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How to Outsource Software Development: Guide, Costs, and Tips

Max Babych

Max Babych


13 min

Outsourcing software development can mean different things to different people. Over the past 10 years of building startups, however, 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

Software development outsourcing has many benefits apart from cost-efficiency. 

Benefit Description
Small In-House Team With 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 To outsource software development 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 cost-effective.
Time-Bound Delivery With an in-house team, things can get a bit delayed due to several unknown reasons. However, outsourced 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 includes;

  • 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 does it cost to outsource software development. 

The benefits of outsourcing significantly impacts how much does it cost to outsource software development

How to Outsource Software Development

There are three main aspects of how to easily outsource software development;

  • 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 out of the shortlisted organizations. 

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 be defined with 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. 

Freelancers work on their schedule and cost less than hiring an in-house team

You can find freelancers according to the task 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 not be able to talk to the entire team. 

Agencies have a single point of contact (project manager) who will share all the details. 

Before you'll outsource software development define your goals and expectations

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 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 that 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 a practice of hiring developers in the country where that service is actually built or delivered. 

Since software developers are present across the globe, 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 with how much does it cost to outsource your software development task, we have another important question. 

This is about the places you need to look for selecting the outsourced.  

Let’s take it up. 

Where to Find Outsourcing Partners

Selecting an agency to outsource software development is a different topic. 

In this segment of how to outsource software development, we will list out the sources to look for your development partner

Source Why and How
Google Doesn’t everything we want to start with a Google Search?

Well, your search to hire 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 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, location, 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 project, and expertise.

Referrals Word of mouth is also a great way to outsource software development.

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 with your requirements.

This is how you easily select an outsource software development agency to work with.

Moving on with how much does it cost to outsource software development. 

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. 

The type of cooperation also influence outsource software development

In the next part of how to outsource your software development, we will define the entire process. 

How to Select an Outsourcing Agency

This is the part where we will learn to choose the most competent outsourced. 

In how to outsource software development projects, choosing the right one 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. 

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 to outsource software development?

It will let you know their;

  • Expertise
  • Experience
  • Technologies they use
  • Methods of working
Case Studies Always check the potential agency’s case studies.

Case studies will help you understand what sort of projects 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 know more about the same.

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 does it really cost 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.

To outsource software development might look like an easy task. 

But as you can see above, it is an integrated activity. 

That is why we always says that the answer to how to easily outsource software development is never simple. 

Based on the findings and selection by following the above procedure, you will have a few names. 

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. 

If they do not fulfill any of your criteria, take them off the list. 

You need to understand how to choose development services vendor before researching outsource software development

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. 

For teams and agencies, gather them 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.

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 a list. 

  1. Do you understand my business, purpose, and project goals?
  2. What are your developer’s expertise and skill set?
  3. Are your developers located in-house or work remotely?
  4. Do you know how to work with an agile development strategy?
  5. How do you figure we communicate with each other?
  6. What similar projects have you done in the past?
  7. Who will own the source code of the software after the development is complete?

Apart from this, take a thorough overview of 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. 

How to Outsource Software Development: Guide, Costs, and Tips

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 how to outsource software development are complete. 

There is a sum up picture to let you understand how to choose partner to outsource software development

Now let’s talk about money. 

How Much Does It Cost to Outsource Software Development?

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 that of the outsourced agency 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

But 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. 

And the users of the second software will not be the normal folk. 

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. 

If you want to build high-performance software that has impeccable design, it will cost more. 

We know that you are not satisfied with this as your answer for how much does it cost 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. 

In how to outsource your software development project, team composition is essential. 

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 

For figuring out how much does it really cost to outsource software development, this is our team. 

But there are alternatives to this team too. 

For instance, if you think that you manage the project yourself from your end, 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 frontend developer. 

This implies that you can go ahead with a one-person team to outsource software development.

But, in that case, you will have you put your best foot forward and partake in the development work. 

But, getting back to our original team. 

There are many factors to consider when choosing a partner to which outsource software development

Let’s identify how much does it cost 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 how to outsource 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 to get a USA quality product at an average LatAm price, go with an Eastern European company.

The average hourly price is $40 per hour.

At this price, you will spend around $32,000 to build an MVP.

With a team from countries like Ukraine, the answer to how to outsource your software development will be easier.

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. 

How much does it cost to outsource software development? Check out this spreadsheet to understand the costs across the globe

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?

Outsourcing software development correctly brings amazing results.

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.

Let’s talk!

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