How much does it cost to outsource software development?
Cost is an important factor when choosing any product or service. However, the cost of outsourcing your software development project can vary greatly, depending on skills, experience and geographical location of your chosen partner. It helps to have a snapshot of the various markets to understand what might be reasonable in terms of cost… and what might not be.
It’s an old criticism of someone to say they know the price of everything and the value of nothing.
However, when it comes to outsourcing your software development, it’s easy to be clear on the value of finding the right expert partner… but not always so easy to know the cost.
There are many well-established benefits of software development outsourcing:
- You can access the latest skills on the market.
- You save yourself the cost of maintaining your own in-house team of developers.
- You’ll probably end up with a better quality product.
- You’re more likely to get that product to market when you want to launch it.
- An outsourcing provider can become your partner in digitally transforming your business.
That’s the value of software outsourcing. But what’s the price?
After all, for many companies, the deciding factor is cost (they don’t call it the ‘bottom line’ for nothing). Hence this article, drawing on Boldare’s 16 years’ experience in the world of outsourced software development, and our latest research into the market…
Why is software development outsourcing such a variable (and even volatile) market? The answer, a number of external factors, over and above the benefits mentioned above, are driving businesses to outsource creation of their digital products.
- The time-consuming process of hiring and maintaining your own in-house team of developers.
- A world that has an app for everything – i.e. to take full advantage of their market, most businesses need to be online and digital these days; which is driving a demand for developers.
- A shortage of developers – whichever segment of the global market you look at (Western Europe, Eastern Europe, India, the US…) the supply of developers is insufficient to meet the demand; leading to inflation developer salaries and therefore the overall costs of digital product development.
For most businesses, outsourcing to an expert partner is the ideal answer (in our experience at Boldare, we have numerous clients, past and present, with whom we’ve solved such problems – for details of how, see our case studies with BlaBlaCar, Holaspirit, and more) and this is reflected in the value of the global IT outsourcing market – $66.5 billion in 2019, according to Statista.
Software development outsourcing is clearly a popular business strategy. The question is, what does it cost?
The cost of software development, by region
Naturally, costs vary. It all depends on what kind of product you’re looking for, what kind of partnership, and where you look for developers. This section looks at four key territories:
- Western Europe (Germany, the UK, and Scandinavia),
- Eastern and Central Europe (including Poland),
- the US,
- and India.
Three key average market figures are provided:
- The average software developer salary – This is a good indicator of how this skillset is valued in each region. Also, it gives you a sense of how much it might cost you to recruit and maintain your own in-house team of developers; as a comparator to the outsourcing option. (Source: Glassdoor and Payscale) As an indicator, in the US market at least, research from MIT suggests that the full cost of an in-house developer is up to 2.7 times their base salary, allowing for associated taxes, benefits, rent, equipment, and non-billable hours (meetings, training, business trips, team events, etc.)
- The average hourly rate for a software development company – This is a key component of the overall cost of the services provided. (Source: Clutch.co; taken as the average of the top five ranked software development companies from the Clutch regional listings)
- The average minimum project size in terms of cost – A good indicator of ballpark, all-included project costs. (Source: Clutch.co; as above)
(All figures have been converted to US dollars for comparison purposes on 7th of February of 2020.)
Costs of software development in Western Europe
As well as the Scandinavian countries with their well-developed markets, Western Europe includes Germany and the UK, both arguably leaders, and definitely heavy investors, in software development.
- Average software developer salary: $58,500/year
- Average hourly rate for a software development company: $67/hour
- Average minimum project size for a software development company: $22k
(For greater detail of prices and the market in Germany, read “Software development in Germany - costs, challenges, and chances”)
Costs of software development in Eastern and Central Europe
Developers in Eastern and Central Europe continue to build a reputation for quality and, so far, prices remain very reasonable in comparison to territories further west.
- Average software developer salary: $20,700/year
- Average hourly rate for a software development company: $53/hour
- Average minimum project size for a software development company: $27k
Costs of software development in US
It’s possible to argue that the US software market is the biggest, certainly in terms of money invested. However, it also suffers from the shortage of developers and the inevitable result is high rates and prices.
