For entrepreneurs, the main concern is to launch, establish, and scale their startup within a shoestring budget. Outsourcing acts as the cost-effective solution to bring expertise to the table without exhausting the funds.
However, a majority of the entrepreneurs still have their own inhibitions about outsourcing software development to other countries.
This guide seeks to clear out all the questions and doubts surrounding outsourcing costs. It will help you analyze your outsourcing costs, calculate the cost benefits of outsourcing, and give you some amazing tips and strategies to save even more with outsourcing.
So, without further ado, let's get started.
The outsourcing industry has boomed in the past few years as it enables organizations to save costs.
But many are still not able to calculate and reduce costs.
This chapter tells you why.
The when, how, what, and to whom of outsourcing are important questions. But a more important question is for ‘How Much’.
It is imperative to know the outsourcing cost to venture successfully into any outsourcing contract. In fact, for many companies, outsourcing cost is the first thing that comes to mind when they plan to outsource IT services or development work.
Breaking it down even further, it is now an accepted fact that a majority of the companies that outsource, outsource to reduce costs!
And to know how much cost you have reduced, it is important that you the outsourcing cost inside out. But before we start talking about outsourcing cost, we’ll throw light on some mind-numbing outsourcing cost stats.
Proven Stats Around Outsourcing & Cost Reductions
Outsourcing is not an emerging technique, it has been in the industry since the 1960s. In the past half a century, it has ballooned to a mammoth. Let’s start by focusing on this study by Gartner to understand it better.
The need to expand with a shoestring budget for the entrepreneurs and the growing digital transformation in the industry for enterprises are key drivers for increasing inclination towards outsourcing.
Well, that was just a glimpse of the bigger picture!
Let’s take a more focused approach talk to the point. Here are some research and studies that show how companies have embraced outsourcing to cut costs.
A lot of research and studies have been done to reach these concluding numbers. But in order to reach the number around cost, profits, and margins in your outsourcing ventures, you need not drown in such research or studies.
So, why is every startup, outsourcing IT services to India, unable to estimate its outsourcing cost?
Why You Are Unable To Calculate The True Cost?
Some companies are naturally organized and data collectors. They know the importance of analyzing the cost of their business operations and are able to compare both the estimates. If that’s you, Congratulations! You already have a competitive edge.
But for the rest of us that need to start putting more efforts, let’s quickly talk about the problems companies face with their outsourcing costs.
Before you start outsourcing and exploring more about outsourcing cost, you need to focus on your current cost. One of the biggest hurdles faced by companies when outsourcing is their poor cost consciousness.
What is it?
And poor cost consciousness is not the only obstacle stopping you from cost calculations, there are many other barriers as well. Some other challenges that a majority of companies face are:
- Scarce data collection
- Rare data analysis
- Insufficient collaboration
These also pose a challenge to proper cost estimation and might deter you from succeeding with outsourcing.
Not having complete information about the cost of the current operations could drive you away from deriving the actual outsourcing cost. Before you even think about outsourcing to reduce costs, you need to calculate your company’s true cost of operations.
Now you Know
- The outsourcing industry has boomed over the past decade.
- Many companies have accepted cost reduction as major driver for outsourcing.
- Many companies have even been successful in reducing cost with outsourcing.
- Still, many companies are unable to calculate outsourcing cost, let alone reduce it!
Outsourcing bill only comprises the bid price or the salary of the development team!
You are mistaken if you feel the same.
Get the complete analysis of hidden outsourcing costs in this chapter.
Outsourcing- the proven way to cut down operational costs!
We’ve gone through this pointer quite a number of times but still, many companies are unsure about their true outsourcing cost.
While some say outsourcing cost is the sum you pay to the vendor as per the bid, there are others who incline on the opportunity and incremental costs of outsourcing.
To break outsourcing costs, let’s analyze the true cost of outsourcing, the bills attached to this venture along with the hidden costs.
What Are The Direct Costs In Outsourcing?
How could we go further into outsourcing cost without first understanding what all charges you will be billed for if you start outsourcing IT services, web development, or any other services? Here are the main cost components of outsourcing.
