How Much Does It Cost to Build an AI Solution in 2024?

In 2024, the demand for artificial intelligence (AI) solutions continues to grow. Businesses across industries use it to enhance efficiency, drive innovation, and stay competitive. Not to mention the tons of AI startup ideas that are being brought to life every month and appearing on the market.

AI is becoming essential, as it offers big benefits like boosting revenue, improving supply chains, simplifying hiring, and personalizing customer experience. Companies that adopt AI early will gain an edge as it spreads across industries. So it's no wonder that global AI spending reached $154 billion in 2023, with banking leading at $20.6 billion and retail at $19.7 billion. The financial sector is expected to invest even more in AI between 2024 and 2027, while the AI technology market is projected to surpass $1.8 trillion by 2030.

However, the main challenge, especially for smaller businesses, is the cost of building an AI solution. It can vary widely based on factors like the type of AI, project complexity, and needed resources.

Whether you're a small startup creating a simple chatbot or a large company developing an advanced machine learning model, AI can be a significant investment. Let's break down the cost of implementing artificial intelligence in 2024, what influences these costs, and tips on how businesses can manage their AI investment wisely.

Average Cost of AI Development

How much does it cost to make an AI? For simpler AI projects, expenses typically start at around $5,000. However, for more advanced, technology-intensive solutions, costs can exceed $500,000. So, the cost of developing an AI solution can vary based on the project's complexity and scope.

According to AI development projects reviewed on Clutch, the majority of projects fall within the $10,000 to $49,000 range. This range usually covers the development of basic AI tools, such as chatbots, AI companions, or simple machine-learning models.

In addition to development costs, consulting services also play a role in the overall budget. These services are typically priced based on the consultant's expertise and hourly rate, which generally ranges from $200 to $350 per hour. Whereas the average hourly cost for AI development typically ranges between $25 and $49.

‍Note: These figures can change based on factors we explore below.

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Factors Influencing AI Software Development Cost

Developing AI software is a big investment, and the cost of developing AI depends on several factors. Understanding these factors is important for businesses looking to budget effectively and maximize their return on investment. Here's a closer look at why AI is expensive to develop and the key elements that drive up costs.

Type of AI

The type of AI is one of the most significant determinants of cost. Different types of AI systems have varying complexities, resource needs, and development times, all of which influence the AI pricing and overall expense. Let's take a look at the most popular types of AI:

1. Rule-Based Systems

AI systems that operate based on a set of predefined rules or logic. These systems follow "if-then" statements to respond to user inputs and do not adapt or learn from new data.

• Example: Buidling an AI chatbot that's basic and provides scripted responses based on user queries.

• Cost: Typically ranges from $10,000. This lower cost is due to the simplicity of the system. It requires minimal data and processing power.

2. Machine Learning (ML) Models

These AI systems use algorithms to analyze data, learn patterns, and make predictions or decisions without explicit programming for each scenario. 

• Example: An email spam filter that learns from examples of spam and non-spam emails.

• Cost: Development costs range from $50,000.

3. Deep Learning (DL) and Neural Networks

Deep learning is a type of machine learning that uses multi-layered neural networks to understand complex patterns in data. It's especially good at handling tasks that involve a lot of data and complex structures, like recognizing images and speech.

• Example: A facial recognition system that identifies individuals in real time.

• Cost: These systems can cost anywhere from $100,000. The high AI cost is due to the requirement for large datasets, advanced hardware like GPUs, and extensive training periods.

4. Natural Language Processing (NLP) and Computer Vision

NLP is an AI that enables computers to understand and generate human language. While computer vision allows machines to interpret and analyze visual data.

• Example: An NLP-based virtual assistant like Siri or Alexa.
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• ‍Cost: The cost of artificial intelligence solutions of this type typically ranges from $150,000. These systems require complex algorithms and vast amounts of data, increasing development time and resource needs.

Project Complexity

How much does artificial intelligence cost if you're aiming for something more intricate? Note that the complexity of an AI project significantly affects its costs, too. As AI systems advance from basic to sophisticated solutions, development and maintenance expenses rise. Here's a quick comparison:

Type of Data and Dataset Size

Data is the backbone of any AI system, and both the type and size of the dataset influence the artificial intelligence cost for development as well. Here's how:

1. Data Collection and Preparation

• Example: Collecting and cleaning customer transaction data for an AI-driven fraud detection system.

• Cost: This phase can be resource-intensive, with costs ranging from $10,000 depending on data complexity and volume. Efficient collection and preparation are a must for developing an effective AI model.

2. Dataset Size

• Example: Training an AI model on millions of labeled images for a computer vision application.

• Cost: Larger datasets drive up costs significantly, ranging from $50,000. This is due to increased storage needs, higher processing power, and longer training times. The amount of data provided, like years of diverse stock market data versus a few days' worth, can affect the AI's performance and predictive accuracy.

3. Data Labeling

• Example: Labeling medical images for a diagnostic AI tool.

• Cost: Labeling costs can range from $30,000, particularly if domain-specific expertise is needed. Accurate labeling is essential for training high-quality models.

