IoT App Development Cost: Factors to Consider

Internet of Things (IoT) - connected devices in the US alone surpassed 13 billion in 2022. Globally, this number is expected to hit a staggering 29.4 billion by 2030. Estimations and projections reveal that, as the digital ecosystem and its capabilities grow, IoT powers an ever increasing amount of devices. 

For businesses, this growth translates to a potential $297 billion opportunity. What does it take to claim a share of this opportunity? It starts with an IoT application. 

Allow us a moment of understanding if this revelation takes you by surprise, as the crux lies here: we currently stand at a defining moment where for business, owning an IoT app is progressively shifting from a matter of choice to an imperative necessity.  

But determining what it would cost your organization to develop a custom IoT application is not that easy. This is because estimations may be as wide as a “$1,000 to $1 million”. 

Thankfully, we have broken down the crucial factors to consider when calculating how much IoT application development actually costs.  

Keep reading to learn how each factor affects the overall cost. Whether you want to develop your IoT application in-house or hire an IoT application development company, this breakdown is worthwhile. 

How does an IoT application work?

IoT allows you to receive, aggregate, and analyze data from business-critical devices and equipment. 

To achieve this, it incorporates multiple implementation layers, and the IoT application serves as the user-facing component of the IoT setup. 

The different IoT layers and how they work include: 

• The Hardware Layer, consisting of IoT sensors and IoT-enabled gadgets, appliances, and equipment, among others.Sensors for data collection are either installed internally or mounted externally on devices to make them IoT-enabled. 
• The Communication Layer is the network over which IoT data is transmitted. Data is sent to a virtual hub for storage through Wi-Fi, RFID, NFC, cellular networks, or any reliable data transfer protocols. 
• The Cloud Layer serves as a link between remotely located IoT devices and management platforms. The virtual hub takes collated data to the cloud where the IoT application gains access to it.
• The Application Layer is the IoT application through which users track and remotely manage IoT-enabled assets/devices. IoT applications present information to users through an intuitive graphical interface.
• The Security Layer is focused on the security of data storage and transfer within the IoT setup. This is where data protection protocols and techniques like encryption, strict access policies, and transport layer protocols (TSLs) are used to protect devices, the cloud, and network connections.   

Sometimes, to reduce the amount of data sent to the cloud, storage hubs are typically given big data analytics capabilities. Only actionable information is sent to the cloud for the IoT application to use. 

In more advanced setups, like in cybersecurity use-cases for example, IoT applications or hubs utilize AI and ML-powered analytic algorithms to achieve more granular use of collated IoT data. Data is processed against more accurate baselines, contextual insights on asset performance are generated, and graphical interfaces allow for more intuitive interpretations by application users. 

Now that we know how an IoT app works, what are the factors that affect how much is spent on its development?

Also Read: How IoT is transforming Businesses

Factors that influence IoT application development cost

Cisco reports that only 26% of IoT projects get completed, and one of the major challenges faced by all is budget overrun. Why? 

Well, businesses operate in different industries, in different sizes, and through different models. However, many don't seem to consider their uniqueness when determining development budgets. 

They don’t do adequate research into the factors that affect development costs inside and outside their unique implementation layers. 

To ensure IoT development budgets remain comprehensive enough, it is important to look into these major factors:    

1. UI/UX design requirements

UI/UX designs are the medium through which developers bring the IoT implementation to life, ready for the end user. They are the elements through which users interact with IoT functionalities, making them crucial to IoT. 

With UI, developers are concerned with layout, navigational, and intuitive data visualization elements. With UX, they are concerned with cross-device responsiveness and application response speed. 

It is important to note that the complexity of the UI/UX design is what you should focus on when determining overall costs. The harder it is to bring the required design elements and frameworks together, the longer the development hours spent, and, hence, the more development costs accrued over time. 

For example, a simple IoT application to monitor who knocks at a gate would need fewer UI/UX design hours than one that needs graphs to monitor dynamic electricity spikes. This means the latter will cost you more. Upwork shows that UI/UX designers may cost between $20 to $40 per hour, and you can expect to spend between 40 to 450 hours.