Salary Or The Pay Check
The first and the foremost cost is the remuneration or salary you pay for the remote developers or the team you hire for your remote product development. Depending on your project needs, you might need to choose from getting single developer to work on your project with your in-house, a full team, or even want the complete product development managed by another firm.
Let’s say, we are outsourcing product development. What are the costs included in it? Let's find out.
Hiring Single/Independent Developer:
You can hire a developer, dedicated programmer, or coder who would work on your project on a per-hour, month-to-month or long-term contract base depending on your requirements.
When is it ideal for you to hire a single developer?
- You need someone to fill specific technology requirements
- Expert requirement for a project
Cost savings on hiring a single developer:
By paying only for the hours that the remote developers work for you, you save on all the money you would otherwise spend on the breaks and hours when your in-house developers are being non-productive. Here is how much you might have to pay for hiring remote developers from India. The cost comes out to be as low as $20 per hour only and ranges up to $45 per hour. For other countries, the cost might range between $50 and $150.
Hiring Complete Remote Teams
If you are looking for a team to develop or design a particular part of your product, you can opt to hire remote teams. These can be your complete teams with the developer, designer, tester, QA specialists, and the project manager or team for any particular task like designing, development, etc. You can set up a team for complete work in offshore location or can have a team as an extension of your in-house team. A dedicated team is a part of your in-house team, just working from a different location. You can set their salary and leverage the skills that they bring to the project.
When to hire a full team for development?
- You need a dedicated team for a complex project
- You want to onboard an expert team as an extension of your in-house team
Cost savings on hiring a dedicated team
Getting a complete product team with everyone from the front-end developer, back-end developer, quality analyst to maintenance & support and full-stack team and much more could save costs. You need not hire an expert from any field individually and can simply get a team that would comprise of all the professionals you require.
Full Product Development
In such a process, you join hands with a company that would fully manage your project or product development, from brainstorming around your idea to creating MVP to launching it post-testing through managed projects.
When to get end-to-end product development?
- You have a complex product or software architecture to build
- You want a partner from ideation to development, launch, and scaling of the product
Cost savings on getting managed projects
All you are required to do is provide the company with your idea and the specific details you want to be integrated into your software. With a managed product development project, you need to send your requirements, get the quote from the outsourcing agency, have a team set up for you, and get the project work done. They even assign a project manager, so you even save the cost of managing the product development.
While these are some of the direct costs in outsourcing, there could be a number of ad-hoc costs that might crop up during your outsourcing venture. Some of these out-of-pocket costs are listed down below:
- Cost of getting the SSL Certificate for your product's security
Cost of creating the SSL certificate, if you want one
Cost of asking the developer to visit on-site or you visiting the company's office
Cost of technical consultant or project architect as a technology partner that you might seek
What Are The Hidden Costs in Outsourcing?
Think you have got it all on the tab?
Did you include the cost of hiring the developers and getting the complete outsourcing contract?
Is the cost of selecting the outsourcing company included in the bill?
You would have certainly skipped on the cost of the hours spent in knowledge transfer that the new team would need to get familiar with the project!
Also Read: Perks Of Agile IT Outsourcing
Well, while most people think that paying the project's price to the outsourcing company or paying the salary of the remote developers is the only cost they would have to incur. But there are some other costs too that you need to keep in mind.
There are many costs that are hidden in your outsourcing contract! Let’s throw light on some hidden ones:
Cost of Hiring
This is essentially the cost of selecting the remote developer or outsourcing agency in India. This cost of hiring remote developer would also include:
- Creating Request for proposal
- Screening the applicants
- Negotiating the terms
Cost of Transitioning Or Knowledge Transfer
When you are outsourcing your development work, the costliest stage might come out during the transition. This is the phase when you are actually handing over your work to your outsourcing provider in India.
You are explaining the developers about your project and sharing what you have. It might take some two-three for them before they get acquainted with the product idea to initiate working. This might be a very meager sum compared to the costs you'll actually save but this is a hidden cost that you should know well in advance.
Cost of Server Management
When in the digital world, it is important to make sure your product is up and running throughout. This could include everything from infrastructure monitoring and health scaling to vulnerability detection and alert generation. They would be required to make sure your products never experiences downtime. This could cost a business around $100-$400 per month for a single server.
