Software Development Outsourcing: Guide, Costs, and Tips
- Updated on 5 Mar 2024
- 13 min
Max Babych
CEO
Software development outsourcing can mean different things to different people. As a software development company with 10+ years in startup development, we’ve shaped our own perspective on the process.
In short, outsourcing software development refers to a founder collaborating with an offshore development team to build a successful product or startup.
But there’s a whole methodology behind doing this effectively.
In this blog post, we’ll share insights from our experience on best practices for outsourcing, including:
- Defining your software outsourcing needs
- Finding and selecting an overseas development partner
- Interviewing and onboarding developers
- Calculating the true costs of outsourcing
Whether you’re looking to outsource the development of an MVP, build an internal business app, or scale an existing product, this guide covers the founders’ key questions.
We’ll skip the fancy jargon and offer practical tips, guidelines, and advice for setting your software outsourcing efforts up for success.
Let’s dive in!
The Many Benefits of Outsourcing
There are many reasons why companies outsource software development. And not only because of the cost-efficiency.
Let’s explore other benefits of software development outsourcing.
| Benefit | Description |
| Small In-House Team | With software outsourcing, you only need a handful of people to work on a payroll basis. This will reduce the workspace requirements and go through hiring, managing, and retaining people. |
| Global Talent | Software development outsourcing means you can access a global talent pool. You will work with developers, designers, testers, analysts, and others from different countries with new perspectives. |
| Leverage the Cloud | Outsourcing gives you several opportunities to utilize proficient cloud technologies. Working with the cloud makes your work faster and more cost-effective. |
| Time-Bound Delivery | Outsourcing agencies work in a competitive space. Timely and high-quality delivery is the means to their survival rather than a benefit. |
Other benefits you should know before understanding how to outsource software development include:
- Ability to focus on your business logic,
- One-stop solution (if you outsource to an agency),
- Post-development support,
- Access to the latest technologies at cost-effective prices.
Understanding the benefits will certify that outsourcing is indeed good for your business.
But when it comes to outsourcing app development, you should not work in haste.
It’s a step-by-step process that includes a few significant stages.
In the end, you will completely understand how to outsource your software development project.
Plus, you will also get an answer to how much software outsourcing costs.
Looking for a reliable software development partner?
Transform your ideas into reality with our dedicated development team — contact us today to get started!
How to Outsource Software Development
There are three main aspects of how to work with an outsourcing company efficiently:
- Define
- Look
- Choose
You start by defining your requirements. This usually happens at the discovery stage.
This is followed by looking for the right agency.
Then, you have to choose one of the shortlisted software development companies.
We will talk about these three aspects in some detail.
Define Your Outsourcing Needs
You need to be ready to outsource your software development work.
Your product must have business goals and objectives to achieve.
Similarly, the outsourcing process must also have goals and objectives.
These goals must be shared with the team, no matter internal or outsourced.
Setting goals helps in:
- Structuring and managing the outsourcing program,
- Identification of the functions and features that need to be outsourced,
- Selecting the right service provider,
- Contract management and implementation.
Setting the parameters for outsourcing is also preceded by understanding the type of outsourcing.
We will talk about three types of outsourcing criteria:
- Execution
- Type
- Geography
By Execution | |
| Freelancers | Basically, you hire a group of freelancers coming from online sources for software outsourcing services. Freelancers work on their schedule and cost less than hiring an in-house team. You can find freelancers for different tasks from platforms like Upwork, Guru, etc. |
| Agencies | Development agencies are akin to a one-stop solution. You will get access to every type of professional under one ceiling. Hiring, managing, and communicating with agencies is easier than freelancers. However, vetting the agencies is a bit difficult because you may be unable to talk to the entire team. Agencies have a single point of contact (project manager) who will share all the details. |
The second type of distinction is based on the process.
By Type | |
| Outsourcing to a Team | Here, you outsource the entire project to another team. This type of agreement is based on a formal contract. The working team agrees to the required project specifications at a fixed cost. They ensure delivery at a specific time or in segmented milestones. As a client, you will have a limited say in the outsourcing web development process. |
| Dedicated Team | A dedicated team model is a hybrid project development outsourcing arrangement. Here, you hire a team of experts. But they are also connected to the in-house team. The outsourced team has a project manager who handles the tasks and deliverables. In this model, you will have a limited say in product development. |
The last type of distinction is led by the location of the development team.
By Geography | |
| Nearshore | In this segment of how to outsource software development, we have nearshore project delegation. The hiring company outsources the work to a company in the neighboring country. So, for a USA-based company, nearshore development will go to Mexico or Canada. |
| Offshore | Offshoring is the practice of hiring developers in the country where that service is actually built or delivered. Since software developers are present globally, you can outsource the software development work to any country. However, the development prices will also be different in all the countries. So, it is better to check the charges before hiring. |
Moving on to the cost of outsourcing software development, we have another important question.
