Outsourcing, Software Development

How Much Cost Can You Save With Outsourcing Software Development

How Much Cost Can You Save With Outsourcing Software Development

Outsourcing initiated and succeeded as a way for businesses to save costs in software development. However, with time, cost became an ancillary benefit, a secondary reason to the various primary benefits that compelled businesses to outsource.

The 2018 Deloitte survey revealed that saving cost was no longer the driving force behind major outsourcing decisions. Gaining a competitive edge, launching faster, flexibility to scale, and improved user experience were!

But come 2021, reducing operational costs took the front seat once again. The pandemic affected businesses drastically in terms of finances, and most eyed outsourcing as a means to reduce costs. In fact, the Deloitte 2020 survey revealed that over 70% of organizations prioritized cost reduction when choosing to outsource software development and finding the right software partner.

If this made you wonder how much an organization can save from outsourcing software development, this write-up is for you. 

Software development outsourcing (14)

Here, we have not just talked about the different approaches companies take to outsource but also briefly compared the cost of in-house development & outsourcing. In addition, we have also calculated the costs that you can save from outsourcing software development. So, let’s get into reading further about it. 

Different Ways To Outsource Software Development

Outsourcing is commonly thought of as a way for companies to get their software developed by an offshore company. However, it’s not just that. There are different ways in which outsourcing works for different companies. Here are some of the common ways that people outsource software development.  

Software Development Outsourcing

One of the most common ways most startups and enterprises adopt when launching a new product is outsourcing its end-to-end development. This involves everything from the ideation to the research to the development and to its launch and marketing. 

When outsourcing product development, companies hire a third party or an experienced IT outsourcing company to build and manage their complete product. Many startups undertake this approach as it provides them with a technology partner or technical co-founder for their product development.  

Enterprises and other small businesses, on the other hand, go for software development outsourcing as it enables them to build a complex product without having to set up a completely new department for the development. 

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How Does Outsourcing Software Development Save Costs?

Be it for startups, enterprises, or small businesses, outsourcing the complete software development or getting remote product development is a sure-shot way to save a lot of money. 

One, you don’t need to set up or expand your infrastructure for your product development team

Two, you simply need to find a structured software outsourcing company, discuss requirements with them, get quotes, and hand over the product development to them. 

Also Read: Top 10+ Software Outsourcing Companies To Watch Out

 

Three, you can focus on handling other important tasks at your company, including new offerings, improving customer experience, or realizing other business goals

Hiring Single Developers

Another common practice of outsourcing development is hiring remote developers from IT outsourcing companies. These could be single developers, multiple developers, or a complete team of developers. Most of the time, product companies, digital agencies, and startups hire remote developers as it helps them plug technology gaps. 

While hiring single developers from outsourcing companies, businesses look through different freelancing portals or search engines or listing sites to find the best remote developers. They hire them on an hourly or monthly basis or even on their project requirement basis. This helps them in different ways. 

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By hiring external developers, companies can leverage the global talent pool and overcome any geographical boundaries while building and organizing their teams. They need not limit themselves or compromise on their product just because that particular technology expert wasn’t available in their region. 

Hire remote developers from India

How Does Hiring Remote Developers Save Costs?

There is a cost advantage as well when it comes to hiring remote developers. Companies can hire remote developers from India at a much lower price. An in-house developer means several added costs to the salary. However, hiring a remote developer from an IT outsourcing company eliminates all those costs. 

Moreover, the per-hour costs of developers also get slashed by a huge margin when you decide to outsource to India or similar countries. 

Also Read: A Comprehensive Guide To Hiring Remote Developers In 2021

 

Building Dedicated Teams

The next way many companies have started outsourcing their product development is by hiring complete dedicated teams from an IT outsourcing company. Such an approach helps companies that are looking for complete teams to build their software

It could be an enterprise, startup, or product company launching its new product. They might need full teams comprising an array of developers - senior, mid-level, junior, etc., UI/UX designers, graphic designers, QA engineers, project managers, and other technology experts. 

This team acts as your in-house team working dedicatedly on your project but in an offshore location. It can act as both your in-house team or an extension to your in-house team to plug the required tech team gap.

evaluating software development partner 

How Does Building Dedicated Remote Teams Save Cost? 

There are several benefits that you can enjoy in building your dedicated team with an offshore software development company.

  • First, you need to burden your in-house team with the development work of another product while they handle other tasks. 

  • Two, you get experts that are sitting in an offshore location and are well-managed by a project manager there. 

  • Three, you have the benefit of having a complete dedicated team sitting together in one physical location, making it easier for them to collaborate together on the project. 

  • Four, you save a lot of cost and time in hiring as you can build the full team with an expert company without having to look for individual developers and other team members. 

