specification with enough information for software developers will take time, effort, practice and also will cost money.

Plan to invest 5-10% of your project budget on building the requirements specification. Most software development companies offer the service to clarify, refine and document the technical specification. These services usually start at $1000 per day of work for face-to-face discovery sessions, with workshops over Skype being cheaper (since there is a bigger pool of professionals from lower-cost countries).

Finally, if you are determined to pay next to nothing and have the time and affinity for learning, read Software Requirements and More About Software Requirements: Thorny Issues and Practical Advice by Karl Wiegers. If you have a good business understanding and are able to document them even as less formal requirements (user stories and use cases), you are still likely to have your Magento store built right, earlier, easier and cheaper.

Hourly Development Costs for Magento Professionals

Over 240,000 stores worldwide and 26% of all eCommerce websites in the Alexa’s One Million eCommerce Websites List built on Magento, making it the industry standard in eCommerce. Having said this, Magento is a fairly involved platform – much more complex than WordPress and similar platforms that originated as blogging tools. This is why Magento is probably not right choice for the smallest online stores, but it is a great match for medium-sized and ambitious eCommerce businesses as Magento was developed specifically as an e-commerce platform.

Magento software development requires specialist professional training and experience, so Magento developers charge premium rates compared to the general software development market rates. Keep in mind that the price you pay for software development work is a function of the salary equivalent paid to the professional multiplied by the institutional overhead: the bigger the company – the move overhead. A freelancer, by definition, is the smallest “company” with the least overhead multiplier.

An overview of the hourly rate data of all types of work that can be done remotely is the following:

• Basic: $2-8
• Moderate: $8-15
• Standard: $15-25
• Skilled: $25-50
• Expert: $50+

As already mentioned, Magento software development is a highly specialist skill, so based on the data above the cheapest freelance work on the Magento platform should start from $25 per hour. Rates below $25 most likely contain hidden risks, and we’ll discuss them in detail in the post about Provider Selection. The most popular freelancer marketplaces to consider are oDesk, Elance, Guru and freelancer.com. Location also matters, as a quality programmer in California will charge $100+ per hour, other US locations from $80, Eastern Europe $20-$40, Southeast Asia $10-$15 per hour.

Keep in mind that outside of the United States, lower rates correlate with lower English proficiency, increasing time difference and communication difficulties due to cultural differences – so be sure to check freelancer reviews by customers from your area prior to considering them. Working with freelancers always involves some risks, so even though the marketplaces’ dispute resolution and escrow features are often on the side of the hiring party, nobody benefits from a project dropped midway through whatever reason.

Contracting Magento development companies is a more reliable path that also offers the advantage of possibly higher productivity due to companies employing more specialist developers (application architects, database specialists), possibly better management due to more mature business processes and more relevant experience in your business vertical. However, the bigger the company, the higher the overhead you will be required to pay. On top of employee salary, companies need to cover costs such as taxes and insurance, office rent, equipment, marketing and sales, as well as the profit margin. Be prepared to pay 2-2.5 times the salary rate at smaller companies, rising to a 4x multiplier in bigger firms. In the following post on Provider Selection we discuss how you can find get your Magento store built without paying the hypothetical $400 per hour for a Bay Area developer at a top shelf company.

Magento Development Cost Summary

Let’s review the factors affecting Magento store cost:

• Project Cost = Project Hours x Hourly Rate
• Clear, precise, technical project description lowers Project Hours: it is a cost-saving investment
• Hourly Rate depends on Magento proficiency, location and company size

The technical project specification will help you separate the Magento store development project into concrete deliverables, each with a clear expected outcome and a possibility to end cooperation with the provider if the conditions are not met and the deadlines are postponed. Finding a suitable provider for your competence level able who to deliver to your quality standards is the topic of the following post.

Part 2 Preview: Magento Provider Selection

Provider choice is as important as it is confusing: reliability, prices and competence bandwidth vary widely. We will provide advice on determining the acceptable balance of quality and competence, which are key to controlling costs and minimizing overall risks. More…

If you have any questions about anything I’ve mentioned in this blog post or anything else related to Magento, please feel free to drop me a message via this form. I am on the team performing Magento development for large Magento projects.

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