Cost of Creating Outsourcing Contract
Forming an outsourcing contract is imperative for the success of any outsourcing venture. Everything required from the outsourcing relation needs to be specified in the outsourcing contract so that no scope for error, confusion or misunderstanding is left on both ends.
Read Also: Outsourcing Contracts: Things To Know
It is the legal document that puts forward all the details of the venture about what the two parties are expecting and expected to offer. It also lays down the timeline, schedule, and everything. Through this contract, you also mention clauses of IP protection, Non-Disclosure, etc.
Here is a sample of an outsourcing contract:
Now you Know
- There are several costs included in your outsourcing bill.
- The direct costs include the salary of developers or the total cost that the outsourcing company would tell along with several other ad-hoc costs.
- There are many hidden costs as well in outsourcing like the cost of hiring, server cost, contracting cost, cost of knowledge transfer, and many more.
In-House Vs. Outsourcing
There is a stark difference between in-house costs and the cost of outsourcing.
Knowing these differences can help you make better outsourcing decision.
This chapter will help you decode the same with simple example.
The one question that looms over the minds of clients is if outsourcing would actually be as beneficial as it is expected to be. For this, let’s suppose you are planning to get product development outsourcing services, here's a breakup of the in-house cost and the outsourcing cost. Let's assume you are building a product, say a simple application.
You will need a complete team with front-end and back-end developers, UI and UX designers, Q/A analysts, business analysts, architects, and a project manager to manage the work. Let's see how much the in-house development and remote development would cost.
In-House Product Development
Let’s check how much it would cost to develop a product in-house.
The first step in setting up an in-house development team would be that you would have to go through a number of processes and have a human resource team to screen through the candidates. You will need developers, designers, product architects, quality analysts, testers, graphic designers, and other members for the development.
The biggest factor giving remote developers an edge over the in-house developer is that you do not need to sign a long-term contract with the developer!
There are many added paid benefits like sick leaves, annual bonuses, overtime pay, training tax, medical insurance, etc., that you need to pay to the developers you hire for your in-house team. Apart from that, you need infrastructure, workstation, furniture, and also have to provide some refreshments, etc., to the developers.
Let’s see the break-up for hiring an in-house product developer. Here are the costs included in the in-house development:
- Cost per hire
- Developer salary
- IT expenses
- Software licenses
- IT system
- Technology training
- Paid benefits
- Overhead costs (25% of salary)
Outsourcing Product Development
What is the cost of outsourcing product development? This is the first question that you would ask when talking about product development. So, let’s see how much would your product development cost you in remote team incubation.
We are building a simple product. Like in-house team for development, here also we'll need to build a dedicated team working on the product. As it is a simple product, it would need a mid-level developer, one junior developer, one graphic designer, and a quality assurance engineer. Apart from that, one would need a project manager or the SCRUM master for specific hours as the point of contact and a business analyst or BA for the initial research around the idea.
To compare it with the cost of your in-house development, let's calculate the number of hours for which you would hire the team. The basic version or MVP of a simple product can be completed in 4 sprints which is around eight weeks. So, you can hire the product development team for two months. This would come out to be 320 hours ( 8 hours per day multiply 5 days a week multiply 8 weeks).
Image Source: Clutch
The only major cost that is included in outsourcing product development will be:
- Fee or salary
- Hiring cost
- Miscellaneous hidden costs
In-House Vs Outsourcing Costs
We know the inclusions in in-house product development and outsourcing. Now, let's get a rough calculation of the costs that are included in both the things. This is when you are getting a very simple product developed. For that, you need a team comprising a mid-level developer, a junior developer, a graphic designer, and a QA. In addition you'll need a PM for specific hours, and a BA for the initial phase.
Here, we have taken the rough costs of getting a product developed in-house and the break-up of all the costs. Alongside, we also have the cost of outsourcing the same product development.
|Variable||Cost of In-House Development In The US (320 hours)||Cost Of Outsourcing Development To India (320 hours)|
|Cost per Hire||$4,200||$1,000|
|Overall Team Salary||$160,000||$37,100|
|IT System||Mac: $1,800||$0|
|Software License||$250 per person||$0|
From this table, we can easily deduce how outsourcing saves your money over in-house development. In-house development includes a number of other fees and charges like overhead, increased salary, retention, benefits, and even the cost of the hardware and software.
