Factors that influence the cost of IoT solutions

$714.48 to $4,062.34 trillion. That’s IoT's estimated annual economic impact from 2024 to 2032, according to Fortune Business Insights. Yet, for many businesses, IoT still feels like a distant dream – wrapped in layers of complexity and an intimidating price tag. So, is IoT out of reach for most businesses? Or is it a matter of the high costs being a myth?

The Internet of Things is enabling innovative product evolution, creating seamless customer experiences, and changing the way we operate like never before. IoT is everywhere – from smart factories to predictive healthcare. However, many business owners hesitate to adopt IoT, fearing the unknowns of development, scalability, and hidden expenses. Here’s the truth: IoT doesn’t have to break the bank.

Whether you’re eyeing a ready-made platform or considering a custom-built solution, you need to know the key cost drivers to make a decision. In this article, we’ll bust the myth of IoT complexity and shine light into IoT app development cost. Find out what an IoT solution looks like, what hidden pitfalls to avoid, as well as which path to take: ready to use or custom. Ready to take the plunge? Let’s start.

Why IoT costs seem overwhelming

For many businesses, the idea of implementing IoT solutions is like looking at a giant mountain – intimidating and quite shrouded in uncertainty. With terms like “sensors,” “edge computing” and, “LPWAN” sounding technical and complex, it’s easy to believe that IoT development is prohibitively expensive.

The truth? While IoT is neither expensive nor inaccessible, per se, it is perceived that way due to three important reasons.

The unknowns of technology

The combination of hardware, software, connectivity and cloud infrastructure can appear overwhelming for companies that lack in-house tech expertise. It can also seem daunting if you’re an organization conducting a new IoT project without your own tech team. When questions like “What devices should I use?” and “How do I secure my data?” contribute to the anxiety, things can get complicated very quickly. That’s why, it’s natural to assume the worst about the cost of IoT sensors when the technology isn’t fully understood.
Misconceptions about cost structure

Many businesses believe IoT requires expensive, custom-built solutions from the start. In reality, off-the-shelf platforms and modular approaches are available to help companies to start small and scale up as needed. Furthermore, there are also myths about the network connectivity and cloud storage costs and maintenance which result in an increased expectation of high financial burden.
The pace of innovation

IoT technology is evolving with successive protocols, devices, and platforms. These speeds can, therefore, leave businesses feeling as if they’re perpetually playing catch-up, afraid that today’s investment will be old news tomorrow. However, the reality is that IoT costs can be affordable if you have a good strategy in place. Knowing the core components it provides, businesses don’t need to invest in creating the engine or the way to deliver value.

IoT doesn’t have to be a financial black hole. It’s a strategic tool to increase operational efficiency, drive growth, and optimize your bottom line. It’s about demystifying the process and we’re hoping to do that.

Simplifying IoT: the five key layers

Examining IoT solutions broken down into fundamental layers makes them seem less complex to understand. Each layer plays an important role in realizing functional, efficient and scalable IoT systems. Here’s a closer look:

Hardware layer

This layer involves the physical devices – sensors, actuators, and controllers – they collect and transmit data. Thus, these are the 'smartest' IoT components. For prototyping, begin with off-the-shelf platforms – don’t start with custom hardware. For example, a quick basic Raspberry Pi setup will serve to validate ideas without huge upfront costs.
Connectivity layer

The connectivity layer ensures devices can communicate with the cloud and each other. This includes networks like Wi-Fi, Bluetooth, LTE, or low-power options like LoRaWAN. To manage costs, choose a network based on your use case and geographic availability. For example, the LoRaWAN provides very low-cost (approx. $4-$6 per device per month) connectivity for deployment in remote locations.
Cloud services layer

This cloud is where your IoT data is stored, processed, and analyzed. Instead of developing your own server, you can choose ready-made solutions with scalable pricing through platforms like AWS IoT or Google Cloud IoT. Working smaller with these services can save you time and resources.
Software layer

It encompasses the embedded software that runs these devices, as well as the user-facing apps (any web, mobile or cross-platform). If your project is in an early stage, you may want to consider using the open-source framework or SDK to reduce the IoT app development cost and add functionality to your product.
Security layer

IoT security includes all layers, protecting the devices, data and communication channels. The basics of encryption, secure access controls, and repeated updates are musts. Built-in security features are part and parcel of many cloud platforms such as AWS IoT, which provide a rock solid starting point.

Understanding these layers allows businesses to simplify their work in IoT development, focus on what’s needed, and at the same time cut their costs without sacrificing on functionality or scalability.

Ready-to-use vs. custom solutions

One of the biggest decisions you will make regarding an IoT project is choosing between ready-to-use platforms and building your own custom solution. Each option offers a lot, and the right choice depends on your business goals, resources, and timelines.