4. Data Security and Privacy

• Example: Implementing data encryption and access control for a financial AI application.

• Cost: Ensuring data security and privacy can add between $20,000 to the development cost. The amount depends on the required security measures and data sensitivity.

The effectiveness of an AI model is closely tied to the size and quality of its dataset. Larger datasets generally lead to better performance but imply higher costs. To manage these expenses, using open-source datasets (e.g., Google Cloud Public Datasets, Kaggle, AWS Registry of Open Data) can be a win.

Using pre-trained AI tools like ChatGPT or DALL-E 3 can foster the development process and reduce initial costs. These models are often ready for immediate use but can be fine-tuned with specific data to enhance results further.

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Algorithm Accuracy and Fluency

The desired accuracy and fluency of an algorithm, real-time performance, and continuous learning requirements have a substantial impact on AI app development cost, too. As these requirements become more stringent, the complexity and expenditure associated with these systems increase.

First, Accuracy Requirements

Higher accuracy demands more advanced models, larger datasets, and extensive testing and tuning. How much does AI cost for higher accuracy? It's influenced by the need for high-quality data and sophisticated techniques to reduce errors.

For instance, developing AI for self-driving cars requires extremely high accuracy to ensure safety. This involves using complex models such as deep neural networks, which are trained on vast amounts of sensor data. Testing these models in various scenarios adds substantial costs. Such as Waymo (a Google subsidiary) reportedly spent over $2 billion on R&D to achieve a high level of accuracy and safety.

Second, Real-Time Performance

Real-time performance requires optimization for speed and reliability. This typically involves specialized hardware, efficient algorithms, and rigorous testing. All of them increase development and operational costs.

For example, drones used for real-time navigation and object avoidance need fast, reliable AI algorithms. Making sure that these algorithms perform well in real-time conditions requires both powerful processors and real-time data processing capabilities. It leads to higher costs in both development and deployment.

Third, Continuous Learning and Improvement

AI systems that continuously learn from new data require ongoing updates and infrastructure to support this learning. This adds complexity to both the algorithm and the supporting systems and increases overall costs.

Imagine streaming services like Netflix or YouTube. They use AI to continuously refine their recommendation algorithms based on user interactions. Implementing such systems involves maintaining large-scale infrastructure for data collection, model retraining, and deployment. The cost for these systems can exceed millions of dollars annually due to the need for constant updates and scalability.

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Infrastructure and Development Tools

How much does it cost to develop artificial intelligence based on your choice of tools? Well, the selected infrastructure and tools can also drive up the cost of AI development.

1. Computing power: Training complex AI models, like those used for deep learning, requires powerful hardware. For instance, using GPUs from services like AWS or Google Cloud can be expensive. Alternatively, investing in on-premises hardware, such as NVIDIA A100 GPUs, involves a big upfront cost but may be cheaper in the long run.

2. Development tools and frameworks: Tools like TensorFlow and PyTorch are free and open-source but may need skilled staff to use them effectively. Proprietary tools, such as IBM Watson or Microsoft Azure, offer more features and support but come with higher costs.

3. Testing and validation: Testing AI systems thoroughly is crucial. For example, developing self-driving cars requires detailed simulations, which can be very costly. Similarly, financial AI models need to be stress-tested against market conditions, which involve significant expense.
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4. ‍Deployment and maintenance: After development, deploying and maintaining AI solutions also incurs costs. For instance, scaling a chatbot or recommendation system requires ongoing monitoring and updates, adding to the overall expense.

Costs of Building Custom AI vs. Pre-Built or Ready-Made AI Solutions

The good news: you don't need to create things from scratch each time. There are pre-built options for everyday tasks and operations. In case you don't need an innovative solution and seek to improve the workflows, they can be a great option.

Pre-Built or Ready-Made AI Solutions

Ready-made AI solutions are pre-built tools and platforms designed to address common business needs. They are generally more affordable and quicker to deploy because they require minimal customization and are ideal for businesses looking to integrate AI capabilities without the time and expense associated with building a system from square one.

The most popular type of ready-made AI solution is chatbots for customer service (in fact, up to 60% of users utilize chatbots on e-commerce sites). Ready-made chatbots are designed to handle customer inquiries, provide support, and automate responses to frequently asked questions. How much does AI software cost in this case? These chatbots are relatively inexpensive, with costs typically ranging from $10,000 to $20,000, depending on the level of customization and integration required.

The main spending for ready-made AI solutions:

• Initial setup: The initial costs for setting up a ready-made AI solution are generally low, often ranging from $5,000.
• Ongoing costs: These include subscription fees, licensing costs, and occasional upgrades, typically adding up to $1,000 to $10,000 annually, depending on the service and its usage.
• Support: It is important for ensuring smooth operation, effective troubleshooting, and adding changes. Typically, the costs for this stage start around $2,000.

The main advantage of ready-made AI solutions is their cost-effectiveness and ease of deployment. However, when comparing custom vs. off-the-shelf development, the latter comes with limitations in terms of flexibility and the ability to address unique or highly specific business challenges. Also, they can present scalability problems, and introduce dependency risks.