Outsourcing, on the other hand, only requires you to pay for the salary of the remote developer or the bid if you are hiring an outsourcing agency and optional charges for the software licenses if and when required. You actually save over $140,000 in outsourcing.
As seen, outsourcing can certainly help you cut down your development cost. and it's not just the cost that makes entrepreneurs and startups follow the outsourcing approach as it offers them the following:
- Access to vast talent pool that is unavailable locally
- Provides round-the-clock productivity
- Promises high-quality codes
- Ensures faster project delivery
- Allows entrepreneurs to focus more on their core business operations
Now You Know
- Comparing outsourcing costs with the in-house development cost is imperative to know how much you are saving and how much more can be saved.
- You need to calculate how much you had to pay if you get the project done in-house first so that you have a benchmark to compare the prices to.
- Once that is done, you can easily compare these costs with the costs of outsourcing to know the extra spend or the savings you can have to make a well-informed decision.
Differential cost, opportunity cost, and incremental costs are three main costs in it.
Calculating the outsourcing cost can be done through different methods.
You will learn more about cost analysis and calculations here.
Calculating the outsourcing cost would not convince you to turn to outsourcing product development. You would obviously want to dig deeper and know the outsourcing cost benefits to confirm your decision. In order to analyze the actual cost and cost benefits of outsourcing, we can go for either of the three approaches:
1. Differential Cost Analysis
2. Opportunity Cost
3. Incremental Cost
While all the three approaches can be adopted to calculate the outsourcing cost benefits, the first approach, i.e, the Differential Cost Analysis is what would give you the exact numbers that you are looking for. So, here’s a simple 4-step approach to Differential Cost Analysis in outsourcing
Differential Cost Analysis
The simplest answer to ‘What is differential cost analysis?’ is the amount left when you deduct the outsourcing cost from the in-house cost. But let’s understand this better by taking the costs that we have discussed in our product development work. Here’s how you can find the actual cost of outsourcing:
#Step 1: Analyze The Task
The first step is to clearly define the services that you are planning to outsource. Having clearly defined steps and processes of the service would help you make a better analysis of the cost as well.
Here, we are developing a product so we would need to outline all the tasks like the platform that you need to target, user interface & user experience (UI & UX), functionality, backend infrastructure, level of customization, MVP or prototype creation, performance analysis, etc.
#Step 2: Calculate Actual In-House Cost
The next step would be to calculate how much you would have to spend if you did not outsource this operation. Start with jotting down all the direct and indirect costs like salaries, benefits, supplies, IT systems, hardware, software, etc., that you would have to provide.
In our case of product development, the cost of in-house development came out to be around $178,770. This cost only includes the salary, benefits, IT supplies, training cost, etc., of the developer you would hire.
#Step 3: Calculate Outsourcing Cost
Now that we have the in-house product development cost, the next step is to calculate the overall cost of outsourcing the services. This would include everything from the bid price to other integration you might have to undertake for a smooth transition.
In our case of outsourcing product development, the cost of the operation came out to be around $41,000. This would be your total cost of outsourcing.
#Step 4: In-House Cost Minus Outsourcing Cost
This is the final and the simplest step in the differential cost analysis of your outsourcing cost. Here it would be:
Well, this certainly ensures that outsourcing reduces costs. Your savings from outsourcing product development instead of getting the product developed in-house comes at $117,469.
This was just the differential cost analysis method that gave us the numeric value of the amount saved from outsourcing. Let’s look at two other ways of calculating outsourcing costs.
Opportunity cost is the cost that you are giving up or forgoing when you are choosing one option over the other. Here, the opportunity cost would be the cost that we might let go of if you choose to undertake the operations in-house over outsourcing development. It could also be the benefit that you otherwise would have received but eventually gave up by in-housing rather than outsourcing.
So, let’s know how much is not outsourcing your IT services costing your business:
- You are not able to focus on your core competencies.