Custom solutions: when do they make sense?

Custom-built solutions are tailored to meet specific business needs, offering complete control over every component. They’re a better choice when:

Industry-specific needs: Off-the-shelf platforms such as specialized data analysis or security protocols, don’t meet unique requirements.
In-house expertise: Companies with skilled IT teams can often develop more cost-efficient and adaptable solutions in the long term.
Scaling concerns: When your project is expected to grow massively, building a custom infrastructure can help reduce operational expenses over time.

Ultimately, the choice depends on balancing short-term goals with long-term ambitions. A practical, hybrid approach involves starting with an off-the-shelf platform and transitioning to custom development as your IoT ecosystem grows.

Factors influencing IoT costs

There are many factors that can make building an IoT solution costly. By understanding these key drivers, you can make informed decisions and effectively manage your budget.

1. Hardware costs

Any IoT system consists of hardware: sensors, actuators, and devices. Factors influencing cost of IoT sensors include:

Type and quantity: The more devices and sensors are needed, the higher the cost is.
Power and durability: Devices with extended battery life or devices built to withstand industrial use tend to cost more.
Cost-saving tip: Start small with off-the-shelf components like Arduino or Raspberry Pi for prototypes. These cost-effective platforms are perfect for MVPs and concept validation.

2. Feature complexity

The scope and sophistication of your IoT solution’s features play a significant role in cost:

Basic features: One could possibly start at $30,000 with simple data collection and display.
Advanced features: Simply put, integration with payment systems, AI-driven analytics, or real-time monitoring can exceed $50,000 in costs.
Cost-saving tip: Determine features for your MVP that you need to be prioritized first. In the subsequent iterations, you can add further functionalities.

3. Scalability

IoT systems often start small but need to handle rapid growth. Scaling costs can include:

Supporting thousands of devices instead of hundreds.
Managing diverse data streams without compromising performance.
Cost-saving tip: Use modular, microservices-based architectures to accommodate future growth efficiently.

4. UI/UX design

User experience matters, especially for end-user applications. A clean, intuitive interface can enhance IoT adoption but may require more investment.

Cost-saving tip: Use open-source design frameworks for early-stage development and refine as the user base grows.

5. Interoperability

Ensuring seamless communication between devices and systems is critical. Open-source messaging MQTT or CoAP protocols can reduce integration costs and enhance flexibility.

Hidden costs and how to avoid them

The direct costs of IoT development – hardware, software, and connectivity – aren’t hard to see, but there's a real risk that hidden costs can sneak up and derail budgets. Planning ahead will save your project from these unexpected expenses.

Scaling costs

If you build a solution that can work for hundreds of devices, that solution may fall short of thousands of devices and require expensive overhauls.

Real-world example: A retail chain launching a smart inventory system might start with a few pilot stores. If scalability isn’t planned, expanding to hundreds of locations could require costly reengineering of the network and cloud storage.

Solution: Design for scale from the outset. Use modular, microservices-based architectures and choose cloud providers with flexible scaling options, like AWS or Azure IoT Hub.

Scope creep

Inadequate planning can result in mid-project changes, causing timelines to stretch and budgets to balloon. This often happens when requirements aren’t clearly defined at the start.

Hypothetical scenario: A logistics company decides to add real-time vehicle tracking to its IoT platform mid-project, leading to additional hardware and integration costs.

Solution: Begin with a discovery phase to outline detailed requirements and create a software requirements specification (SRS). This document ensures that all stakeholders agree on the project scope before development starts.

Maintenance and updates

IoT solutions require ongoing support, including software updates, device replacements, and security patches. These recurring expenses can add up over time.

Solution: Partner with a development team that offers post-deployment maintenance as part of its service offering. Proactive maintenance is always cheaper than reactive fixes.

Security risks

Overlooking security during development can result in costly breaches down the line.

Solution: Invest in cross-layer security protocols during initial development. Encryption, secure access controls, and regular updates help mitigate future risks.

Conclusion

IoT is not just a technology trend; it’s a game changing tool to drive efficiency, innovation and growth across the business. But it has to be smartly planned and executed strategically. As you enable these five key layers, every decision you make today around cost, scalability and long term potential will have an impact on your project. Starting small, focusing on essentials and scaling smart are the keys whether you start with a ready-made solution or build a custom solution.

There is no doubt that you will need to partner with experienced professionals if you want to be successful. The right expertise provided by Kaa will help you sidestep hidden IoT app development costs, have robust security and shorten the time to market.

So, are you ready to implement your IoT vision?

We will work together and provide you a cost-effective, scalable, custom solution for your business. Let us help you reach the first step to tapping into the power of IoT today – contact us for detailed information.