Price is no longer the #1 reason why companies outsource. But the cost of IT outsourcing is still a driving factor when choosing a software partner.
As you calculate a comprehensive budget for your project, it’s essential to gauge the full costs. Our experts at Netcorp have broken down the main software development outsourcing prices. In this way, you can build a realistic budget and get a good price on high-quality software.
According to some estimates, outsourcing your project can save you up to 53% in costs. How is that possible? Here’s a quick cost overview of these two options.
In-house software has its advantages, mainly that you keep 100% control of the project. Yet in terms of cost, it involves a much larger upfront investment. That’s because creating your own internal team requires you to pay for:
Many of these cost categories are completely eliminated when you choose to outsource. In fact, estimates show that hiring in-house developers results in costs of 2.7x the base salary.
In contrast, outsourcing has a much lower initial expenditure. It also grants your business greater flexibility in the long term.
When you choose to outsource, you’re simply responsible for paying for the resources you use. Here are the main software development outsourcing prices to be aware of.
The two main cost categories for outsourcing are “time and materials.” In other words, you must pay for the time your developers spend on your project. (This is typically charged per hour for each specialist.)
Some businesses choose to hire a few remote developers to meet their needs. Others form dedicated teams, i.e. outsourcing a group of pros for more manpower.
What's more, you’ll be charged for “materials." Often this includes software licenses, server management and IT-related tools. Depending on your infrastructure gaps and needs, the cost of “materials” may run the gamut.
At the end of the day, “time and materials” make up the bulk of your outsourcing budget. However, there are a few other minor expenses to be aware of.
First, you’ll be accountable for contract negotiation fees. In particular, you'll be billed if you made multiple rounds of contract revisions.
Knowledge transfer may also lead to expenses. You’ll have to pay for any hours spent offloading business or IT knowledge. For larger outsourced teams, this transition cost may be slightly higher.
You don't have to worry about the substantial cost of recruiting developers. However, you will have some minimal expenses finding your ideal IT partner.
Research, screening and negotiation for your outsourcing partner can take up resources. Keep in mind this is a much lower cost compared to trying to capture tech talent on your own.
How much does it cost to outsource software development?
Unfortunately, there’s no simple answer. Software development outsourcing prices vary widely depending on the project. To better assess your outsource software development costs, consider these key factors.
Outsource software development costs are first determined by the type of project. If you’re building new or custom software, you can expect the price tag to be higher.
However, a modernization or integration project will be more affordable. In this case, developers don’t have to work from scratch.
The technologies involved will also play a role in the cost. For example, building an Android app incurs a different cost than an Apple app. For some projects, the ability to create cross-platform apps may also cut the end price.
Besides the type of project, the size and scope of your software will influence costs. Naturally, projects with a large scope will incur higher costs. (For example, an app with a feature-intensive design or a members-only login section.)
Typically, the size of the project varies from small, medium or large. Some examples include:
The next step of defining the project size is determining the team size. Depending on your ideal scope and timeline, your team may have 5-10+ professionals.
The most common team size for a small-to-medium software project is five professionals. This includes two developers, a UX designer, a QA engineer and a project manager.
However, larger projects will require a much heftier team of 10+ professionals. This will be contingent on the technology specializations you need as well. For example, your project may call for a business analyst, database expert, etc.
Not all software is created equal. The complexity and specialization of the project will also impact the final price.
As you can imagine, the greater the technical expertise, the higher per-hour cost. And as your software becomes more complex, you’ll require more developer hours. That's because you'll have to handle scaling, debugging and monitoring to keep up top QA.
Last but not least, software development outsourcing prices vary depending on the region. As a rule of thumb, you’ll find the most expensive developer rates in North America and Western Europe.
Yet, there are numerous other options that combine elite skills with affordable rates. Eastern Europe, Asia and Latin America are all top-ranked regions for IT outsourcing. These regions have some of the best developer talent in the world. Plus, their hourly rates are up to 50% lower compared to the U.S.
Along with location, the partner’s reputation can also affect costs. Partners with world-wide renown will command a higher going rate. However, top boutique partners in these regions will offer reasonable rates.
Take a closer look at the best regions to outsource software development in our guide!
Let’s go through an example of the cost difference between in-house vs. outsourcing. For this case, let’s hire a team of five IT professionals for an MVP of medium complexity. MVPs typically take between 2-4 months weeks, so let’s assume 12 weeks for development (equal to 480 hours).
Here’s what you can expect in terms of developer rates for in-house vs. outsourcing:
Role
In-House
Senior or specialized developer: $163,000/year= $78/hour
Junior developer: $140,000/year= $67/hour
UX designer: $151,000/year= $73/hour
QA engineer: $124,000/year= $60/hour
Project manager: $125,000/year= $60/hour
Total combined team hourly rate: $338/hour
Total team salary cost: $338/hour x 12 weeks (480 hours) = $162,240
Outsourcing
Senior or specialized developer: $41/hour
Junior developer: $29/hour
UX designer: $29/hour
QA engineer: $31/hour
Project manager: $44/hour
Total combined team hourly rate: $174/hour
Total team salary cost: $174/hour x 12 weeks (480 hours) = $83,520
Just from the salary comparison, we can already see a big difference in price – about 50%.