- You have to compromise with low-tech skills for your operations.
- You are keeping your in-house team burdened with multiple tasks and stressing them.
- You are just getting work done but not creating any value for it.
- You are not utilizing your existing in-house resources to the best of their capabilities.
Another cost that many companies tend to overlook when making their outsourcing decision is the incremental cost. It is the extra cost incurred by a company when it is planning to change the way it operates and functions. In outsourcing, incremental cost would be any extra cost that you would have to incur when outsourcing your operations.
However, going by the calculations made in the previous chapter, it can be concluded that the incremental cost in outsourcing over in-house would always come out to be negative. But, if in any case, the outsourcing cost comes out to be higher than the in-house cost, the right way to decide whether you want to still outsource or not is by knowing how much revenue or profit it would generate.
Now You Know
- Outsourcing cost is more than just the salary of the remote developer or the bid amount
- There are many costs like transition cost, hiring cost, IP protection cost, etc., hidden in outsourcing
- When comparing outsourcing cost with in-house development cost, outsourcing cost came out to be pretty low
Outsourcing Reduces Cost
Outsourcing can reduce cost!
This chapter throws light on how outsourcing can help you reduce your costs.
Want to reduce your business costs?
Many have been singing the praises of outsourcing in cost reduction but none have cared to venture deep down and unveil the truth!
Does outsourcing actually reduce your cost?
How does it reduce your cost?
Do different outsourcing models have different cost reductions?
Do we only see the cost reduced in the operations we outsource?
This chapter finds the true answer to all these questions.
How Outsourcing Reduces Cost
By now, we have deduced that outsourcing does reduce cost. In fact, according to AMR Research, it was found that more than 70% of the respondents considered reduced costs as the main reason why they outsourced. The question that we would have to answer now is how?
How does outsourcing reduce cost?
To understand how outsourcing reduces cost while also improving the business operations and the end product, let’s start by comparing the in-house cost and outsourcing cost once again.
Apart from the differential cost, you can also include the opportunity and incremental costs to deduce how outsourcing actually reduces your cost. Here’s a break-up of the analysis that we did on the table around outsourcing cost and in-house cost.
Is Cost Reduction Only For The Services You Outsource?
This is one question that has been asked time and again by many entrepreneurs and we’re sure you must be pondering on the same by now! One thing has been established by now:
But would just the cost of that service be saved and nothing else?
Let’s understand this with a case study published in MIS Quarterly by Kunsoo Han and Sunil Mithas.
The study focused on determining if outsourcing IT operations would reduce the non-IT operating cost or not. In this study, it has been revealed that by outsourcing IT services to India or any other country, the cost of non-IT operations was also reduced. The study concluded,
“On average, a one-unit increase in IT outsourcing as a percentage of revenue was associated with a 1.26-unit decrease in non-IT operating costs as a percentage of revenue.”
How is it done? Let’s see how they explain it.
Outsourcing IT operations would increase the operational efficiency of the existing team and the processes, it would free your in-house team and let them focus more on your core competencies.
The existing business processes that are supported by in-house team would become more efficient, thus, reducing the overall operational cost of that process. NASCO, a service provider for the health insurance industry, outsourced its data operation to IBM to see a reduction in its cost in claim processing.
The existing technology nerds in your startup team could be directed to focus more on the strategic activities that can be useful in enabling the firm to gain a competitive edge.
Research by IBM T.J. Watson Research Lab was also quoted by the study to prove its point that IT outsourcing leads to a reduction in non-IT operations. It was conducted on 244 companies and concluded that the companies that outsourced IT operations have a competitive edge over their industry peers in the sense that they could better realize improvements in their business performances for the long-term.
Now You Know
- Outsourcing eliminates several costs like employee training, retention, technology training, etc.
- Outsourcing not just reduces the cost of the operation or process outsourced but the overall company’s cost
Outsourcing Success Tips
Can you increase the cost savings from outsourcing?
Know the mistakes that can cost you a fortune when outsourcing.
Plus, get expert tips o save more and assure quality.
Calculating your outsourcing cost is the biggest hurdle and now that we have crossed it, everything seems like a walk in the park. But what if we add more flowers to blossom your way and tell you that you can save further with outsourcing?