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Cost of In-House Software Development

Before we talk about how outsourcing software development saves costs, it is imperative to throw light on the different costs involved in in-house development. The reason why many companies are shifting towards outsourcing their software development is because of all the costs they can save. This includes several costs like the ones we have discussed below.

  • Cost per hire: The sum you invest in hiring an in-house resource for your software development project. This cost varies depending on the experience of the developer, technology complexity, availability in the region, and several other factors. You might even need to look for agile practitioners as the common practice is to follow the agile software development approach.   

  • Developer salary: The next cost that is involved in building software in-house is the salary of the developer or software engineers that you are expected to pay each month.

  • IT expenses: When it comes to hiring in-house developers, there is an added cost that comes along with it. You need to take care of building the complete IT infrastructure for the software development to take place. 

  • Software licenses: The next cost that comes with building software in-house is the cost of getting all the software licenses. There could be several licenses required for software development, and the company would bear them all.  

  • IT System: When you are building software in-house, you need to not just provide the development team with the software but also the IT system, including hardware, technologies, and various other things. These all add to the cost of in-house development.

Also Read: A Guide To Choosing A Dedicated Development Team 

 

  • Technology Training: The next that one needs to see while hiring an in-house team for software development is the cost of training the developers. Most companies feel that they can get their developers to work on different technology as per their software requirements, which incurs an additional cost of training them for that particular technology. 

  • Paid Benefits: Not just the salary, the in-house developers are also given different paid benefits in the form of paid leaves, medical benefits, bonuses, and many other things. These also add up to the overall cost of the in-house development team.   

  • Overhead Costs (25% of salary): In addition to the said paid benefits, there are other things like infrastructure cost, electricity, maintenance, and various other overheads which add to the cost. 

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Cost of Software Development Outsourcing 

Now that we know all the costs that are included in building software in-house let’s throw light on the costs that are included in getting software development outsourcing services. Here is what all you pay for if you plan to outsource it.  

  • Outsourced Product Development Cost: For those who are outsourcing complete product development from an external company, this comes out as the total cost agreed upon in the contract. Outsourcing a simple MVP to an IT outsourcing company in India can start from $40,000. This would include everything from technology to teams to IT support, etc. 

Also Read: Everything Startups Need To Know About Outsourcing Product Development

 

  • Remote Developer Fees: Instead of outsourcing a complete project, many companies start hiring remote developers from India, Ukraine, Poland, or other similar countries with nominal developer fees. This is the per hour or monthly charge that you pay the remote developers working on your product from a foreign land. 

  • Dedicated Team Charges: This can save some costs as hiring a complete team from an offshore company can come out to be lower compared to hiring remote workers from different organizations or platforms. You build your dedicated team with a company, and they work as your in-house team would on building the software. 

  • Cost Of Hiring: The next cost in outsourcing software development is the cost of hiring. As you would hire an in-house software developer or development team, similar efforts need to be put in while searching for a software outsourcing company. The costs here include reserving a resource for searching for outsourcing companies, documentation, interviewing, screening, negotiating terms, and much more. 

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  • Knowledge Transfer: For those hiring a company in the middle of their development process, this cost could be a big one. This includes ensuring that all the information is passed on from the previous team to the new one or their hired software outsourcing company. 

  • Server Management: Ensuring that the software product works seamlessly without any downtime is a must for any organization. The outsourcing company can also help with server management to keep a check on everything from infrastructure monitoring and health scaling to vulnerability detection and alert generation. However, this might add up in the outsourcing cost

  • Contract Formation: The next bill that gets attached to an outsourcing project is around the outsourcing contract. Many IT outsourcing companies charge to create a contract. Make sure to have everything put right in the document while creating the contract from the developer fees to the hours worked, the timeline, IP protection & non-disclosure clauses, etc. 

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Calculating Software Development Costs

Now, we know how much it costs to build the software in-house versus how much it costs to outsource software development; it’s time we jump to the important part. How do you calculate the costs of software development, and how much can you save with outsourcing? There are certain factors that you should keep in mind while estimating the cost of software development. Let's check those out first. 

Factors Affecting Software Development Cost

Before we delve into calculating the costs that you can save with outsourcing software development, it is imperative that we throw some light on the factors that you need to consider when calculating the overall cost. While the above-mentioned pointers help calculate the cost of software development, we still need to analyze how to calculate it as it may vary from project to project. 

Type of Software Development

This is the first thing that you need to consider. Know what type of software project you are eyeing. 

  • New Software: It could be a new software development project where you are building a new product. 

  • Application Modernization: You might be looking for application modernization or software modification that might help you upgrade your software and become a part of the digital transformation race.

application modernization

  • Software Integration: The next could be integrations into your existing software or integrating your existing software into any other processes. This means writing new codes to help integrate better. 

  • Custom Software Development: You could also be looking for custom software development to build a complete custom product from scratch. 

