Software Development Outsourcing: Full Guide for Your 2024 Project

by Andrew M. on Jun 17, 2024

The landscape of IT outsourcing is changing rapidly. Gone are the days when delegating development to distant vendors was synonymous with cheap helpdesks. Today, companies recognize the potential of outsourcing and opt for this convenient, fast, and cost-effective approach. This trend is only projected to increase, with the expected revenue in the IT outsourcing market jumping from $541.10bn to $812.70bn by 2029. But is it the approach that suits everyone? That’s the question to be answered.

In this article, we’ll dive deep into the concept of software outsourcing. We’ll also cover the different types of outsourcing models along with their pros and cons, and give you guidance as to which model best fits your project. So sit tight, and let’s embark on the exciting journey into the intricate world of IT outsourcing together.

Key Takeaways

Software outsourcing is a smart way to expedite the development cycle by delegating software-related tasks to a third-party partner while reducing the number of processes that need to be tracked.

For one-time projects, IT outsourcing provides extra hands, saving you the need to form an in-house team and lowering development costs.

Software outsourcing offers numerous benefits, from reducing costs to bringing in external talent and accelerating time to market. It also gives you the flexibility to scale resources up and down as required by your business needs.

There are three types of outsourcing to choose from: local, nearshore, and offshore, each with its own advantages.

Local outsourcing proves the best choice for projects that demand full control over development and involve proprietary technologies, but in most cases, it comes with a hefty price tag.

Nearshore outsourcing is attractive due to its minimal time zone differences and almost no slow-downs in communication. On the downside, its cost is often just as high as local outsourcing.

Offshore outsourcing allows you to tap into the latest technology and speed up the launch of your product, as it can be developed 24/7. Competitive rates of offshore specialists is another important advantage of this type of outsourcing.

If you’re looking for a tech company to enter the partnership, you need to conduct a thorough research of their background, read reviews, and check their portfolios. It’s also important to test candidates so you know if they can be trusted with your project.

The cost of software outsourcing depends on a number of factors, including the chosen collaboration model, the experience and location of your team, and your project requirements.

What Is Software Outsourcing and Why Outsourcing Development Is Popular?

For most modern businesses, keeping a large staff is ineffective and unprofitable. It’s more rational to transfer the most budget-eating tasks, like software development or mobile app development, to an outsourcing company. But the whole idea of letting someone else do your job raises a few questions.

First and foremost, what is software outsourcing anyway? In simple terms, software outsourcing is a form of arrangement where a company hires an independent team of developers to work on a software-related project instead of performing all tasks in-house. Typically, the outsourcing vendor is better equipped and experienced to handle the custom software development process than the client’s staff, ensuring high project completion speed and shorter time to market.

Today, technologies dictate the rules. Tech-savvy companies win customers, earn a reputation, and go international in a couple of years. At the same time, businesses relying on outdated software flop before they even go profitable. In addition to giving you an edge over your less-advanced competitors, IT outsourcing also allows for a cost-efficient business model with fewer processes to keep track of.

Every company has a choice – to deal with a software project on their own or turn to an outsourcing provider and use their software developers. Large enterprises rely on the services of third-party contractors because the larger the scale, the more difficult it becomes to control the implementation and the overall quality of results. Smaller businesses are switching to outsourcing to minimize the costs of maintaining full-time employees and receive A-grade services in supporting areas. As you can see, the benefits of outsourcing work for companies of any size and organizational structure.

Outsourcing is the answer when you know your needs and seek to optimize costs. That is, if you have enough experience to figure out which tasks should be done within the company and which are better to be delegated in order to get the right software on time and with minimal cost overheads.

How Does Software Development Outsourcing Work in 2024?

Basically, an outsourcing company provides “extra hands”. It hires employees and forms its own staff to cover the development needs of others. Then they find a customer who needs a contractor to perform particular tasks and after agreeing on project requirements and terms of cooperation, they provide employees to get the job done.

Let’s say you need an automated email server that would be sending thousands of messages a day. The application must allow multiple remote users to access the system and send emails in a few clicks. A task like this would probably require people experienced in .NET Framework 4, ASP.Net, MVC 2, jQuery, Microsoft SQL Server, and so on.

At the same time, you need a software solution that would automatically transfer money to a credit card or PayPal account, which requires Authorize.Net and PayPal integration. This means augmenting your team with someone who digs in PayPal API and Authorize.Net API.

