{"id":380,"date":"2021-06-02T12:13:23","date_gmt":"2021-06-02T12:13:23","guid":{"rendered":"https:\/\/upprofits.net\/?p=380"},"modified":"2024-08-30T11:23:00","modified_gmt":"2024-08-30T11:23:00","slug":"software-development-outsourcing-cost-revealing-the-mysterious-side-of-budgets","status":"publish","type":"post","link":"https:\/\/upprofits.net\/index.php\/2021\/06\/02\/software-development-outsourcing-cost-revealing-the-mysterious-side-of-budgets\/","title":{"rendered":"Software Development Outsourcing Cost: Revealing The Mysterious Side of Budgets"},"content":{"rendered":"\n
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Why Outsource In The First Place?<\/strong><\/h2>\n

The Earth revolves around the Sun. Hopefully, we can agree on that.<\/p>\n

Metaphorically though, it\u00a0certainly revolves around money<\/strong>.<\/p>\n

That is especially true when it comes to business. Most business decisions are heavily influenced by finances, whom to hire, which market to move into, or how big of\u00a0crypto loans<\/a>\u00a0you may need to make your ideas come to life. And of course, whether the business itself succeeds or fails is measured by market capitalization. So once again \u2014 by money.<\/p>\n

It comes as no surprise that business owners look for ways to grow their revenues and limit expenses. And that\u2019s where\u00a0software outsourcing<\/a><\/strong>\u00a0comes into play.<\/p>\n

With software outsourcing \u2014 that is, when you\u00a0employ external software development services to handle any of your projects<\/strong>\u00a0\u2014 you can lower the overall costs of software development\u00a0<\/strong>and save both time and money. While it also gives you access to global talents, streamlines the processes, and lets you focus on your business\u2019s core strengths, cost\u2013reduction is the reason more often cited (70%), as shown by the\u00a02020 global outsourcing survey<\/a>.<\/p>\n

<\/span>Can Outsourcing Really Save The Budget?<\/strong><\/h2>\n

Doubtful? Then let\u2019s compare the overall costs of hiring an in\u2013house team versus via a software development company.<\/p>\n

<\/span>In\u2013house\u00a0<\/strong>Software Development<\/strong><\/h3>\n

<\/span>Office Space<\/strong><\/h4>\n

Before you can start the hiring process, you have to set up office space for your future employees.\u00a0The average cost for office space in the US by square foot is between\u00a0<\/a>$8\u2013$23<\/a>, and since\u00a0the average size of an office in the US is 1,400 square feet<\/a>, the average price might fall between\u00a0$11,200\u2013$32,200<\/strong>.<\/p>\n

Of course, the total cost of renting space differs across cities and countries. In the US, New York is definitely the most expensive,\u00a0beaten only by Hong Kong on the global scale<\/a>, and with Tokyo and London hot on its heels.<\/p>\n<\/section><\/div>\n

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Besides putting the desks together with matching chairs, it\u2019s also important to include\u00a0access to a private kitchen, lounge area, meeting rooms, and most importantly, parking space.\u00a0<\/strong>Which of course will generate additional costs, but will keep your employees happy in the long\u2013term.<\/p>\n

One way of lowering the office space costs is to consider sharing co-working spaces with different businesses, but this might be\u00a0risky when dealing with sensitive information<\/a>\u00a0on a day\u2013to\u2013day basis.<\/p>\n

<\/span>Hardware & Software Infrastructure\u00a0<\/strong><\/h4>\n

When you have space, you need to fill it with hardware and software infrastructure, which may include:\u00a0computers, programs, subscriptions, servers, and so on<\/strong>, depending on your needs. But you also have to pay for general things as well, such as\u00a0basic utilities and office supplies<\/strong>, which may need\u00a0regular maintenance, repair, or even replacement<\/strong> after a few years of use. Should you need to allocate resources, for example, for efficient Kubernetes workloads<\/a> management, you’ll be in for additional costs.<\/p>\n

<\/span>Hiring And Recruitment<\/strong><\/h4>\n

By that point, the office should be ready to welcome new employees onboard. What kind of expenses should you expect?<\/p>\n

First, the\u00a0recruitment<\/strong>. Depending on the process, there might be some costs involved if you\u2019re not doing it on your own \u2014 that means\u00a0hiring recruitment specialists or agencies<\/strong>\u00a0to help you out in securing the best local developers for your software development project.<\/p>\n

In Germany, the average recruitment cost is\u00a0$5,732<\/strong><\/a>, while in the US it\u2019s\u00a0$4,129<\/strong><\/a>, and in the UK \u2014\u00a0$4,258<\/strong><\/a>.<\/p>\n