Analyze the type of software development project you are looking for, and it can help you get a clearer understanding of the requirements to calculate costs further and cost savings better. 

Size of Development

The next factor that will help you get closer to estimating software development costs is the size of the project. To analyze the size, first, you need to list down all the requirements listed in the software scope. Depending on what type of software and the time it might require, you can categorize your software project into the following categories. 

  • Small Size: This is when you have a very simple requirement like building integration or functionality of the software that requires not much custom coding. 

  • Mid Size: This could be an MVP development project where you need to build the simplest version of the software from scratch but sans any added features or functionalities. 

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  • Large Size: This type of software development requires a much larger team, commitment, and time commitment. They might require a database component, have multiple pages, need intuitive UI/UX design, or even be a multi-party application that would work seamlessly across multiple platforms. 

  • Enterprise Size: These are much larger software projects where the development continues for years. This requires a much larger team for building software as the commitment is greater to ensure security, seamless working, and other functionalities. These enterprise applications are built to handle multiple processes and systems at once and would cost much larger. 

Also Read: MVP Development For App Startup: What Goes Into Building One

 

Team Size Required

Another factor that determines your overall software development cost is the team size that is required for it. Simple software development might require a small team consisting initially of two developers (senior & mid-level), a QA engineer, and a UI/UX designer. However, as the requirements scale and the software development project grows bigger in size, the team size also increases. 

  • You might be able to take over a small software project with a team of three members, including a project manager, developer, and QA engineer. 

  • A mid-size software development project might require some more specific roles like that of UI/UX designer, business analyst, architect, database developer, taking the team size around 6-8.

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  • A large software project, on the other hand, requires many more developers and testers in addition to technology experts, business analysts, etc.  This could easily take the team size around 10+. 

Time Required & Complexity Of Software

The next factor that plays a vital role in determining the software development cost is its complexity and the time required to build it. It goes without saying that the larger the software project, the more time it would require. And the more time you need to build, the higher would be its costs. Here is a small breakup of the time required to build different sizes of software products. 

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Now, complexity also adds to the cost of software development. As your software grows more complex, the technical expertise and the experience required also increases. This adds to the overall costs of software development. 

Cost Savings With Outsourcing Software Development

The factors discussed above do affect the cost of software development. Whether you are building the software in-house or building your development center with an offshore software development outsourcing company, these factors will continue to have their effect on the overall development costs. However, one can have a large margin in the cost savings in outsourcing software development as opposed to in-house software development. Let’s calculate the cost savings. 

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Taking all other factors into account, here we are calculating cost savings as per the size of the development and the team required for it.

In-House Software Development 

So, we are supposing that we are building a mid-size software which would require a team of approximately 6-8 members. So, accordingly, let’s calculate the cost of in-house development, while just keeping in mind the cost of hiring the team. Here, we have picked the average hourly wages of members required to build mid-size software from the Stack Overflow 2021 survey of USA respondents. You can also check your local or regional wages to calculate the same. 

  • Software Developer (Full-stack): $120,000 annually ($63 per hour) 

  • Software Developer (Front-end): $115,000 annually ($60 per hour) 

  • Project Manager: $165,000 annually ($86 per hour)

  • Business Analyst: $102,000 annually ($53 per hour) 

  • QA Engineer: $110,000 annually ($57 per hour) 

  • UI/UX Designer: $108,000 annually ($56 per hour) 

Now, let’s move to calculate the overall team’s wage per hour. To get to that, let’s add the average hourly rate of each member here, which comes out to $375 per hour

Now, since we are building a mid-size software, i.e., a minimum viable product, let’s calculate the same for the number of weeks and corresponding hours put in. If we assume that new software development takes around eight weeks, it comes out to be 320 hours of work required. So, the calculation comes out to be pretty straightforward. 

$375 x 320 hours = $120,000

 

This is the cost when you are building the software in-house. However, we haven’t included all the other costs that would be required when building it in-house. 

This is just the developer salary that you will be required to pay. The other costs that will balloon up the total sum of software developed in-house are the IT infrastructure, added benefits on salary, paid benefits to employees, overhead costs, technology training, and much more. This would take the in-house software development cost by an additional $50,000 very quickly. 

Variable

Cost of In-House Development In The US (320 hours) 

Cost on Hire

$4,200

Overall Team Salary

$120,000 

IT Expenses

$20

IT System

Mac: $12,000 for 8 people 

Technology Training

$1,000

Paid Benefits

$6,500

Software License 

$2000 for 8 people

Overhead

$25,000

Total Cost

$170,720

 

Outsourcing Software Development

We know that getting software development in-house costs as much as $170,720 for mid-size software. Now, let’s start calculating the costs of building a similar mid-size software with a software outsourcing company in India. Let’s start by finding the hourly wages of hiring remote developers in India. We are taking his data from the Accelerance 2021 survey report, where they have added the per-hour cost of each. 