Both are one-time projects, so forming an in-house development team makes no sense – they simply won’t have enough work to make it worth the money, unless you plan to make an application development of your business branches. Instead, you screen the global IT outsourcing market to find a service that takes over the bulk of the job, while you’re busy with your company’s day-to-day tasks. To kick-start the outsourcing process, your vendor reviews the projects and estimates the costs. As a customer, you only need to fund the project and follow the progress.

The Benefits of Software Outsourcing and Its Potential Pitfalls

The worst mistake you can make when deciding to outsource is to rely completely on the experience of your competitors. Software development outsourcing isn’t always an ultimate solution, and before considering this option, you should always consider all the pros and cons.

Advantages of software development outsourcing

Let’s start with the advantages of outsourcing. We’ve outlined the key ones, but this list could be expanded with other considerations depending on your business domain.

Cost effectiveness. Hiring an outsourcing business allows you to cut a great portion of your expenses, as you no longer need to maintain extra infrastructure and staff. Some fixed expenses become variable depending on your current business needs and you get more control over the project costs—you can make changes anytime during the development.

Strategic flexibility. When it comes to decision-making and strategic goals, successful outsourcing allows you to focus more resources on carrying out the core strategic tasks. This helps you speed up the process and gives great flexibility in introducing new technological or managerial improvements.

Broad expertise. Outsourcing opens the door to the world of innovation. Lacking some crucial specialists in your staff? No problem – hire a software outsourcing service with relevant skills and experience and let them do the job you have no hands for. The quality of service will surprise you because third-party companies just can’t afford to do a sloppy job with your new software.

Speed and quality. For software companies, this type of activity is the main one. They can afford to devote much more time and resources to all aspects of a specific activity: from the latest hardware and software for employees to deeper professional training, niche expertise, and fast onboarding.

Reliability is another great advantage in the field of software development outsourcing. When working with a proven company, the contract guarantees that your vendor will deliver on the responsibilities and project acceptance criteria stated in it.

Disadvantages of software development outsourcing

Despite the many benefits that outsourcing brings to the table, it’s not a one-size-fits-all solution. Like any other practice, it also entails a number of disadvantages that you should be aware of before switching your strategy. Here they are:

Increased costs may occur if you outsource too many processes, for example, the entire development scope, at a time. So before introducing outsourcing into your business, make sure that you’ve carried out a careful cost-benefit analysis and put together a solid business strategy for this outsourcing project.

With increased flexibility comes the risk of losing control over the results if you delegate too many decision-making responsibilities to an outsourcing vendor without due supervision. Your lack of participation may lead to possible miscommunication and disappointing implementation.

Information security. Whether due to the lack of proper information security measures or malicious intentions, there is a risk of potential data leakage when working with outsourcing software development companies. To minimize potential damage, you need to carefully check the vendor’s background before you hire anyone and be certain about what kind of information they will have access to on the project.

Depending on the vendor’s location, time zone differences can turn a project into a difficult communication challenge. If neither the contractor nor the client have dedicated employees to stay in touch despite the time difference, this may hamper the development process.

In some cases, there may be the lack of a clear legal framework for outsourcing when working with offshore vendors. With so many potential pitfalls, carefully reviewing agreements, NDA, project estimates, and responsibilities of the outsourcing partner is vital to avoid conflicts.

Misunderstandings due to miscommunication are another issue that may arise with the remote team. This issue is particularly common with companies that work with offshore vendors. If team members don’t speak good English or struggle to provide real-time communication, this can lead to misinterpretation of the requirements, hampering the process of development.

Solutions to Common Outsourcing Mistakes

It’s worth noting that the above-mentioned disadvantages can be mitigated with the right approach to software development outsourcing. Whether you decide to hire a local development team or delegate product development to overseas experts, you need to be well equipped to navigate common challenges and stay on the cutting edge.

