The True Cost of Hiring vs. Outsourcing in Software Development
Tags: Entrepreneurship, Startup, Business, Outsourcing, Intern

Author: Christian Gellert

It is one of the most significant trends in the IT industry. Outsourcing your software development is an excellent way to stay competitive. The trend is not only cost-effective but also gives companies an opportunity at obtaining skills at a far broader scale.

Companies often prefer in-house hiring for various reasons, such as better control of resources and processes. So what should you choose? Let’s find out!

In-House vs. Outsourcing: What’s the Difference?

In-House

When software development takes place in-house, full-time developers must be hired on-site. This means a whole range of fixed costs such as monthly compensation and benefits. The costs of the application process in advance must also be taken into account. Furthermore, a suitable in-house infrastructure is essential.

Outsourcing

Services previously provided within a company itself are outsourced to external providers.

There are many benefits to outsourcing software development. One of the key reasons is that it can reduce hiring costs and infrastructure expenses, which in turn will free up funds for other purposes. On the other hand, there is less control over remote teams in an external company, which can lead to poor quality.

Let’s look at the benefits and downsides of both in-house and outsourced software development.

In-House Software Development: Benefits

Project Know-How

Your in-house development team has the expertise that will complement the specific technologies you use and they can even train employees on a particular approach or skill set if needed.

You can even train your in-house professionals for a specific project-related approach and set of skills.

With in-house hiring, your organization can become error-free and even offer direct support for your clients. These professionals also have enough experience in order to give direct support to clients as there is only one touchpoint available: your organization itself. Sustaining these employees can be difficult, which is why tools for employer engagement are required.

Immediate Changes

When you have an in-house team, you can adjust quick changes on-site with one-on-one communication. Rapid changes require proper coordination of resources even if in-house development is used.

To ensure higher productivity, for example, you must have adequate communication tools in place.

Collaboration on a broader scale

When you develop your software in-house, your team can work in sync with each other. Think about updating content on the fly, which requires the collaboration of content creators, designers, and developers in order to provide the best user experience possible

In-house Software Development: Downsides

Higher Costs

There are many different expenses that can occur, such as employee training and collaborative tools for teams to use on projects; additionally, you might need project management tools too! In some cases, it could be more costly than working with a vendor due to delays caused by worker’s absences or other factors beyond their control.

Less Focus

Motivation is the key to productivity. For employers on a normal payroll, it’s harder for them to stay engaged with what they do, day after day. That’s why a company must find ways of motivating its workforce, for example by using incentives and other perks. This is not the case when working with an offshore team.

You rely on the vendor to take care of all aspects of developing your project so you don’t need to worry about its execution.

Insufficient Skill Set

In-house software development is not flexible due to the lack of multiple skills at one time.

Let’s take the example of building a product where different programming languages are needed. The backend is developed using Node+ and the front end is built on Vue.Js — you will need two entirely separate teams for this project. Not only does it increase your costs, but also makes the process more difficult by requiring new hires that are not already familiarized in both technologies’ insides.

When should in-house software development be used?

The proper resources

In order to meet the demands, you need a team that is capable and committed. An in-house software development team may have up to six or more professionals on board: senior engineers; product managers (PMs); developers, UX/UI designers/architects, and Quality managers.

Important to know: Hiring highly skilled and experienced professionals is not a one-time investment. You must be willing to invest time and money in these employees for the long term.

Full Control

A good way to retain control over software development would be to hire an internal team for at least the development of the core product. Additional work could be outsourced to increase effectiveness.

Data Safety

In-house development is a great option for companies that want to maintain control over their data. Example: If you’re working on breakthrough innovation, it may be better to keep certain data close at hand. However, if you supplement your internal team with a well-planned outsourcing strategy, you can increase your productivity and limit your risks.

Outsourcing Software Development: Benefits

Increased Efficiency

You can have an in-house team that works with the outsourcing company to maximize productivity and focus on your core product. With this collaboration, you’re assured of higher efficiency as well as of building a better product.

Competitive Advantage

When the development team at our company is extended, you have more resources available for creating customized software tailored specifically to your client’s needs.

The primary difference between custom and off-the-shelf software is that with a customized version, you can create your own unique features for users. While off-the-shelf software appeals to a wide range of users, the components are all the same.