This is about the places you need to look for when selecting a software outsourcing company.
Let’s take it up.
Where to Find Outsourcing Partners
Selecting an agency to outsource software development is a different topic.
In this segment on outsourcing software development, we will list the sources to look for your development partner.
| Source | Why and How |
| Doesn’t everything we want to start with a Google Search? Well, your search for a development agency is no different. A simple Google search with the keywords “best software development agency in (country name)” is sufficient. At the top, Google might show some ads. But below the ads, you will find some agencies or listicle articles of the best agencies. Start screening them with your requirements as parameters. | |
| Listings | Several authority websites search and create lists of software development agencies. These listings include names, core offerings, locations, and a few other details. Browse through these lists while adhering to your requirements and goals. |
| Social Media | Social media is quickly gaining importance as a validator. An agency’s existing or previous clients may leave reviews, mentions, or opinions about the said agency on different platforms. Moreover, while screening the agencies, always check the social media handles. Here, you might find the agency’s experience, past projects, and expertise. |
| Referrals | Word of mouth is also a great way to find software outsourcing services providers. Ask your friends, colleagues, and your network if any one of them has previously worked with an agency. They will suggest a few names. Talk to them and measure their abilities to meet your requirements. This is how you easily select an outsourced software development agency to work with. |
By following the four-step procedure above, you might have a small list of potential work partners.
The first step was all about gathering competent agencies.
In the next part, we will define the entire process of outsourcing your software development.
How to Select an Outsourcing Agency
This is the part where we will learn to choose the most competent outsourced.
Choosing the right one in outsourcing software development projects is pivotal to success.
Here again, we need to retrace a few things.
What are your expectations?
If you missed it earlier, here is your chance.
Set your expectations straight.
TypeScript Developers
Find the best TypeScript developers for your project.
This will help in:
- Choosing the right agency
- Identifying the critical parameters for selection
- Negotiate the price of development
- Set milestones
- Measure the deliverables.
To outsource software development systematically will surely translate to success.
The second step is getting social proof and checking their expertise.
There are different methods to check an agency’s worth.
| Verification Method | Benefit |
| Blog | Prefer to work with an agency that has a blog section on their website. How will this help outsource software development? It will let you know their:
|
| Case Studies | Always check the potential agency’s case studies. Case studies will help you understand what sort of software solutions they have delivered. You can match those projects with your requirements and move ahead with the selection process. |
| Clutch | As a B2B research and rating platform, Clutch gives you access to company information. Search for the company name in Clutch to learn more about it. From here, you should be able to get authentic company information along with its ratings. High-rated companies are better suited to deliver your work with perfection. However, they may also charge higher. So, your answer to how much it really costs to outsource software development can also change. |
| References | Here again, we want you to turn to your network. Previously, you asked them for name recommendations. You can repeat this step here too. In addition to that, you must also ask about the names you have selected from the previous steps. |
Software outsourcing is an integrated activity.
That is why we always say that the answer to how to outsource software development easily is never simple.
Based on the findings and selection, you will have a few names following the above procedure.
Remember that there is no scope for a chance here.
Yes, you can listen to your gut feeling but learn to strike off the agencies as you move ahead.
Take them off the list if they do not fulfill your criteria.
Because in the next part of outsourcing software development, things will get more streamlined.
But they will also take more time.
We are now past the preliminary testing.
The last step in choosing a team to outsource the software development is taking their interview.
Interviewing Potential Development Teams
If you are moving ahead with freelancers, take individual interviews.
Teams and agencies should gather together and take the discussion forward.
The purpose of taking the interview is to:
- Assess the agency’s ability to deliver the work
- Understand their approach to building your product
- Identify their key areas of expertise
- Set the price
- Set deadlines
Maximize your agency's potential – Go white label today!
Access premium design and development services for unmatched success.
Where the non-technical aspects can be taken care of easily, we want to focus on the technical aspects.
Make a list of questions before starting your interaction.
These questions must make your list when outsourcing a team for software development services.
- Do you understand my business, purpose, and project goals?
- What are your developer’s expertise and skill set?
- Are your developers located in-house or work remotely?
- Do you know how to work with an agile development strategy?
- How do you figure we communicate with each other?
- What similar projects have you done in the past?
- Who will own the source code of the software after the development is complete?
Apart from this, thoroughly overview their development and designing process.
You need to get as much clarity as you can in the process.
Ask your doubts, get to know the team, and make sure to set deliverables and deadlines.
That is how you can outsource software development.
After completing the interview, if you are satisfied, then move ahead.
If not, go back to the list and take another interview.
Yes, this may take some time.
But it is better to spend time now than asking the team to make edits later.
Which, most probably, won’t be easy to get.
The non-monetary elements of outsourcing software development are complete.
Now, let’s talk about money.
How Much Does Outsourcing Software Development Cost?
We wish that the answer to this was simple.