Carefully analyze the market. While this might seem like an obvious thing, many companies still get into the trap of falling for the first company offering the lowest price tag. Surely, the cost plays a significant role when selecting a potential partner, but it can’t be the only factor to consider. Non-cost factors like the team’s expertise, track record, and quality of the previous work should always come to the fore to make a choice you won’t regret.
Provide your vision of the project clearly. You may know very well what kind of product you want to craft, but if you can’t put your project vision into an actionable plan, and the requirements for the project aren’t clear, the vendor may have difficulty understanding how to fulfill them. With that in mind, it’s paramount that you have someone tech-savvy on your side to provide clear-cut requirements and look after the process.
Stay on top of modern trends. Not all projects require high-end tech solutions, but it’s always best if the team you hire keeps track of the latest tech trends and seeks new ways to deal with challenges that may arise during development. You also need to keep up with the pace to ensure that your project uses the most effective and innovative technologies available. This can provide a competitive edge and ensure that your project is relevant and future-proof.
Estimate project timelines accurately. Another mistake many companies make is rushing to launch a project. In an effort to quickly bring their products to market, they set inadequate deadlines, which often leads to deterioration in the quality of development. While outsourcing some processes can help with speeding up development, it isn’t a magical pill. You should work closely with your partner to develop a realistic project timeline that includes milestones, buffer periods for unexpected delays, and time for testing and revisions.
Ignite your team spirit. Last but not least, many companies don’t treat remote teams the same as in-house crews, perceiving them as temporary contractors, which is a big mistake. Employees who don’t feel like they’re part of a team have low motivation and rarely give their best effort. On the other hand, the team that is integrated into the company’s culture feels more connected to the organization and is more likely to produce great outcomes.

So, despite the challenges that outsourcing entails, the cooperation with a third-party vendor can be smooth and successful if you don’t repeat the mistakes that many startups make and approach your partnership strategically. The remaining question is: is it the approach you need and what type of software outsourcing offers you the most benefits?

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What Are the Types of Software Outsourcing?

Companies can choose between three different types of outsourcing bases on the “outsourcing destination”: vendors within the country (local outsourcing), contractors located in neighboring countries or states within the same time zone (nearshore outsourcing), or businesses that operate from distant countries (offshore outsourcing). All three types come with certain benefits in terms of convenience and cost-efficiency. Let’s explore them in more detail.

Local outsourcing

As the name implies, the first type refers to outsourcing software-related tasks to a contractor located within the same geographical area as the client company. The definition of the term slightly changes depending on the proximity of the outsourcing team to the customer. For instance, if your company is based in LA, and your contractor operates from New Jersey, the term onshore would be more appropriate.

Small distances are the key feature of local outsourcing. Since the hired team is “around the corner,” you won’t have to deal with problems like the language barrier or different time zones. This allows you and the contractor to work in sync (or with a minor time difference), resulting in better productivity, as you can work out challenges together. As a bonus, you can arrange occasional meet-ups with the vendor without traveling half the planet.

Naturally, a small distance between you and your outsourcing partner means you can easily keep track of the progress and other project-related tasks. There’s one thing to keep in mind, though, – local outsourcing works only when the budget isn’t a problem. Domestic vendors typically charge a lot.

Here are some of the key advantages of this type of software development outsourcing over the other options:

Better focus on business-related tasks. Outsourcing a software development project, you get more time to manage your company’s primary activities while an independent team carries out less important assignments. You save hundreds of working hours that would otherwise be spent on putting together an in-house team or arranging IT courses for your current employees. In the end, your productivity reaches a new level while you’re preparing to roll out software that costs you no extra time to develop.
Minimal time difference. Working within one geographical area, both you and the contractor don’t have to worry about different time zones, an issue that always takes its toll on productivity. Even if you’re an hour or two behind, the time you have left still covers most of the vendor’s working day, which ultimately results in shorter project terms and allows you to develop software faster. To top it all off, you’ll have no problem arranging a face-to-face meeting. Just hop on a plane or bus and be at the vendor’s office in a few hours. The same trick won’t be as easy to perform if your contractor operates from another continent.
Cultural differences won’t be an issue. Hiring a team from the same country gives you a handy perk you probably haven’t even considered: you both come from one cultural background, meaning that you most likely see eye to eye when it comes to working ethics. Also, the same country means the same holidays, so you’ll always know when your vendor has a day off. Any project goes smoothly when you’re aware of what to expect from your partners.
No language barrier. These days, the chance of coming across a software outsourcing team that can’t manage correspondence in English is pretty slim, but it always feels more natural when you interact with a native speaker. You can be sure your words will be correctly interpreted.
Agile management. With a local contractor, you’ll be able to participate in the development of your project on a regular basis. This level of collaboration means you can spot potential issues way before they hinder the process.