  • Senior Software Developer: $35-$40 per hour

  • Junior Software Developer: $25-$30 per hour 

  • Project Manager: $45-$50 per hour

  • Business Analyst: $40-$45 per hour

  • QA Engineer: $30-$35 per hour 

  • UI/UX Designer: $35-$40 per hour 

Calculating the cost of software development outsourcing from any offshore IT company in India would roughly come to around $225 per hour for the entire team. To calculate the development cost by the remote team, we will multiply the same by eight weeks, i.e., 320 hours

$225 x 320 hours = $72,000

 

You can see the cost of the developers’ fee is roughly half of what one would pay to the in-house team in the USA for software development. 

Now, there are several other costs that are included in the outsourcing contract which need to be accounted for before making the final calculation of cost savings with outsourcing software development. This would include the cost of hiring, transition cost, and other miscellaneous costs. This adds to around $1,000-$2,000 in the overall software development. 

 

Variable

Cost Of Outsourcing Development To India  (320 hours)

Cost for Hire

$1,000

Overall Team Salary

$72,000 

IT Expenses

$0

IT System

$0

Transition Cost

$1,000

Paid Benefits

$0

Software License 

$0

Overhead

$0

Total Cost

$74,000

 

Cost Savings With Outsourcing Software Development

Going through the above two tables and calculating the cost between both in-house software development and software development outsourcing, we can clearly see the difference in the costs. There is a large difference that shows how much you can save outsourcing software development. 

Cost of in-house software development: $170,720

Cost of outsourcing software development: $74,000

Cost savings: $170,720 - $70,000 = $96,720

 

Thus, you can save around $100,000 just by outsourcing software development instead of getting it built in-house. This is when you are just getting a mid-size software developed. As your software project size grows, so does the margin. 

Performing a simple calculation, you'll find that you can save up to 58% of the development cost by outsourcing software development instead of getting it built in-house. 

Other Factors That Help Save Costs In Outsourcing

Apart from the clear costs that you can save with outsourcing, there are different factors that help cut down the overall costs. There are different factors that come into play when it comes to outsourcing software development. These could be around the efforts saved, quicker launch, faster development, or even the resources that are saved. Let’s check out the different factors that affect the cost of software development and how outsourcing helps in saving it. 

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Faster Launch

You are able to launch faster as you save time in hiring complete in-house teams. Moreover, you have a team that is totally focused on developing the codes and not distracted by other smaller in-house requirements. The faster you are able to launch your software, the higher are your chances of delighting and enticing the early users. 

No Training Required

When hiring in-house resources, you may be required to train them on certain technologies when switching projects or planning to add new capabilities. However, when working with remote teams via offshore software development companies, you need to spend on any training of developers. They will find the best resources suitable for your business and get them onboarded to your project soon. 

Also Read: Untold Stories Of Successful Software Outsourcing

 

No Infrastructure Expansion

One of the biggest cost savings that come with software development outsourcing, especially for startups and smaller companies, is the cost they save on infrastructure. When building any new department, expanding the infrastructure is a must, which can take the project’s costs to touch skies. Outsourcing eliminates it and ensures complete infrastructure and IT architecture costs are borne by the offshore software development company

Lower Wages

As you could already see above, the hourly wages of developers differ by a large margin when hiring in-house resources and hiring remote developers from India or other south Asian countries. Even if you don’t outsource software development, you can hire remote developers from such countries at a much lower rate. 

Easier Scalability

Scaling a product development team can be costly, especially when you have to hire in-house resources for technologies that are scarce in your region. When outsourcing, one has access to a global talent pool to find the best talent. Not just scaling up, you can even scale the teams down anytime as per your project requirement when outsourcing. 

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Choose Us Your Next Outsourcing Project

Outsourcing is a strategic move that helps organizations save on their software development costs. However, one can reap the benefits of outsourcing only if one finds the right software development partner. 

At Classic Informatics, we have been a development partner for several startups, product companies, enterprises, and small & medium enterprises. Be it end-to-end software development outsourcing, hiring remote developers, building dedicated development teams, or building development centers, we have been on it since 2002. 

We have a complete technology stack and are continuously adding to it by hiring the latest technology experts for businesses looking towards digital transformation. You can outsource complete projects to us or hire single developers and teams from us. 

We follow international quality standards in the development and maintain confidentiality in each project that we undertake. You can join hands with us to outsource your software development and save costs. 

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Banner Image Source: Freepik

Topics : Outsourcing, Software Development



Swati Sharma

Written by Swati Sharma

Swati Sharma, a writer by day and an avid reader by night, works with Classic Informatics, a leading web development company in India. Owing to her passion for her profession, she loves to stay updated about the current & emerging trends in the IT industry.

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