Not only is outsourcing itself cost-effective, but it can also help you further cut down costs through a variety of practices, tips, and approaches. All you need to do is avoid the common outsourcing mistakes and adopt the best practices while keeping the tips for successful outsourcing in mind.
Let’s explore further!
Mistakes to Avoid When Outsourcing
Outsourcing is a cost-effective way to get your operations handled by experts to increase efficiency and outcome. But as with any other venture, there will be some hitches and glitches that might dissuade you. There will also be some myths surrounding outsourcing that you need to debunk. But while these hitches and glitches would only be stepping stones to your success, there could be certain mistakes that could put you in the list of outsourcing failures. Let’s throw light on some of them:
1. Going For The Most Expensive Or Cheapest Developer
You might be enticed by the low cost of the developer you are finding offshore!
You might choose the highest bidder or the costliest developer thinking they'll deliver best!
These could be two big mistakes.
While going cheap with outsourcing could lead to poor quality of work, paying the highest sum also wouldn’t guarantee quality. You need to screen the developers properly before making any commitment.
2. Not Investing In Collaboration Tools
Collaboration issues and communication problem in outsourcing account for around 57% of IT outsourcing failure. When outsourcing, you cannot go over to your team members on their desks to clear any confusions or discuss your next idea!
A lot of ideas can be missed out or significant details of the project missed out while passing of information. With great collaboration tools, you can overcome this issue and bring everyone on a single platform. Make sure you have invested in good collaboration tools to avoid any failure.
While many of the tools are free of cost, there are some tools that might have a freemium version, and for some, you might be asked to buy the premium version to unlock their features. Here's a breakdown of some of the costs of collaboration tools for remote working.
3. Not Interviewing The Remote Developers Properly
Hiring the remote developers without screening them as you would for any in-house candidate could be a big problem in the coming time. The developer or team would be working on your idea. Would you like to compromise on it? No!
So, make sure you have interviewed the product developer as you would interview any in-house hire to find the right candidate.
4. Unclear Goals And Unsaid Assumptions
Assumptions in outsourcing could lead to blunders. State and document everything, even if you feel it is obvious. Do not make any assumptions. Do you think your developer would complete this task? State it! Do you think they would provide this access? State it!
State the obvious and leave no room for assumptions. This mistake can be very costly for your outsourcing project.
Communication is the key ingredient to succeed in outsourcing or building an offshore development team. There could be thousands of ideas cropping up if I vaguely say ‘Develop software that stores employee information’. But not all of them would meet your expectations. In order to get what you want, you need to tell what you want.
Be clear in specifying your project scope and goals. Leave no space for assumptions or misunderstandings.
To understand this, let's take the example of product development outsourcing.
You have mentioned the features you need in your product and a budget is defined. You assume that the cost of enhancing technology to the latest version when it is released mid-project would be included. The cost of in-house might remain constant during this. But when outsourcing, this would be considered an add-on. So, if you are expecting your outsourcing service provider to take care of certain task, make sure you have it clearly stated.
5. Not Forming The Right Contract
Related to the above mistake is this one! You are not just expected to say everything; you are expected to put it all in the outsourcing contract that both of you are going to sign. This would give you the assurance that everything documented there would be delivered. Hence, it should be created with complete due diligence.
6. Not Securing Your IP
Another mistake that most organizations, especially startups, make is to not protect their IP through legal means. As a startup, your idea, your intellectual property is your main treasure. Hold on to it tight and secure it through all means possible.
Outsourcing Costs: Tips To Save More
Just knowing the cost of outsourcing is not something that a company should be satisfied with. You should always look for more!
Now that we know what is our outsourcing cost and how we can calculate it, let’s throw light on some tips that can help us in reducing cost using outsourcing. While outsourcing can help you save costs, these tips would help you cut down even those costs.
1. Have A Process That Encourages Flexibility
As an entrepreneur, outsourcing your project would come in easily if you have a process in hand. The best approach for this is the agile methodology. It is a iterative approach where you assign work in sprints for getting smaller chunks of work done in some time. A study has concluded that agile projects have a 28% higher chance of being successful in managing projects. If you are also planning to outsource your operations, it is important that you go with the agile approach.