Judging from the pros, local software development outsourcing services may seem like the best option on the market. However, it also comes with several shortcomings that might affect your final decision:

Hefty prices. This is the main concern for companies operating in North America. If you compare two similar companies – one from Ukraine and one two blocks away from you, – the latter will charge considerably more than the Ukrainian one. That’s because average hourly rates in the US are somewhere around $120-250, while Ukrainian rates barely reach $60.
Finding a perfect candidate might be tricky. Choosing from local vendors, you leave 90% of the overall talent pool behind. You’ll find the right people for the job eventually, but the search may last for months. Opting for other outsourcing options, you’ll have your project started in no time.
Limited services. Regardless of expertise, locals will never match offshore ones in terms of service variety. This may be a problem if you have several different projects to take care of.

“Local outsourcing is best suited for developing a domestic product (in Sweden or Denmark, for example) that won’t be used outside the country (at least for a certain period of time). This could be education platforms, payroll/tax products, health applications, etc. For these types of projects, good command of the native language is very important to ensure the highest quality of business analysis, quality assurance, and user support, which can be problematic with other types of outsourcing.”

Roman Lyha, Head of PMO at QArea

Offshore outsourcing

Offshore outsourcing is the go-to option for optimizing company expenses. Hiring a development team from another country or another continent is popular among large companies around the world, including corporations with multi-million revenues, thanks to its advantages:

Cost-efficiency. Offshore software outsourcing provides a lot more opportunities to save company funds, allowing you to profit from significantly lower hourly rates and tax rates. Apart from that, you’re cutting production costs by eliminating the need to maintain a permanent team of employees at one or all development phases.
Highly competitive market. The quality of work done by offshore specialists is often higher than that of local companies due to tougher competition in the global market. This provides for a better choice of vendors. Instead of choosing between five or six companies locally, you’re free to explore the whole world of IT with hundreds of reputable companies ready to carry out any task.
A wider range of services. Offshore vendors can deliver on all sorts of tasks and provide any type of specialist you need for the project. The more sophisticated the software for your company should be, the smaller the chance you’ll find an appropriate contractor within your area. There’s no point in looking for a needle in a haystack when you have a crate full of needles at your neighbor’s house.

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But just like local outsourcing, this type also comes with several drawbacks to consider:

Offshore operations are harder to control. When you can’t swiftly respond to minor problems in your development cycle and manage timelines, occasional hiccups may turn into missed deadlines, and the mistakes you could’ve prevented return as critical issues. Loss of control over your project development is probably the most common downside of offshoring. If you decide to trust software development to an overseas contractor, make sure to research the market thoroughly instead of chasing the lowest bidders.
Language and cultural barriers. Each type of custom software development company comes with certain operational issues. When working with contractors based thousands of miles away, you may come across some cultural and language barriers. Sure, almost all overseas companies that offer software development services employ English-speaking specialists, but software development is such a delicate matter that certain terms may be misinterpreted. That’s why you always need to communicate your requirements clearly if the plan is to receive quality software within the deadline.
Potential damage to public image. US-based companies often get criticized for finding the right software development team offshore, as the majority of citizens believe that overseas outsourcing is one of the key reasons for economic struggles. This may not be your case, though.

“Offshore outsourcing is the most popular type. What makes it so popular is that it imposes no limitations as to who you can hire for your project, offering you the freedom to pick a vendor from a price range that best aligns with your budgeting and business requirements. Additionally, offshore outsourcing proves useful in scenarios where 24/7 maintenance is required. With outsourced teams, you can split working hours between different time zones to achieve around-the-clock coverage”.

Roman Lyha, Head of PMO at QArea

Nearshore outsourcing

It’s the middle ground between the first two types of outsourcing. While the cost of hiring a nearshore contractor is typically lower compared to local vendors, offshore companies offer more affordable rates. Again, the location of the software development team is paramount. A Texas-based company has no interest in hiring a Canadian team, as the difference in hourly rates would be minimal. The money saved will be lost in the long run due to logistics.

On the other hand, you can benefit from neighboring time zones. Outsourcing a software project to a nearshore contractor means a two-three-hour difference maximum. This means fewer headaches when organizing the development process. You’re guaranteed to have at least four hours of shared working time. Communication and traveling also shouldn’t be a problem.

