Understanding AI Development Cost: Key Factors and Insights for 2025

AI is powering many tools we take for granted, like Siri, self-driving cars, and even these eerily human-like chatbots. If you're thinking about developing similar tools for your business or personal use, the first big question is: how much does AI cost?

The short answer is it depends. AI app development costs vary based on complexity, data requirements, and the expertise of the developers. Moreover, before naming any precise figures, developers need to know whether you want to build a new stand-alone solution or strengthen your existing systems with artificial intelligence.

But since artificial intelligence has been around for a while, the costs are definitely getting more democratic and accessible for the smaller and typical projects.

Let's take a closer look at how you can build your AI solutions money-wise and optimize your expenses on such initiatives.

Understanding AI Development Costs

Before we dive into the numbers, you need to know what AI project development actually involves. Artificial intelligence has much to offer, from the simplest tools like chatbots to image recognition systems and complex machine learning models.

That's why the development costs will usually depend on:

1. Complexity of the AI System

Simple artificial intelligence, like basic chatbots or recommendation engines, is cheaper because it requires minimal development. On the other hand, advanced AI systems, like deep learning models for medical diagnosis or autonomous vehicles, are expensive because they need more powerful algorithms, longer training times, and specialized expertise.

So,

• A basic chatbot for a website may cost $5,000 - $15,000.
• A deep-learning AI solution for medical image analysis could cost $200,000+.

2. Data Requirements

Since artificial intelligence needs data to learn, the more data it requires, the higher the cost. If you already have clean, structured data, development is cheaper. If data needs to be collected, cleaned, and labeled, costs go up.

For example, a chatbot trained on FAQs, which is simple data, will require less investment than an AI trained on thousands of medical records that need manual labeling.

3. Customization Level

Off-the-shelf AI solutions, such as pre-made chatbots, are more affordable. But fully customized AI systems, which are built from scratch, are more expensive because they require custom coding and training.

Here’s what to expect for different levels of customization:

• If you want to use an existing chatbot service like ChatGPT API, this might cost $100 - $500 per month.
• If you need to build a unique model for fraud detection or any other specific tasks, the AI software development cost could be $50,000+.

4. Team Expertise & AI Development Costs

You will need AI developers, data scientists, and machine learning engineers to build AI-based software, and these experts usually charge high rates. The total costs depend on whether you hire a freelancer, an in-house team, or an AI development company.

We will look at this in detail later, and here’s a short preview:

• Hiring a junior AI software developer might cost $50 - $100/hour, while an expert AI specialist charges $200+/hour.
• A full AI development team for a complex project could cost $100,000 - $500,000.

Now, let’s explore these costs in more detail, starting with implementing AI for custom needs.

What Is Custom AI Development?

Custom AI development means building an AI solution from scratch for your needs and only your own. Unlike pre-built AI tools (like ChatGPT or Google Cloud AI), custom AI systems come from the unique business requirements and the need to keep everything in-house.

Real-life Examples

• A retail company may want an AI that predicts customer buying patterns without sharing their data with third-party tools.
• A hospital might need AI-powered diagnostic tools that would integrate with its EHR system.

Custom AI solutions usually cost more than off-the-shelf artificial intelligence because they need new algorithms, training data, and extensive testing.

How Much Does Custom AI Development Cost?

Here’s a rough estimate of what different, most common custom AI projects might cost. These ongoing costs of AI are estimated for development, data processing, and training.

Artificial Intelligence Development Project: AI Implementation Stages

We can also look at the operational costs from a project-size perspective. A full AI project includes several stages:

1. Research & planning – Understanding the business needs.
2. Data collection & cleaning – Preparing the data AI will learn from.
3. Development & training – Writing algorithms and training the model.
4. Testing & optimization – Checking if the AI works accurately.
5. AI implementation & ongoing maintenance – Introducing AI into the real world.

Cost of Projects Based on Their Size

For projects of different sizes with all these stages included, the breakdown of artificial intelligence costs will look like this:

Additional Factors Influencing Costs

Plus, AI costs usually vary by niche:

• Healthcare AI specialists have higher rates due to regulatory requirements.
• Finance & trading AI software developers are also expensive due to security and complexity.
• The costs of AI for gaming & virtual reality depend on real-time processing needs.
• NLP & chatbot developers impose mid-range costs depending on language complexity.

Hiring a freelancer might be cheaper, but you will need to manage a big slice of the project on your side. On the other hand, an AI software development agency provides full project management and handles every stage from research to testing and going live.

If you are more into trends and big AI initiatives, you'd likely be interested in the recent research on the transformation of AI costs.

How AI Software Development Costs Change Over Time

The paper How Much Does It Cost to Train Frontier AI Models? published on June 3, 2024, gives a detailed analysis of the growing artificial intelligence costs involved in training frontier AI models, examining hardware, energy, cloud rental, and R&D staff expenses.

Here are the key takeaways from this work.

Soaring costs of AI

The cost of training cutting-edge AI models has grown by 2–3x per year since 2016. By 2027, the largest models are projected to exceed $1 billion in training costs. In addition to this, infrastructure costs are growing as well.

Cost breakdown

Hardware is the biggest expense, making up 47–67% of the total cost of artificial intelligence. R&D staff accounts for 29–49%, and energy consumption is 2–6%.

Cloud vs. owned hardware

Training on rented cloud hardware costs nearly twice as much as training on in-house infrastructure, though both methods show similar cost growth trends (~2.5x per year).

Power demand

The electrical power needed for AI supercomputers is skyrocketing. If trends continue, AI models could need gigawatt-scale power supplies by 2029.