Then come the usual costs that surround the\u00a0hiring\u00a0<\/strong>itself. These include the\u00a0base salary, taxes, insurance, and fringe benefits<\/strong>, from paid sick leave and a retirement plan to access to welfare & recreational facilities, depending on the country.<\/p>\n

According to research done by UHY, the international accounting, and consultancy network, the\u00a0average employment costs on a global scale are now almost 25% of an employee\u2019s salary<\/a>. The highest costs can be found in Europe, while the lowest are in Canada, Denmark, India, and the US.<\/p>\n<\/section><\/div>\n

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Furthermore, due to the impact of the pandemic on the workplace, additional benefits might become a new standard \u2014 such as\u00a0extended remote work opportunities or even child care options<\/a>. Not mentioning the hand sanitizers and disinfectants which quickly became a necessity used several times every day.<\/p>\n

<\/span>Onboarding, Training, Professional Growth<\/strong><\/h4>\n

Next on the list is\u00a0onboarding<\/strong>. It might be surprising, but the average cost of the onboarding process in a small to medium business is\u00a0$400 per employee<\/a>. This includes the offer packs, preparing the necessary equipment, and time spent on bureaucracy and showing the new employee the ropes.<\/p>\n

Then it\u2019s time for\u00a0training<\/strong>. Even if you hire experienced professionals in software development, learning the work culture, understanding the ongoing processes, and getting to know fellow workers will take some time. In some cases, it might even take\u00a01 to 2 years for the employee to become fully productive<\/strong><\/a>\u00a0in the new environment, according to Training Industry Quarterly.<\/p>\n

And if you want to retain your employees for that long, offering help in their\u00a0professional growth<\/strong><\/a>\u00a0\u2014 encouraging self\u2013development, providing opportunities for mentorships, and providing access to various courses \u2014 may make a difference in turnaround. This way, you show that you care about your employees and that there\u2019s room for their careers to\u00a0<\/strong>advance. All that though might require additional costs, especially in\u00a0eventual pay raises\u00a0<\/strong>that come with higher qualifications.<\/p>\n

<\/span>Losing Money<\/strong><\/h4>\n

In some situations, money might be slipping through your fingers without you even realizing it.<\/p>\n

With most contracts, you don\u2019t only cover the software development costs themselves, but also all the\u00a0hours spent in\u2013seat<\/strong>. For example, if your company works on a project\u2013to\u2013project basis, there might be stages in the workflow where your senior software developers or software engineers\u00a0<\/strong>\u2014 or any other employees, take your pick \u2014\u00a0<\/strong>are not utilized to the fullest extent. Due to circumstances, they might not be even able to work on their tasks, waiting for resources or their teammates\u2019 input first.<\/p>\n

And if your employee goes on sick leave or simply on vacation, you have to pay for that as well. Of course, these things are important in the long run for keeping that turnaround low, but it\u2019s something to keep in mind.<\/p>\n

There also might be trouble when firing your employees. In some countries, like in Poland, the\u00a0notice period can last up to 3 months<\/strong><\/a>, while in Germany \u2014\u00a0up to 7<\/strong><\/a>, depending on the length of the employment. For the employer, that means they can have a person on board that most probably isn\u2019t as motivated as others to do their work well, which in turn might lead to monetary losses.<\/p>\n

<\/span>How Does The Shadow Of Remote Work Affect The\u00a0<\/strong>Overall Cost<\/strong>?<\/strong><\/h4>\n

During the pandemic, many employees were forced to work from home. In the US, that amounted to\u00a071% of people working remotely<\/a>\u00a0in sectors where that was possible,\u00a0which take up 56% of jobs<\/a>.<\/p>\n

It\u2019s hard to say whether the trend will stay for long, but there\u2019s a chance that\u00a0telecommuting will prevail in certain sectors<\/a>, mostly in the\u00a0<\/strong>IT industry, Finance and Insurance, and Management. This could potentially mean lowered costs in office management, but in return, it requires providing the employees with appropriate hardware and software equipment to comfortably work from home, as well as programs, applications, or even intranet for proper task management. To fully utilize them, you might have to pay for subscriptions or even create your own\u00a0intranet with the help of a software house<\/a>, following the example of ib vogt.<\/p>\n

Some companies even went one step further during the pandemic,\u00a0deciding to cover the costs of the internet and telephone for their employees<\/a>. After that, laws were enacted in certain places \u2014\u00a0like in ten states of the US<\/a>\u00a0\u2014 that force employers to reimburse employees for remote work expenses, similarly to the\u00a0Netherlands<\/a>, with\u00a0Poland<\/a>\u00a0following their example.<\/p>\n