The multiple short iterations in agile methodology pave way for a more effective and better-developed product.
- It has the creation, testing, and release of the project in many iterations
It ensures that if any changes are required, they would be implemented during the project completion and full and final product would be released on the committed date.
- There is more transparency and increased collaboration in agile development
- You can customize agile based on the way your startup works
Also Read: Tips To Ensure Success With Outsourcing
2. Follow The Agile Approach Smartly
The best advantage of the agile approach is that it works effectively with mini-deliverables. As a startup, you do not have the resources to separately assign an individual for looking into the project management closely nor do you have the extra funds to afford a completely failed or different end-product. So, the best way out in this case is to create mini-deliverables. These could be aligned with the sprints that the outsourcing company formulates. It could help you keep a tab on the outsourced product without having to indulge completely and also eliminating any chances of totally different delivery.
3. Leverage Technology
The next tip revolves around technology. When outsourcing your product development, you need to be on the technology forefront. There are a number of digital tools out there that could help you minimize and even eliminate a number of costs. These could include collaboration tools, project management tools, automation tools, Robotic Process Automation, etc., which could be very helpful in cutting down the total cost of outsourcing.
4. Select The Skill Not The Price
As discussed, going for the price of the remote developer for your project would be a big mistake. An effective tip would be to sort and filter the outsourcing service provider based on the skill that he/she has. You can even select the outsourcing agency by going through the technology stack. A good tip would be to find a developer and see their portfolio. It should always have more projects on the tech stack that you are looking for. They should not just showcase the skill on the resume but also have actually worked on it.
5. Start Small To Understand Outsourcing Better
Many companies tend to outsource all their operations in one go. You need to avoid doing that and take the outsourcing venture a bit slower. Take one step at a time only. Start by outsourcing any one operation other than your core competency. If you like what you are getting and it is turning out to be efficient and cost-effective, then only should you go further with the outsourcing venture.
Best Strategies For Outsourcing Cost Reduction
While we have certainly talked about some great tips that could be effective in reducing your outsourcing cost, there are a few practices that might also be helpful in outsourcing cost reduction. These practices have been adopted by many companies and are emerging out to cut short the outsourcing cost, especially for startups.
1. High-Priority Tasks First
When it comes to outsourcing your tasks, it is always advisable to prioritize your outsourcing tasks. Also, ensure that only the high-priority tasks or features are developed first.
This way, even if your shoestring budget exhausts or you run out of time, you can easily cut down the outsourcing relationship then and there while still having an MVP or something that does only require few modifications. Do not join hands with outsourcing vendors that want to take care of the easier tasks first and later work on important tasks.
2. Start With MVP Development
Another strategy that you can employ when you start outsourcing is to outsource MVP development first. MVP is the Minimum Viable Product with the bare minimum features to get your product out in the market.
For startups, MVP development is a great approach. This would help you know how good the company is and if you and your targeted users are satisfied with the MVP, you can continue the outsourcing relationship with them to improve as the feedback offered. Startup unicorns like Uber, Airbnb, Spotify also used MVP.
Checkout Our FREE MVP Development Guide
3. Go For The Hybrid Approach
Another cost-effective practice for outsourcing is to adopt a hybrid approach. This is where you bring together two approaches for outsourcing and transform them into one.
The best hybrid approach for outsourcing is to have the outsourcing company’s personnel in your location who would take care of all the operations in the offshore location. This way you would make the most of both on-site and offshore development.
Finding The Right Company: Key to Unlock Savings
What is the key to unlocking cost savings in outsourcing, you ask?
A simple answer would be to find the right vendor. Choosing a remote developer from a trusted web development company for outsourcing mitigates your risks and can offer added flexibility, scalability, experience, etc., to the venture. If you have found the right outsourcing company, 90% of your risks are eliminated and the chances of outsourcing success scale up. Keep reading below to know how you can find the perfect company for your outsourcing venture.
What Is Company's Niche & Expertise?
The first thing you should check is their expertise, and not just the general experience, check their expertise in your industry. You would want them to have worked on other projects in your industry too so that they would easily understand your industry requirements and deliver accordingly.