Custom AI Development

Custom AI development means creating AI solutions designed specifically for a business's unique needs. Any custom software development is generally more expensive than using off-the-shelf options but offers more flexibility, scalability, and better alignment with business goals.

For instance, personalized recommendation engines. An e-commerce platform that wants to offer highly personalized product recommendations, such as Amazon's recommendation engine, would require a custom AI solution. Developing such a system could cost up to $100,000, depending on the complexity of the algorithms, the size of the data sets, and the level of personalization required.

Another example is natural language processing (NLP) for virtual assistants. A business developing a virtual assistant, whether it's a best AI email assistant or a voice assistant like Apple’s Siri or Google Assistant, would require a highly customized NLP solution. Costs for developing such an AI system could range from $150,000 or more, depending on the desired accuracy, fluency, and ability to understand and respond to a wide range of human languages and contexts.

The main spending for custom AI solutions:

• Development team: developing custom AI typically requires a team of data scientists, machine learning engineers, software developers, and domain experts. Salaries for these roles can range from $80,000 to $200,000 per year per person. 
• Data acquisition and preparation: High-quality data is crucial for training AI models. Depending on the type of data required, costs for data acquisition, cleaning, and labeling go from $10,000.
• Algorithm development and training: Developing custom algorithms is a time-intensive process that can involve multiple iterations. Costs for this stage can start from $20,000.
• Infrastructure costs: Custom AI projects often require substantial computational resources, such as cloud services or high-performance computing hardware. Depending on the project size, infrastructure costs could be $5,000 and up.
• Testing and validation: Ensuring the AI system works as intended involves rigorous testing and validation. Count on around $15,000 or more. 
• Maintenance and support: Custom AI systems require regular updates, performance monitoring, and maintenance, which can add more than $5,000 per year. 

Custom AI development is ideal for businesses with unique challenges or those looking to gain a competitive edge through innovative, AI-driven solutions. However, the costs are higher due to the need for specialized expertise, extensive development time, and ongoing maintenance and updates.

The AI solution you choose, ready-made or custom-built, will have a big impact on the cost of your AI project. Ready-made options are cheaper and faster to deploy for general needs, while custom AI offers the flexibility and precision needed for complex challenges. Businesses should carefully consider their needs, goals, and budget to decide which approach is best for their AI investment.

In-House vs. Outsourcing AI Development

Choosing between in-house and outsourced AI development is also crucial. What kind of development will be cheaper, in-house or with a third-party provider? In-house development gives more control and customization but is more expensive and requires specialized skills. Outsourcing can be cheaper and quicker, but with less control and potential risks to intellectual property. See the table to get ready for the in-house vs. outsourcing decision regarding the more optimal cost of implementing AI:

10 Tips on Cutting the AI Development Cost

Is there a way to save your business or startup budget? With strategic planning, the AI development cost can be lower and still deliver strong results. You can reduce expenses without sacrificing quality by making smart decisions. Use these approaches:

1. Use open-source tools. Leverage free frameworks like TensorFlow and PyTorch. For example, Spotify uses TensorFlow for its recommendation system.
2. Start with pre-trained models. Save time and money by using pre-trained models from platforms like Hugging Face. Twitter uses the BERT model for tweet analysis.
3. Choose cloud-based AI services. Cloud services like AWS and Google Cloud are cost-effective. Airbnb uses Google Cloud AI for data analysis.
4. Adopt agile practices. Agile development promotes iterative work and quick feedback, helping reduce costs.
5. Optimize data collection. Streamline your data collection to cut storage costs. Uber uses data aggregation to manage large datasets efficiently.
6. Outsource non-core tasks. Save time and money by outsourcing less critical parts of AI development.
7. Invest in talent wisely. Balance hiring by mixing experienced professionals with junior developers, like Netflix does for its recommendation algorithms.
8. Use AutoML tools. Automated tools can simplify and speed up model development.
9. Focus on MVP development. Start with a minimum viable product (MVP) to reduce initial costs.
10. Monitor operational costs. Continuously track and optimize your AI system's running costs.

So, How Much Does AI Cost to Make? 

In conclusion, the cost of developing an AI solution in 2024 can vary from as little as $5,000 for simple models to over $500,000 for complex ones. What is AI development cost influenced by? Companies should consider factors such as the type of AI technology, project complexity, data requirements, and the choice between in-house development and outsourcing. 

Additionally, the industry of the AI project impacts pricing. For example, healthcare artificial intelligence cost estimation typically ranges from $20,000 to $50,000, whereas fintech applications can cost between $50,000 and $150,000 due to their complexity, specific requirements, and regulatory considerations.

While the cost of implementing AI can be a significant investment, businesses can strategically manage and reduce spending through the use of open-source tools, pre-trained models, cloud-based services, and other cost-saving practices. And if you're in search of a team to assist you with development, feel free to reach out to Upsilon for MVP development services and to discuss your needs!