So even though there might be some opportunities to save money in certain places, there might be some expenses in others to balance it out.<\/p>\n

Outsourcing Software Development<\/strong><\/h3>\n

All of the above doesn\u2019t really apply to outsourcing. You don\u2019t have to care about salaries, benefits, workspace culture, or office maintenance. What are you paying for then, exactly?<\/p>\n

<\/span>Payment Models<\/strong><\/h4>\n

The only thing you\u2019ll be invoiced for is the work itself, without having to stress over the little things. Most of the time, outsourcing companies offer two varied ways of payment for their software development services:\u00a0The<\/strong>\u00a0Fixed Price Model<\/strong>\u00a0and the\u00a0Time and Material Model<\/strong>.<\/p>\n

The first one, the\u00a0Fixed Price Model<\/strong>, assumes that payment will be either invoiced in pre-defined milestones or before and after the project, with the payment split into two parts in different percentages. This model is well\u2013suited for software development services with straightforward and easy-to-predict processes, as well as for those whose goals and requirements are clearly stated and not up to change.<\/p>\n

Business owners choose the\u00a0Time and Material Model<\/strong>\u00a0when they want their project to be scalable and flexible enough to employ changes throughout the development process or when it\u2019s hard to measure the scope. In this scenario, the only thing you pay for is the time of the\u00a0<\/strong>development team, as well as for any additional resources required.<\/p>\n

Both models ensure that you\u00a0pay for the output<\/strong>, not the time spent in-seat, and only for that.<\/p>\n

<\/span>So How Much Is That?<\/strong><\/h4>\n

There are no universal prices set around the globe for hourly rates of software developers just like there are no set prices for specific projects.\u00a0Each company sets its own rates<\/strong>, and even infamous, cheap outsourcing destinations, such as India, you can find surprisingly high rates. Just like you can find relatively cheap software development\u00a0<\/strong>in countries known for being expensive.<\/p>\n

Why do the rates differ so much? First and foremost, each country has a\u00a0different economic situation<\/strong>\u00a0with varied wages and living standards. Thus, the\u00a0prices constantly fluctuate<\/strong>, in response to what\u2019s happening on the macro and microscale.<\/p>\n

Taking that into account, it\u2019s easy to see how outsourcing can help you save money if you\u2019re smart about it. By analyzing your financial situation and comparing available options, you can gain a lot of value by spending less.<\/p>\n

But how much is that, exactly? It really depends on too many factors to clearly measure once and for all, so let\u2019s look at\u00a0<\/strong>the average rates across the countries and compare them.<\/p>\n

<\/span>Average Hourly Rates Of<\/strong>\u00a0Software Developers<\/strong>\u00a0Around The Globe<\/strong><\/h4>\n<\/section><\/div>\n
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\n \"developers-hourly-rates-table-comparison-1354x1536\"<\/section>\n<\/p><\/div>\n
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The table above explicitly shows the\u00a0astounding difference between countries in how much software developers can actually make<\/strong>. But how accurate is that data? It depends on how many people have shared their information about their careers, what industry they worked in, and other factors. It\u2019s also good to keep in mind the effects of the pandemic on the labor market. Currently, with the world struggling to recover from the pandemic,\u00a0the wages in the majority of countries \u2014 like in the US, Italy, Canada or France \u2014 have actually risen<\/a>. And with certain sectors doing better than others, those fighting for great employees might have a higher competition than usual.<\/p>\n

To cross-check this information with how the firms price their work, let\u2019s look at\u00a0Clutch<\/a>.<\/p>\n

As of today, you can find\u00a018,897 firms listed under \u201cTop Custom Software Development Companies\u201d, and only 7,657 post their development rates.<\/strong>\u00a0Thanks to the easy filtered search, we can quickly check the average hourly rates entered by such companies.<\/p>\n<\/section><\/div>\n

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\n \"developers-hourly-rates-table-comparison-1354x1536<\/section>\n<\/p><\/div>\n
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To look at those numbers from a different perspective, let\u2019s see how that translates into percentages.<\/p>\n

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This data shows some\u00a0correlation with the average rates in the IT services<\/strong>\u00a0posted above, but it\u2019s still\u00a0noticeably higher.\u00a0<\/strong>It does follow the general trends of the outsourcing market: Western Europe, North America, along with Scandinavian countries, fall into the higher pricing ranges when compared to South America, Asia, and Eastern European countries. But even in a famously cheap outsourcing destination such as India, you can find surprisingly high offshore software development rates. How can we explain that?<\/p>\n