- Average software developer salary: $73,700/year
- Average hourly rate for a software development company: $125/hour
- Average minimum project size for a software development company: $25k
Costs of software development in India
India’s average figures are definitely attractive to a business looking for an outsourcing partner. However, the notable gap between developer salary and the rates charged by the top software houses means that in India, recruiting an in-house team of developers may be the cheapest option.
- Average software developer salary: $8,000/year
- Average hourly rate for a software development company: $40/hour
- Average minimum project size for a software development company: $12k
And for full disclosure, here are our rates at Boldare:
- Hourly rates starting from $50+/hour (depending on role, skill set and experience)
- Average minimum project size: $~10k+ (for a prototype); $~30k+ (for an MVP, taking 4-6 weeks to release to market)
Important: We aim to work in a “time&material” model. Unlike a “fixed price” model, this model is designed for projects where there may be a lot of information about the goal of modifying or working on a particular piece of software, but the solution itself can evolve as the project progresses.
It may even be possible to change some primary assumptions during the implementation, thus it gives more possibilities and flexibility than are available in a “fixed price” model.
However, even for smaller products, apps or platforms, this model gives more independency and it’s simply safer - you can always pivot and change something before the product hits the market.
The cost of ‘bad’ software
The big driver behind being rigorous in your choice of outsourced software development partner, is that the above costs are just the ‘ticket price’ for your digital product; the dollars (or euros, rupees, złoty, etc.) that you hand over.
However, the price may not be the only cost. It depends on the quality of the product created. Sometimes (in most cases to be honest) the cheapest offer has various hidden costs, some of them will emerge months after the release.
What can go wrong?
- Maybe you chose the wrong partner.
- Maybe due to employee turnover, your partner changes the developers working on your product mid-project.
- Maybe your partner doesn’t have the necessary depth of expertise in the niche development area you need (for example, artificial intelligence and machine learning).
- Maybe the app has security flaws, making user data vulnerable.
- Maybe it works fine with 10k users weekly, but the architecture won’t be efficient with 5 times bigger traffic, because the company you hired decided to stint on extra hours on the DevOps team to prepare the architecture.
- Maybe the team you hired consists of junior developers, straight from the bootcamp.
- Or maybe your factor number one for this app was the price.
Whatever the reason, you’re left with a product that isn’t fit for purpose; that doesn’t meet some aspects of your business and user needs. Whether that means it’s a product you can’t use, or a product that needs further work, or extensive handholding for users… it means extra cost to you, the client and possible, for your customers and business partners.
As an indication, in the US, apparently the cost of poor quality software ran to $2.84 trillion in 2018; caused by external and internal failures and deficiencies, technical debt, management failures, canceled projects and money spent on expensive customer support.
The cost of software development can go much further than the figure quoted on a project proposal or pitch.
Here at Boldare, experience tells us that having strict product quality measures in place is one of the best ways to keep ongoing and ‘remedial’ costs down.
The following are our standards and quality measure and we’d recommend that you factor something equivalent into your outsourced partner requirements.
- We aim to put a quality assurance (QA) specialist in every development team we offer.
- Each project has clear coding standards, tailored to the product under development.
- A ‘definition of done’ for each product iteration means the team shares an understanding of what a successful product will look like.
- Every piece of code is reviewed and approved by at least one other experienced software developer.
- We work using a scrum framework that allows us to build products incrementally what helps to spot and fix potential issues.
The most important factor?
As in any industry, the costs of outsourced software development vary significantly; not only in relation to the skills and experience of the development team you’re hiring, but also the global territory in which they are based. Naturally, the price of the project and product is not the only decision factor (quality, anyone?) but it can be extremely influential.
One final point to bear in mind, as well as an excellent digital product, successful outsourcing can result in a trusted business partner for the future, capable of working with you on multiple products, and even the digitization and digitalization of your business… that’s real value for money.