Also Read: How To Design a Great IoT Experience, Not Just a Product!

2. Number & complexity of features

The number of features needed by the IoT setup determines a lot of things. It affects the duration of the UI/UX design phase, the number of sprints needed (if using agile methodology), and the number of testing needed before the app is deployed. It even affects the code complexity to bring UI/UX designs to life. However, there’s even more to consider.

With the most complex IoT implementations comes the need for more advanced functionalities and third-party software. Advanced functionalities here may include the ML and AI algorithms that will power big data analytics and automation. Third-party software, on the other hand, includes the cloud platforms or tools needed to support the real-time utilization of advanced functionalities. For IoT application development, some of these software platforms include event management tools, cloud storage tools, data security tools, and network management tools. 

The extended length of development hours and the perpetual/subscription-based license fees on these third-party tools contribute to the overall cost of the IoT application. To show how complexity matters, a Clutch survey reveals that the cost of basic push notifications is majorly below $5,000, while a study from EpochAI shows that computing for training ML models could cost up to $80,000. In short, more features then translate to more costs. 

3. Number & complexity of integrations required to achieve interoperability

Now, with multiple third-party software comes the need for integration to maintain a unified IoT system. Expenses here vary based on the type of integration method adopted. On one hand, companies may choose point-to-point (P2P) integrations where highly-skilled developers write time-consuming code to link every solution directly to the IoT application. On the other hand, they may purchase enterprise service buses (ESBs) or look toward integration Platform as a Service (iPaaS) providers for more intuitive and centralized integration management.

P2P integrations prove to be the most expensive due to their time-consuming nature and skill requirement constraints. To save immediate integration costs, you may opt for iPaaS providers, however, perpetually-purchased ESB systems offer more cost-saving benefits in the long run. Moreso, ESBs may be the best option for you if you develop your supporting IoT solutions yourself. 

So how much does integration cost? Clutch shows that, although 40% of native integration features cost less than $5,000, over 20% still cost well over $25,000. The more complex integrations could cost over $100,000.   

4. Number of mandatory certifications required

Certifications don’t affect the efficiency of the core development processes or the IoT application’s functionality. So, why do you need to bear certification costs? Well, this is because, according to a study by the Ponemon Institute, non-compliance with mandatory standards exposes organizations to over 3 times more costs in the form of business disruptions, legal settlements, and regulatory crackdowns.

When it comes to IoT, the cost of compliance comes in two folds — the development cost of meeting the required standards and the direct cost of purchasing certifications from regulatory agencies.  With development, data privacy and environmental safety from radio frequency (RF) emissions are the typical focus. Developers engage in repeated testing, modifications, and documentation to ensure regulatory baselines are met. This results in lengthened development time and, hence, increased development costs. 

Once standards are met, companies may then purchase certificates from the necessary agencies. For instance, compliance with the Federal Communications Commission (FCC) Part 15B is necessary for IoT RF emissions. Hence, to have a certificate, companies need to pay application processing fees, annual regulatory fees, Freedom of Information Act (FOIA) fees, auction fees, and forfeiture fees, where necessary. For data privacy, general data protection regulation (GDPR) standards come into play. GDPR certificates are necessary if the application will be used within Europe. 

5. Level of experience and expertise of the development team

The developer skills and experience needed for IoT projects vary.  For example, IoT applications for controlling smart locks require fewer development skills than IoT systems for monitoring greenhouse emissions or creating real-time digital twins of mining equipment. 

The higher the complexity needed to develop IoT, the higher the experience and expertise needed, and the higher the cost of development. 

Expect an IoT app that requires an average developer with 1-3 years of experience to cost $47 per hour in development time, while a developer with 10 to 14 years of experience will cost an average of $58 per hour. Senior developers will take your costs up to $78 per hour and even more. All these are based on a 40-hour workweek schedule. 

The average time needed to develop an IoT app can be put between 150 hours to 4,200 hours depending on complexity.

6. Location of the development team if outsourcing)

In addition to expertise and experience, the location from which you hire your team also determines your overall cost of IoT development. 

For instance, while an average IoT software developer in the US with only 1 year of experience may cost $47 per hour, a senior software developer from Germany will cost you an average of $45 per hour — almost the same. 