We can assume that\u00a0every software development company on Clutch caters to clients from well\u2013developed countries,<\/strong>\u00a0and thus they can raise their rates accordingly; so that their employees are appropriately compensated and yet stay attractive on the outsourcing market. Many of them present themselves as\u00a0global software development companies,<\/strong>\u00a0for whom the time zones and cultural differences are non-existent, providing their IT services to clients from all over the world.<\/p>\n

So when you\u2019re hiring offshore developers<\/a> by average hourly rate, you can expect\u00a0more than 75% of them to cost less than $99 per hour.<\/strong><\/p>\n<\/section><\/div>\n

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Custom Software Development\u00a0<\/strong>Cost Per Project<\/strong><\/h4>\n

Let\u2019s assume you\u2019re more inclined towards the Fixed\u2013Price Model or you would like to know the final cost. Clutch once again will help us out in our estimations, where you can filter through the software development companies by budget. Let\u2019s see what they set as a minimum price per project.<\/p>\n<\/section><\/div>\n

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Let\u2019s look at these numbers again, but in percentages.<\/p>\n<\/section><\/div>\n

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The majority of projects, 33% of them, start with a $5,000 label<\/strong>, while there\u2019s also a big chance of finding options at even cheaper price ranges. And there\u2019s a\u00a083% chance of getting your price estimated below $25,000.<\/strong><\/p>\n

<\/span>The Conclusion:\u00a0How much do you have to pay for software development outsourcing?<\/strong><\/h2>\n

If you want to\u00a0hire offshore developers<\/strong>\u00a0per hour<\/strong>, you can\u00a0expect 57% of them to cost below $50 and 75% cost below 99$.<\/strong><\/p>\n

If you want to outsource a whole project to a\u00a0software development company<\/strong>, you have a\u00a061% chance of having to pay less than $10,000, and 83% of paying less than $25,000.<\/strong><\/p>\n

<\/span>Outsource Software Development\u00a0<\/strong>with MPC<\/strong><\/h2>\n

Taking the above into consideration, pricing at MPC stays at an average level while still providing sustainable quality based on the years of experience in delivering in\u2013house products. And while we\u2019re striving to reach challenging goals, learning how to optimize our work and how we can improve even more our services, we keep in mind our client\u2019s financial restrictions and we respect their decisions influenced by it.<\/p>\n

Average rate at MPC stays at $50<\/strong>. It varies depending on the skillset, position, and seniority level. A full stack senior developer with 6 years of experience under his belt will surely be a larger cost than a mid QA engineer. And in this market like any other, the supply and demand will come into play as well. Recently, we\u2019ve noticed a big increase in popularity in JavaScript based technologies, therefore salaries of those specialists increased significantly, resulting in higher hourly rates.<\/p>\n

At the same time, the average Fixed\u2013Price project doesn\u2019t require any different budget than what the market usually does. Vast majority of new projects we\u2019re facing are MVP versions of applications that fill in some niche.\u00a0The amount between $15,000 and $30,000 allows us to provide value to the end user<\/strong>, challenge the idea, and in many cases, even monetize to expand the solution later on.<\/p>\n

<\/span>Key Takeaways<\/strong><\/h2>\n

Software development can be done in two ways: in\u2013house, that is with your own team, or by partnering with a software development company that specializes in a niche relevant to your business. Both options come with costs in different areas,<\/strong>\u00a0so there is no right choice for everyone. It all depends on the circumstances. That\u2019s why\u00a0each business owner should analyze their own situation first<\/strong>\u00a0and deduct which software development model is more beneficial and convenient.<\/p>\n<\/section><\/div>\n","protected":false},"excerpt":{"rendered":"

Why Outsource In The First Place? The Earth revolves around the Sun. Hopefully, we can agree on that. Metaphorically though, it\u00a0certainly revolves around money. That is especially true when it comes to business. Most business decisions are heavily influenced by finances, whom to hire, which market to move into, or how big of\u00a0crypto loans\u00a0you may […]<\/p>\n","protected":false},"author":1,"featured_media":382,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-380","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/posts\/380"}],"collection":[{"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/comments?post=380"}],"version-history":[{"count":3,"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/posts\/380\/revisions"}],"predecessor-version":[{"id":394,"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/posts\/380\/revisions\/394"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/media\/382"}],"wp:attachment":[{"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/media?parent=380"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/categories?post=380"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/upprofits.net\/index.php\/wp-json\/wp\/v2\/tags?post=380"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}