However, there are still other cost factors to include in our estimate. Let’s add these in to get a more robust sense of the final prices:
Cost Factor
In-House
Full Team Salary (“Time”): $162,240
IT Licenses & Expenses (“Materials”): ∼$2,500
Contract Negotiation: ∼$1,000
Knowledge Transfer & Transition: ∼$2,000
Recruitment & Onboarding: ∼$5,000
Benefit Packages: ∼$5,000
IT Workstations/Equipment: ∼$7,500
Tech Training: ∼$1,000
Overhead: ∼$15,000
Turnover Costs: ∼$30,000 per employee
Total: $231,240
Outsourcing
Full Team Salary (“Time”): $83,520
IT Licenses & Expenses (“Materials”): ∼$2,500
Contract Negotiation: ∼$1,000
Knowledge Transfer & Transition: ∼$1,000
Recruitment & Onboarding: ∼$1,000
Benefit Packages: $0
IT Workstations/Equipment: $0
Tech Training: $0
Overhead: $0
Turnover Costs: $0
Total: $89,020
Resource: https://www.classicinformatics.com/blog/cost-saving-with-outsourcing-software-development
Ultimately, this gave a $142,220 difference in price between in-house and outsourcing. Our example suggests your business can save about 60% by outsourcing.
Keep in mind that this is just an example and tweaking the factors may result in a different final price. Even so, choosing to outsource software development costs will usually result in savings.
Our cost comparison above shows how outsourcing can reduce expenses for your business. Yet, there are even more indirect benefits to outsourcing.
Beyond the lines in your budget, here are a few ways outsourcing boosts your business value.
Outsourcing partners tend to be highly efficient, with top experts and established processes. Dedicated entirely to your project, they can maximize productivity. In this way, they can achieve a quicker launch compared to in-house teams.
A rapid time-to-market can give you a competitive edge, earning you more clients and sales.
Scaling up a large software project can be expensive in-house. That's because your talent and resources are usually permanent.
In contrast, outsourcing lets you ramp up new features without long-term hiring costs. You can access your IT partner’s resources on-demand with minimal initial expenses. In turn, this helps reduce the final software development outsourcing price.
Often it’s best to leave complex IT needs to the experts. Hiring a specialized partner will ensure you don’t expose your company to costly risks, such as:
Just consider that the average cost of a data breach is $4.35 million. You can protect your data, security and IP by entrusting these issues to specialists. Be sure to clearly define these areas in your contract, too.
Outsourced partners also tend to achieve higher quality code and UX. With industry-best experts and 100% dedication to your project, they’re able to get top results. Often these teams have their own QA testing, so user experience is even more seamless.
In the end, top software can elevate your reputation, customer satisfaction and sales.
As you prepare to outsource your software, it’s vital that you choose the right model for your business. The right services mean you can efficiently utilize resources and maximize your budget.
Expand your team with elite developers integrated into your in-house team’s efforts. This service is ideal for businesses with established workflows and talent. In this case, they simply need more manpower or expertise.
If you don’t have an in-house team, you may need a more robust outsourced solution to meet your goals. Hiring a dedicated team means getting a full group of experts to develop your software. Often this team works independently and handles end-to-end development of your product.
Not sure how to get started? First schedule a consultation for expert advice on how to achieve your vision. A consultation can stop you from making expensive mistakes. Experts will also guide on the right model to carry out your project.
Get an insider’s look into top software development outsourcing strategies here!
Outsourcing your software development can significantly reduce your budget and add business value. As our example cost comparison shows, you can save up to 60% with outsourcing!
To reap the benefits of outsourcing, you’ll need the right partner by your side. At Netcorp, we’re ready to provide high-caliber software that aligns with your vision. Reach out to our team to learn about our software development outsourcing prices. We also offer consultations, so you can identify the ideal IT service for your business.
Paavo Pauklin is a renowned consultant and thought leader in software development outsourcing with a decade of experience. Authoring dozens of insightful blog posts and the guidebook "How to Succeed with Software Development Outsourcing," he is a frequent speaker at industry conferences. Paavo hosts two influential video podcasts: “Everybody needs developers” and “Tech explained to managers in 3 minutes.” Through his extensive training sessions with organizations such as the Finnish Association of Software Companies and Estonian IT Companies Association, he's helped numerous businesses strategize, train internal teams, and find dependable outsourcing partners. His expertise offers a reliable compass for anyone navigating the world of software outsourcing.
Download the free copy of our "Software Development Outsourcing" e-book now to learn the best strategies for succeeding in outsourcing!
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