Risk Reduction

Launching a half-baked product is the most significant risk with software development. But by outsourcing your project, you can leverage MVP or Minimum Viable Product. An MVP is a deliverable product with the most fundamental features.

It is an excellent way to reduce risks by implementing user feedback into subsequent iterations.

Nearshoring capabilities

Homeshoring, nearshoring, on- and offshoring: it is all about finding a vendor close by, maybe in the same region or the same country. With Nearshoring, you can choose a partner in nearby countries or even just the region near your headquarters. While offshore outsourcing requires the complete transfer of project responsibility to another country.

Because it reduces time zone differences between you and your vendor, nearshoring can be beneficial for your software development projects.

Cost efficiency

The cost of software development is a major reason why companies choose to outsource, 70% of companies choose this option as a cost-cutting opportunity.

When you outsource, the cost of hiring top-tier talent or even infrastructure is carried by your vendor. With a fixed price package, it’s easy to set a reasonable budget that meets all of your project’s needs.

Outsourcing Development: Downsides

Task Management Communication

You’ll need some reliable task tracking tools and communication methods so your remote team is able to work effectively together. However, the fact that you must invest in such tools is a disadvantage of outsourcing.

Aside from the usual issues of time zone differences and network issues, cultural differences can be a potential communication barrier.

Other considerations to bear in mind are:

Accents

Dialects

Technical interferences

Security Concerns

If you are sharing sensitive data with a vendor for a project, it is critical that your security measures are robust. The type of infrastructure required can accrue huge costs.

When is it relevant to use Outsourcing?

Improper hiring resources

Consider outsourcing when you don’t have enough hiring resources or don’t want to spend too much money on recruitment. Even if you consider hiring freelancers, controlling remote developers for productivity is difficult, which is why an outsourcing agency maybe your best option.

Fast Lane Development

With the outsourcing of software development, you can ensure a bug-free product in record time. Many firms offer an agile approach for rapid production and incremental iterations that will not only save money but time.

Various Technologies

When you are working with a diverse range of technologies for the same software, outsourcing can provide a wide range of skill sets. For example, when you employ a variety of frameworks in both your frontend and backend programming.

This will require the hiring of developers with a variety of skill sets.

In-house vs. Outsourcing: What is the cost difference?

Costs of In-house Development

The decision between in-house development and outsourcing will depend on the budget. If you have a limited amount of money available, then hiring employees for your company is going to be difficult.

Costs that come with in-house development include recruitment, infrastructure, task management tools, employee training, and other expenses.

The problem starts when you start adding in all the additional costs. Each software license needs certification and taxation; off-the-shelf or custom-made.

The licensing costs are fully funded by taxes and other mandatory fees. Aside from these costs, the company’s cost or CTC for each employee is significantly higher than for an outsourced project.

Costs: Outsourced Development

When you decide to outsource, the development cost is frequently derived from three major engagements.

1. Time and Material Commitment:

You provide the time and material for your entire project, but this means that you are also in charge of everything else — task management to project coordination, and so on.

2. Dedicated Team Involvement

In this case, a dedicated team takes full responsibility for the project and manages it.

3. Fixed Price Package

A fixed price package is typically used for short-term projects that involve multiple freelancers or collaborators.

The developer’s fee is usually what drives the cost of outsourcing for most projects. Developers charge on an hourly basis, so you can expect to pay more if your project lasts longer

Hourly rates of developers or teams vary based on demographics. Then there is the consideration of experience levels, from senior to middle level to junior level; such a three-tiered system was created with the different experiences in mind.

A few examples:

United States: $39,000 per year — junior, $95,973 — middle, $200,000 — senior.

United Kingdom: $34,828 per year — junior, $65,454 — middle, $149,799 — senior.

Poland: $12,900 per year — junior, $30,000 — middle, $60,144— senior.

Ukraine: $8,000 per year — junior, $15,000 — middle, $34,000 — senior.

Sources: Glassdoor, Indeed, and Payscale

Planning your software development is essential for the success of a project. The best practice is to get all necessary information on the list and choose wisely between in-house vs outsourced teams. Utilize factors like your own budget, the required time frame, pros and cons.

If you have any further questions, please feel free to contact us.

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