We are moving ahead with a dedicated outsourcing team model.
This is the model where you combine your team’s efforts with the outsourced agencies and build a project together.
The majority of the work is done by the outsourced.
Your in-house team is tasked with streamlining the entire process.
Moving on with how to outsource software creation or development and what it will cost.
Three things have an impact on the price:
- The complexity of the business logic
- Designing complexity
- Number and seniority of developers
Let’s talk about these aspects briefly.
| What Affects the Price? | How Does It Affect? |
| Business logic | Consider two scenarios. One, you want to build software for HR management (as we did here.) Two, you want to build software for hardware equipment that connects two people’s brains. Which software do you think will be easy to make? The first one, right? The second software may sound like an incredible idea. However, the business logic behind this software is highly complex. The developers first need to understand how the hardware will work. And then they can build a platform. For the other software, however, things are relatively easier to understand and build. Consequently, the cost of the second software will also be higher. This is the first aspect of how much does it cost to outsource your software development work. |
| Design Complexity | Again, taking the previous example. The design of the second type of software will also be relatively complex. Because the designers will need to understand the user base. The users of the second software will not be normal folks. Most probably, scientists and neurologists will use that. Hence, the design principles might be different for different customers. More complex designs require highly specific research and more time. That’s why the budget-wise investment usually considers outsourcing web design. Hence, the cost to design an app will also be higher. |
| Number and seniority of developers | More number of developers working on your project means faster delivery. Plus, if the developers have more experience, they will charge a higher price. (Use our calculator to find out the difference.) |
The cumulative impact of these aspects is simple to understand.
It will cost more if you want to build high-performance software with impeccable design.
We know that you are not satisfied with this answer to the question of how much it costs to outsource software creation or development.
Rest assured that we will also talk in numbers.
Before that, let’s take a look at the desired team you need to outsource software development.
Team composition is essential in outsourcing your software development project.
Not only does it have an impact on the cost, but also on the quality of work.
The standard team composition that we will move ahead with includes:
- Project manager
- Designer
- Backend developer
- Frontend developer
- Tester
This is our team for figuring out how much it really costs to outsource software development.
But there are alternatives to this team, too.
For instance, if you think you manage the project yourself, remove the project manager.
Also, testing is relatively easier than development.
If you can manage that, too, a tester is not needed.
The same goes for design.
If you can take it up or use the native drag-and-drop elements, remove the designer too.
Lastly, a full-stack developer can replace a backend and a front-end developer.
This implies that you can go ahead with a one-person team to outsource software development.
But in that case, you will have to put your best foot forward and participate in the development work.
But we are getting back to our original team.
Let’s identify how much it costs to outsource software development.
We have chosen four regions to help you compare the prices:
- USA-based team
- Asian team
- LATAM team
- East European team
Before you get any ideas. Do not just look at the money.
Low cost or high cost does not always mean a quality product.
Things are not always black and white.
So, for understanding purposes, let’s consider that your software development project involves 800 hours of work.
| Team | Cost Per Hour |
| The USA | The average hourly rate in the USA or Canada for software development is $150. So, when you outsource software development to a team here, the total cost will be $120,000. The reason? This is a USA-based team. But you can be sure of the quality and delivery. But are you ready to spend this budget to develop an MVP? |
| Asian Team | Central Asia, East Asia, and South Asia have different average hourly rates. But the average price is $20 per hour. This means that depending on the team you choose. The average cost will be $16,000 for an MVP design and development. Here too, low cost can be misleading. For one, you may run into communication errors. Plus, Asian teams may lack expertise and experience. This can lead to low-quality product development. In outsourcing software development, you need to be more careful with Asian teams. |
| LatAm | Latin American developers are quickly gaining more ground. In the LATAM region, the average hourly cost is between $30 to $50. This makes the project cost fall between $24,000 to $40,000. With these developers, too, communication can be a big hurdle. |
| Eastern Europe | If you want a USA-quality product at an average LatAm price, choose an Eastern European company. The average hourly price is $40 per hour. You will spend around $32,000 to build an MVP at this price. Collaborating on your software development project will be easier with a team from countries like Ukraine. You will find adept teams at work. And enter the market with the most amazing product. |
So, that is it.
Now you know how much does it cost to outsource your software development.
Not just the cost.
You can also successfully outsource software development projects to a team of your choice.
We have talked about research, requirement settings, interview, and selection.
Looking For a Reliable Partner?
Development outsourcing brings amazing results when you find a reliable and experienced vendor.
Consider teaming up with SpdLoad, an experienced development partner, to complete your project.
Our multi-talented team of developers, QA testers, designers, and tech leads leverage expertise across industries like FinTech, Healthcare, HRTech, and more.
We’ve perfected the outsourcing process from crystal-clear communication and total transparency to expert product design to smooth deployment.
Discover more about partnering with SpdLoad by browsing our Clutch and case studies.