All in all, the key advantages of nearshore software development outsourcing come down to:

Barrier-free communication. When you outsource your project to a nearshore contractor, discussing technical nuances won’t cause any slow-downs as both of you are equally familiar with the terminology.
Shared cultural values. Some companies underestimate the benefits of working with a team that’s close not only geographically but also culturally. This makes it easier to establish friendly relations between the companies and cultivate the contractor’s feeling of responsibility for your project.
Smaller distances. Cultural similarities are one thing, but the ability to arrange regular meetings in person is a significant plus you won’t be able to enjoy when working with an offshore company. This advantage will be useful for elaborate long-term projects.

Similar to the cons of local outsourcing, the biggest disadvantage working with an outsourcing business nearshore is the cost. Nearshore companies charge more for their services compared to offshore vendors and even the funds spent exclusively on the development (no hiring and retention costs) may cross the maximum budget line pretty soon. And same as with local outsourcing, the higher pricing doesn’t necessarily guarantee better quality of work. If the project doesn’t require constant communication between you and your outsourcing provider, working with an offshore team would bring more benefits.

Bottom line, to understand which of the common software outsourcing types would suit you better, you should first accurately determine your needs and expectations. There’s no ultimate solution when it comes to choosing an appropriate type of outsourcing as much as you’d wanted to. Each of the types shows great efficiency depending on the task you delegate. With this in mind, be sure to do some research before taking any steps.

“For business owners who often travel and don’t mind frequent trips to offline teams, nearshore outsourcing can be a good solution. Nearshoring offers some additional benefits compared to local outsourcing. Plus, the time zone differences are minimal, which means there shouldn’t be any communication issues in the process.”

Roman Lyha, Head of PMO at QArea

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Offshore development center

The final model is an alternative to the dedicated team one but shares a few similarities with it. With this model, you outsource a project to a dedicated team of developers overseas that will work as a subsidiary of your company, focusing on one or several tasks, while you cover management and resource costs.

Still not sure how to pick the right model? Picture the following scenarios:

1. Suppose a company uses a few information systems that have a tiny impact on the success of its activities. At the same time, there are tasks requiring minor revision of their functionality or tech support. The first or second model would perfectly fit the company’s needs. They’re also optimal if you’re dealing with a one-time project like a new business application.

2. Another scenario follows a company that relies on dozens of systems, including those developed in-house years ago and operating on different platforms. Often, the documentation for these systems is outdated or non-existent, which complicates the maintenance and support processes. Further development of the functionality requires knowledge of not only the technology but also the architecture and quirks of building these systems, as well as the competence specific to your business. In this case, the third or fourth model is your best option. Remote specialists will study your systems and find the right approach to them.

Why to Outsource Software Development?

Globalization and IT innovations provide companies with opportunities to save resources and optimize business processes. But why do companies involved in software development outsource software-related projects instead of using those opportunities to form an ultimate development team? Delegating some functions to third-party businesses allows you to cut costs on the one hand and shift your focus towards developing the main areas of activity on the other. This is also a simple way to attract external resources – knowledge, experience, and assets with minimal administrative obligations and related risks.

Key reasons to outsource software development

Outsourcing saves time and gives you room for development. When it comes to small and medium-sized businesses, outsourcing helps to focus on administrative and operational tasks and take some load off of your staff, using human and financial resources with greater efficiency.
New connections and business opportunities. Depending on the outsourcing type you choose, you may get access to a foreign market with its useful contacts, talent pool, technologies, potential revenues, and growth prospects.
You get to work with a cohesive and motivated team. For outsourcing services, software development is a business, not a job. To stay ahead of the competition, they need to keep up with high standards of quality. It’s difficult to gain the same level of dedication from in-house employees.
Cost-efficiency. Outsourcing certain functions will reduce operating costs and bump up profits. Opting for an independent IT software outsourcing company instead of your own development team, you translate fixed costs into variable ones and become more flexible, which means more competitive.
Better management. Cranking up a large-scale project, you’ll have to deal with intense problem-solving. With so much pressure going on, your team will eventually start making mistakes, some of which will get past your QA engineers. Hiring a contractor, all you have to do is make sure they follow the terms of the agreement. Fewer tasks for the company to perform means less pressure on your management, giving you space for developing core business areas.
Outsourcing will keep your business compact. The larger the staff, the more trouble you get. Apart from maintaining a complex corporate structure, the company has to manage workplace climate, task management, and other factors that bring down efficiency. With a separate team working on your project remotely, handling your own crew won’t be much of a hassle. Outsourcing might also be your go-to option if you plan to reorganize your business or optimize operating costs.
Faster development. Time to market is no joke, so introducing your software to the consumer ASAP is in your best interest. Third-party IT firms easily keep up with tight deadlines thanks to years of experience and experienced team members, delivering results in the shortest terms.

