Outsourcing Software Development: Cost Analysis

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Outsourcing Software Development: Cost Analysis

Why outsource?

When remote working became more manageable in the 1990s, companies started to outsource some of their functions like software development, thanks to the internet. Before this, the norm was to hire their team of IT specialists and provide them with salaries and benefits, work stations, equipment and tools necessary to discharge their highly technical functions.

The apparent reasons why many companies outsource applications to third parties are improved productivity, access to world-class IT talent and lower costs. Companies find it cheaper to outsource software development services to India, Ukraine or the Philippines, where they pay a comparatively much lower price than what they pay developers in the U.S.

Loss of productivity is another key consideration for companies that outsource to get to market faster and allow internal teams to focus on the areas that add the most value to the organization.

One-stop software outsourcing company

A one-stop software outsourcing firm provides product development services under one roof, including idea creation, workshops, strategy development, UX design, product development, testing, maintenance and support. Cross-industry, vertical and technology business use cases: scaled-up projects and software development can be outsourced to third-party vendors to drive and accelerate innovation.

While large companies benefit from hiring offshore development teams to mitigate location risks and distribute the workforce, small and medium-sized enterprises can outsource to reduce human resources and IT infrastructure spending and avoid new personnel problems. This way, companies save money and much time when they commission a reputable external software development service provider.

Offshore vs onshore outsourcing

It is prevalent for companies from countries with a high cost of living to outsource software development to the low cost of living countries. The obvious reason is to cut costs. But many companies make the mistake of making price their primary consideration in outsourcing offshore. We all know that lower rates do not necessarily give you a better price-quality ratio. The mentality that a lower price is always the better option is counter-productive. Usually, the most affordable developers are also the weakest.

Finding the more expensive developers in low-cost countries will allow you to cut costs while still maintaining high quality. Software development outsourcing gives you access to experienced developers and saves money without building your team, thanks to flexible pricing, salaries and cost of living between countries.

Outsourcing software development does not always have to be offshore; some companies opt to hire external local developers. But this may be costly if you are from a country with a high cost of living since your provider will incur the same charges as when you hire your internal team, plus the profit he has to earn.

The cost of outsourcing software development

Outsourcing software development is inarguably less expensive than hiring an in-house IT team. Administrative and other additional costs like international communication and travel for offshore outsourcing notwithstanding, outsourcing remains more cost-efficient than hiring an in-house development team.

Let us make a cost comparison between outsourcing and hiring an in-house team so you can understand the estimated reduction when you delegate a software development service to a third-party IT company.

  1. Hiring

Outsourcing saves you time and money spent on recruitment and hiring, salaries and benefits and other indirect expenses. With in-house development, you have to spend valuable time and effort finding the right person to fill each role, and IT people usually are more challenging to find due to the specialized skills requirement. Hiring an external service provider helps you save on the cost of recruitment and hiring and gives you access to a vast pool of talents.

  1. Software developer salaries

In his book Good to Great, Jim Collins said, “People are not your most important asset. The right people are.” The right software developers command high salaries commensurate to their education, training, and experience. Paying high wages for a team that you might use only for a specific project or intermittent, limited periods might be detrimental for the business in the long run.

Generally, the salary ranges for software engineers vary depending on the general cost of living in their countries. The cost of labour in countries with low cost of living is relatively lower than their counterparts in high living cost countries, making offshore outsourcing more cost-efficient.

  1. Equipment and overhead

The first and most significant cost is the salary you pay developers, but this is not the only cost you incur. When you outsource, software development companies compute their pricing inclusive of both direct and indirect costs. You will not burden yourself with funding capital expenditures on equipment and infrastructure and other overhead related to the development project. Software development outsourcing can also help decrease other expenses, including general, sales, and administrative costs.

Choosing the right company 

We work with over 30,000 software engineers from over 40 countries worldwide to find qualified developers for large and small projects. Choosing a reliable and trustworthy outsourcing company can help avoid some of the principal risks of outsourcing software development. Define the software development projects your company wants to outsource and what you plan to accomplish with an external provider.

Outsourcing can, of course, help you reduce the cost of developing outsourcing apps. Additionally, it can also add value through faster turnaround times, access to hard-to-find skills, and internal teams’ ability to concentrate on their core business activities. It would be best to remember that experienced software outsourcing companies do not focus on fixed prices but on individual customer approaches that consider the project’s specifics.

The most significant expenses associated with internal development, including the errors of your own team, can be avoided by using an experienced, professional software outsourcing company to perform these kinds of tasks. The outsourcing partner documents the descriptive software requirements well and plans the distribution of resources, takes note of possible risks and ways to avoid them, and optimizes the working approach.

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