Pro Tip: Look for the experience of the company along with their portfolio to know what kind of projects and industries they have worked for. Ask for their Github profile to know their expertise.
How Many Developers Are Working For Them?
As a startup, your goal is to grow with time and would always want to outsource to a company that can allow you to scale. Whether you want to add more developers to your extended team or want to find developers with new tech stacks, the company should be able to provide you with one.
Pro Tip: Ask the company about the teams working with them and the number of developers they have. Know if they could be onboard with your scaling strategy or not.
What Communication Channels They Use?
The communication channels and collaboration tools they utilize are also important. Talk to them about their communication channels and ensure they make use of the best channels for seamless communication.
Pro Tip: Go for a company that does not make a fuss and promises to get onboard with your preferred communication channels and tools itself.
Do They Let You Choose The Developers?
Know if the company is offering you the freedom to choose the developer of your choice. They should offer you the freedom to screen developers and choose the one you like. And in case, you don’t like any existing developer, they should also offer you the ease to replace him/her.
Pro Tip: Do not choose a company if it does not let you screen or analyze the developer. Always find a company that gives you the freedom to work with the developer of your choice.
Are They Adapting to Your Time Zone?
Being in different time zones can pose a big challenge. They should be able to adapt to your time zones. It should not create a gap in their working or your involvement in the project.
Pro Tip: Go for a company that offers complete flexibility for time zone gap and look for the experience of the company along with their portfolio to know what kind of projects and industries they have worked for.
What Are Their Pricing Models & Methods?
Many companies might try to loot you by changing the pricing model of their developers once they are aboard your project. Find a company that sticks to a particular cost and lets you find developers on a fixed cost only.
Pro Tip: Look for the experience of the company along with their portfolio to know what kind of projects and industries they have worked for.
Are They Providing Consultation As Well?
For a startup, outsourcing is not simply about development, it is also about brainstorming and consultation to help them grow. You need to find a company that would offer consultation to help you improve and scale with your operations.
Pro Tip: It is important that you look for a company which is eager and willing to offer you FREE consultation regarding your product or product idea.
Is Their Technology Stack Up-to-date?
The technology stack that the company has, also plays a crucial role in its expertise. You need to be sure that that company has access to new-age and emerging technologies to help you gain a competitive edge.
Pro Tip: Check out their technology stack before joining hands. They should have all the latest technology stack to make your product/software state-of-the-art.
Now You Know
- There are various mistakes that you should avoid to ensure you are not among the companies that fail at outsourcing
- There are many tips that you can follow as well to cut down your overall outsourcing cost
- Apart from that, you can adopt the best outsourcing practices that have been proven to save money
- In the end, it all boils down to the developer or outsourcing company that you select and you need to take care of certain things to find the right company as well.
Start Outsourcing, Start Saving
When your budget is on a shoestring and you can find an in-house team with the latest skills and technology stack, shift gears to the outsourcing route!
But costs should never be the sole reason you start your outsourcing venture!
We believe that outsourcing can reduce costs. But along with reducing costs, it also enables you to improve your operations while keeping your undiverted attention on scaling your startup.
Classic Informatics: Your Outsourcing Partner
Classic Informatics is a client-centric organization that offers complete solutions for web development, IT services, product engineering, app development, and much more. We team up with Startups, SMEs & Large Organizations to build and deliver user-centric products and solutions.
We help startups with end to end product engineering including project management, documentation, development, testing & growth. Right from the ideation stage of the product to its development and growth, we assist startups become successful.
As your outsourcing partner, we can help you gain a competitive edge while reducing your costs! We have even helped a number of clients in doing the same. One of our clients, Mr. Francisco, founder of a healthcare portal, has been very satisfied with outsourcing is development operations to us. Quoting Francisco,
“I gave the remote developers, at Classic Informatics, a detailed description of what I needed and they started the development process. Weekly iterations with the team on Friday made it easier to connect and see the progress. They dealt with everything on a dedicated project management application and made it very very quick. They have offered assistance in each front of the development. ”
So, why wait?
Start outsourcing and start saving costs!