Please note that these are only average rates. So don’t be surprised to find the extremely good developers charging way up as $500 per hour especially for highly specialized tasks. Of course, the cost must always justify the ROI. 

Also Read: The Latest IoT Outsourcing Trends

7. Amount and complexity of data to be collected and analyzed

The type, diversity, and volume of data to be collected from IoT devices and sensors play a crucial role in determining development costs. Higher-resolution data (like HD videos) and real-time streaming functions require more advanced and more expensive IoT sensors as well as application hardware. Diverse datasets require more application processing capabilities, and high-volume data transfer requires higher application infrastructure connectivity and storage capabilities.  

There are also dynamic data sources that allow for the bidirectional exchange of data, where the application is able to control the IoT-enabled device (like a thermostat). The culmination of high-grade requirements translates to more sophisticated application features, extended development time, and higher development costs.  

An example of how data can affect development costs is when a company may need AWS’s IoT analytics services to power application testing. As of the time of preparing this guide, the platform charges $0.2 per GB of data sent through the pipeline, $0.03 per GB stored, $6.6 per TB queried, and $0.36 per hour to run custom analysis code. With 10 TB of data processed over the month, you would be spending $2,000 on pipeline processing, $300 on storage, and $66 on query processing, totaling $2,366. With 400 hours of custom-code analytics, this goes up to $2,510 per month. 

How much can it cost you to develop an IoT app like Alexa? 

Alexa is an AI-powered virtual assistant software that emerged from Amazon’s acquisition of Ivona, a Polish company  — announced in 2013.  First embedded in the Amazon Echo, it has grown to become a powerhouse in IoT applications, with Amazon projected to sell 94 million units in 2023 alone. Through the Amazon Alexa app, Echo, Echo Dot, and Echo Show speakers, users can control entire homes. The Alexa IoT app can be interconnected with vacuum cleaners, smoke detectors, lighting, TVs, and even heating systems, to mention a few, and give you control over them from anywhere you have an internet connection. 

To create an app with incorporated AI-powered smart home control and high-level security features like the Amazon Alexa, estimates put the cost at around $50,000.

Remember this is the cost of developing a basic app that works like Alexa. It’s in no way the value of the Alexa app. Please differentiate between the two. 

The cost of IoT app development: approximate breakdown of all vital costs

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Quick tips to reduce the cost of developing an IoT app

As we see, IoT implementation costs can get scarily high. Not everyone has the venture capital backing to build comprehensive IoT systems, networks, and applications worth hundreds or even millions of dollars. If you want to have a go at it, however, it would do you great service to apply some best practices on cost-saving. Some of these include

1. Take advantage of low-cost geolocations

Hiring designers and developers from outside the US can save you a lot of money. Remember, a senior developer from Germany may charge less than an average developer from the US.

2. DIY

This may apply more to small to medium businesses. Our cost analysis shows that a chunk of the development costs goes toward paying developers to build the IoT app. 

Personally taking up as much of the development and IoT network setup tasks as possible could save small business owners some money. 

3. Utilize reusable resources

Creating reusable design components and modules allows you to save time when building features and even future IoT apps. Saving developer time means saving IoT costs.

4. Research thoroughly

An in-depth research into IoT app requirements will reduce the workload on IoT project managers, designers, and developers. These personnel spend less time thinking and more time working to bring the app to life. 

5. Test thoroughly before deployment

IoT apps are expected to be either making money or saving costs when launched into the production environment. 

Without appropriate testing and reengineering before deployment, however, companies may have to put the IoT app back in the hands of developers. At this point, they accrue thousands of dollars in unexpected costs due to critical code changes.

Conclusion: don’t forget the hidden costs!

After considering critical factors and drawing out cost-saving strategies, you may think it’s time to spin up the “comprehensive” IoT development budget. Not so fast. 

Always remember that the software lifecycle doesn’t end when it is launched but continues through infrastructure maintenance, security support, and feature upgrade processes. In fact, these may cost up to 67% of the overall spend on custom software applications, making it crucial to also give hidden costs some attention.

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