How Much Does It Cost to Outsource Software Development?

Outsourcing software development involves hiring an entire team or individual skilled talents outside the company to create a custom software solution for your business. Software projects can include anything from web and mobile applications to enterprise-level solutions.

Many businesses consider outsourcing software development to reduce costs. By outsourcing to a team located in a region with lower wages and living expenses, companies can often access high-quality software development services at a lower price than hiring a full-time in-house team. Outsourcing also allows businesses to scale their development efforts up or down quickly as needed without the overhead costs of a large in-house team. Additionally, outsourcing provides access to specialized expertise - allowing businesses to work with developers experienced in specific programming languages, frameworks, and technologies that may not be available in-house. This specialized talent can result in faster development times and higher-quality software products.

After determining your software application’s specifications, you can define the main factors impacting your outsourcing costs:

• The expertise and skills necessary for your project
• The project framework
• The outsourcing team’s geographic location

1. Expertise & Skills

The expertise and skills of offshore software developers can significantly impact the costs of offshore software development. As a potential client, you need to review their portfolio and reviews. Thorough research and early discussions will indicate the company’s competency and ease of communication.

And while choosing an offshore development team with the lowest price may be tempting, it is important to consider how proven skills may save you money in the long run. Developers with more expertise can complete tasks more efficiently, resulting in no delays to market. Their higher quality work can lead to fewer errors, fewer bugs, and a more reliable software product. Robust software can reduce the cost of maintenance and support over the long term. Developers with strong communication skills can help ensure that the offshore development team and the client are on the same page, reducing the risk of misunderstandings.

2. Project Framework

Regarding outsourcing software development, the cost can vary greatly depending on the project framework. The project's complexity, the technologies used, and the timeline for completion will all impact the overall cost.

For example, a simple website with basic functionality may only require a few weeks of development for a few thousand dollars. On the other hand, a complex enterprise-level application could take several months and cost tens of thousands of dollars.

3. Geographic Location

The geographic location of the development team or freelancer you are outsourcing to will also affect the cost of your project. Generally, software developers in countries with lower living costs will charge less than those in more expensive countries.

For example, a developer in India may charge $20 -$30 per hour, while a developer in the US may charge $50-$100 per hour. However, it's important to remember that quality should always come first when selecting a team or company for your project.

When working with remote developers, remember that time zone differences can negatively impact application development. However, a time difference should not affect results if proper planning occurs. 

The outcome of the collaboration between software engineers and a project manager will dictate how successful the entire project will be. And any problems that may occur in communication or otherwise should be addressed well before the development phase.

To understand the usual fees related to IT projects and know how much a good software developer costs, one of the first things to consider is the type and size of your project. For example, a nearshore development team might be more expensive but still within a budget and a better option for developing an app, focusing on local user experience (UX) rather than a team from the other side of the world.

Given the various offshore software development rates, you can find numerous options to handle different project types and sizes. However, you should set up a consultation to fully understand the capabilities and services of an outsourcing company/team.

Low to Medium Complexity

Projects that are less complex and require basic coding skills can be completed for a few thousand dollars. This type of project usually includes small websites, mobile apps with basic features, and simple web applications.

In Western Europe, such projects can range from $15,000 to $50,000. In Eastern Europe, the cost is usually lower and can range from $10,000 to $30,000.

Onshore Development

Onshore development typically costs between $75 and $150 per hour. Depending on the type of project, complexity, and number of developers needed, the cost can range from a few thousand dollars to millions. In North America, the average rates are usually higher than in other parts of the world. As a result, many US-based companies consider hiring a team of experienced developers from abroad. 

Offshore Development

Offshore development is usually much cheaper than onshore but comes with risks like language barriers or cultural differences. Offshore developers usually come at affordable prices.

Costs can range from $10 to $50 per hour, depending on the developer's skill level and country.

A junior developer in your country might cost more than a senior developer from Latin America who can provide the same quality of work, if not better, given their experience.

Onsite Development

Onsite development costs depend primarily on location, with premiums in cities like San Francisco and New York being up to three times higher than most other places in the US and Europe. Costs start at around $100 per hour for junior developers, while highly experienced ones can easily cost up to $500 per hour.

Hybrid Development – Mixed Teams

These teams comprise locally based developers supplemented with global outsourced talent when needed (like during peak workloads). Depending on the specific needs of your project, hybrid projects usually cost anywhere from $35 to $175 per hour for senior engineering talent, plus additional costs associated with team coordination, such as customer service support and managing offshore resources.

Platform-based Services – Application Development & Infrastructure Services

Platform-based services can serve both application development and infrastructure support needs. Compared to traditional approaches such as outsourcing joint-venture partnerships or full-time dedicated contracts with external vendors/service providers, these services usually cost significantly less (sometimes as low as 1/10th) due to their automation and resource-sharing model.

Dedicated Teams

Dedicated teams are permanent staff members working full-time exclusively for a single customer. The team size depends entirely upon the scope, size, duration, budget, etc., but most companies tend to average out around 9-12 people, including:

• Product owners chosen by customer organization structure
• Engineers specialized in different technologies/frameworks/tools used by product stakeholders, i.e., DevOps, Frontend & Backend Developers, Mobile Cloud Architects, etc.

These solutions often charge a monthly flat fee of up to six figures for enterprise-level projects. This pricing tends to increase package-wise as the complexity of the project grows.

Cloud Solutions – Organizations Of All Types & Sizes

Cloud solutions are becoming increasingly popular for organizations of all types and sizes due to various benefits, including scalability, cost-effectiveness, and improved security.  These solutions provide a range of utility from software development to data storage and analytics.

Organizations can choose from various cloud providers, such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform, and IBM Cloud. Prices vary depending on the services chosen, but they typically range from $0.01 to $0.50 per hour for basic services and up to hundreds of dollars per hour for more complex solutions.

Considering the cost of outsourcing software development requires a thorough examination. Various pricing models can be utilized to evaluate the most suitable option for your project.

The most common pricing models are fixed-price, time and materials, and value-based pricing. Fixed-price contracts involve a one-time fee for the entire project, while time and materials contracts involve hourly rates for each team member working on the project. Value-based pricing is based on the value of the product or service rather than the cost of labor or materials.

Regarding software development, there are two main options: hiring an in-house team or outsourcing the project to a software development agency. Each option has its advantages and disadvantages, so it's essential to compare the costs of each before making a decision.

In-house teams typically require more upfront investment than outsourcing, as they need to be hired, trained, and managed. However, they can provide more control over the project and may be more cost-effective in the long run.

On the other hand, software development agencies are often more expensive than in-house teams but can provide access to a larger pool of talent and resources. They also typically have experience working with different technologies and platforms, which can help speed up the development process.

The cost of outsourcing software development will depend on the project's complexity, the pricing model selected, and the outsourcing company’s reputation. Researching reviews, references, and testimonials will allow you to make an informed decision on prospective outsourcing companies. 

Considering the prices of in-house teams versus those of software development organizations before settling on a choice is essential. When looking at the long-term costs of software development, it's important to remember that hiring an in-house team will require extra training and management. At the same time, outsourcing may come with additional maintenance and support fees. 

This guide covered numerous factors. But ultimately, as the decision-maker, you need to assess your level of comfort with each company during the evaluation phase for the value each may bring.