Barrier to entry

The rising costs mean only well-funded organizations can afford to train frontier models, raising concerns about concentrated AI development and limited innovation.

Investment challenges

Developers must convince investors that the increasing cost of artificial intelligence will yield economic returns. Otherwise, funding could become a bottleneck for future AI advancements.

The good news is that most of the AI software for business has nothing to do with the latest discoveries and cutting-edge innovations. These tools perform very specific functions and can be used across many existing systems and departments. Yet, only 25% of small businesses use them in one way or another, even though GenAI alone can increase productivity by up to 45%.

How Much Does AI Cost for Small Business

Let's take a look at the different types of innovative AI solutions for small businesses that can increase employees’ productivity, their typical custom development costs, and average SaaS subscription fees (if you’re not into development):

Some Important Things to Keep in Mind

• As we've covered, AI development costs vary based on the complexity of the AI tool, the level of expertise and customization required, and location. More advanced or niche AI solutions will also be on the higher end of the cost range.
• SaaS subscription prices are the average estimates for standard subscriptions. Some tools have free versions with limited features or pricing tiers that scale with usage or features.
• Most SaaS subscriptions are estimated for 1-5 users. For bigger teams looking for cost-effective solutions, it’s better to check the pricing on the products’ websites.

If you’re considering AI software development for your small or growing business, we have some tips for cost optimization. Read on to learn what you can do to cut a bit from the total AI investments.

How to Optimize Artificial Intelligence Development Costs

Now you know that AI models can get pretty expensive, but there are smart ways to cut the costs of artificial intelligence projects without compromising quality.

1. Start Small and Scale Gradually

You don't need to build the biggest and most complex AI model right from the start. It's best to start small with a simpler model, and as your business grows, you can always scale it up. This way, you can cut some unnecessary costs in the beginning.

For example, building a chatbot for customer service, you can start with a basic model that answers common questions and then add more features over time. However, the success of this strategy will also depend on how well your developers build a basic app so that it's flexible and scalable.

2. Use Pre-built AI Models and APIs

AI software development projects can be rather expensive. But if you are not aiming to reinvent the wheel and are okay with using third-party tools, you can opt for a more cost-effective approach to implementing AI.

Examples of available models

You can check out plenty of pre-built AI products and APIs to eliminate the need for creating custom solutions from scratch. Existing frameworks like Google's TensorFlow, OpenAI’s GPT, or IBM Watson save a lot of time and money, especially in the early stages of development.

Such as instead of building your own image recognition system or advanced AI analysis system, you can use an API from a service like Amazon Rekognition. You'll only pay for what you use, and you don’t have to spend time and money building the technology yourself.

3. Take Advantage of the Latest Cloud-Based AI Solutions

Cloud services like AWS, Google Cloud, and Microsoft Azure let you use their AI technologies without investing in expensive hardware. Their pay-as-you-go model means you don’t need to buy pricey equipment upfront. AI management and ongoing maintenance costs will be lower as well. Plus, you can scale your usage up or down based on your needs and keep costs flexible.

4. Optimize Your Data

As we've covered, training AI models requires lots of data, but more data doesn’t always mean better results. That's why carefully selecting the most relevant data for your task is the first step to cut the costs of fixing and adjusting things in the future. You can save on both the computational costs and the time needed for AI management and training.

If you're building an AI for product recommendations for retail, you can focus on high-quality customer data collection, rather than trying to gather data on every product you have. Quality over quantity is the key to avoiding wasted resources on irrelevant information.

5. Consider AI Model Efficiency

Project complexity is one of the key factors that affect the cost of AI. That's why you need to estimate your requirements carefully.

Some artificial intelligence models need more processing power and time than others, so choose more efficient algorithms or optimize the ones you're using to cut down on artificial intelligence costs.

If you're working with natural language processing (NLP), you don’t need the largest model like GPT-4 for simple tasks. A smaller model like BERT might be enough to get the job done at a fraction of the cost.

6. Use Open Source Tools

There’s also a treasure trove of open-source AI platforms and libraries that save you money. PyTorch, Keras, and scikit-learn are free to use and have been developed and refined by a large community of AI experts.

What can such solutions offer?

PyTorch is known for its flexibility, especially in research and prototyping. Keras simplifies the process of designing and training deep learning models. It is a good option for quick experimentation. Scikit-learn provides simple and efficient tools for data mining, analysis, and modeling. That's why it is an excellent choice for traditional machine learning tasks.

The application of such tools can help you significantly reduce AI software development costs.

7. Collaborate with Research Institutions

If you have the right connections or are part of a larger company, collaborating with universities or AI research institutions will lower costs. These organizations often have access to resources, grants, and expertise for building AI models.

Even a small eCommerce business could partner with a university’s AI department to help with product recommendation systems. In exchange, the business gives real-world data and a testing ground for the students' research.

8. Monitor and Measure Your Costs

It’s easy for costs to creep up unnoticed during the development process, so make sure you track your spending on AI technologies, cloud usage, and hardware. It's a very real issue, as companies report that they waste up to 50% of all cloud costs every year.

Need to Estimate the Final Cost of AI?

So, there you have it! Artificial intelligence development costs depend on what you're looking for, but it’s definitely possible to find something that fits your budget. If you’re thinking about building an AI solution, get in touch with Akveo to get a more accurate estimate for your project. We will analyze your expectations and needs to offer the most cost-effective approach to implementing your AI initiatives.

Let’s make AI that’ll improve your productivity, workflows, sales, and more!

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