The scale of outsourcing depends on the company’s needs and financial capabilities. Some businesses delegate two or three tasks, while others prefer to keep a close-knit staff of ten employees, having the bulk of work done by contractor firms. But the major reasons why companies outsource software development are the same – to boost the flexibility of the company’s business model and bring down operating costs. Considering the growing popularity of outsourcing, it does a pretty good job delivering on both promises.

When Outsourcing Isn’t an Option

While you may already be under the impression that outsourcing is a blessing in disguise, there are scenarios in which it might not be the best option, and it can be more beneficial to build an in-house team. Let’s go over these scenarios together.

Long-term projects with frequent interactions and tight feedback loops. For projects that extend over time and require constant iterations and close collaboration with stakeholders, having an in-house team of developers can be more effective.

Projects requiring high-level confidentiality. When a project involves highly sensitive data or proprietary information, the risk of data breaches may be too great. In such cases, keeping development in-house can offer an extra layer of security, ensuring that your innovations stay protected.

Effective communication is crucial. For complex projects with nuanced requirements, and in situations where immediate feedback is required, it might be more preferable to have an in-house development team.

Projects that need deep integration with existing systems. In these scenarios, taking an in-house approach is much more beneficial because internal experts are typically more familiar with the existing infrastructure and can manage internal systems more effectively.

Complete control over the development is essential. When control over the development process and flexibility in decision-making are crucial, an internal team allows for better oversight and agility. In-house teams can pivot more quickly based on evolving business needs and market conditions.

“Generally speaking, all projects can be outsourced, but there are projects that are less suited for this opportunity. For example, if you were to develop something fancy like a custom enterprise solution, a kind of software that requires continuous requirement clarification and process adjustments, it would be better if activities such as process audit and resource management would be handled in-house, at least in the early stages of development.”

Roman Lyha, Head of PMO at QArea

Which Activities Are Best to Outsource and Which Are Best Kept In-House

If you have an in-house team of developers and are looking for extra hands to accelerate the launch of your product, it’s useful to know which activities can be outsourced and which are best kept internal. This will save you from potential pitfalls and ensure a more streamlined development process. Here are some insights.

Best activities to outsource

Routine and repetitive tasks. Time-eating tasks like testing, especially extensive testing that needs to be run multiple times throughout the development process, are best to outsource to professionals that handle large volumes of work effectively. In the same vein, the creation of technical documentation and IT support can be delegated to professionals who specialize in this area, freeing up your internal specialists for more strategically important work.

Specialized and temporary needs. Tasks requiring specialized expertise like, for example, creating a UX/UI design, building an MPV, developing a mobile application, or integrating advanced AI tools are ideal for outsourcing, allowing you to access expert knowledge without long-term commitments. Not only that but you also can bring fresh perspectives to your project, putting it a step ahead of the competition.

Scalable workloads and short-term projects. When you need to add new features quickly but your internal team is busy with other, no less important tasks, outsourcing can be the perfect solution. You can scale your resources up or down based on current project demands without the need for permanent hires. This flexibility is particularly valuable for managing short-term projects or surges in workload.

Best activities to keep internal

Core competencies. Although outsourced vendors can help with road mapping, crafting the architectural design of your product, and doing the initial market research, these core business processes should preferably be done internally. This will ensure that the strategic direction of product development aligns with your company’s long-term goals and save you from costly rework.

Tasks involving sensitive data. If you’re using proprietary technologies, developing these in-house ensures they remain secure and confidential. Furthermore, it’s essential that customer data is handled only by internal team members to ensure compliance with privacy regulations and avoid potential breaches.

Activities requiring close collaboration. Tasks demanding close, ongoing collaboration with stakeholders are better managed by an in-house team. It is also beneficial to keep project management internal if you’re just augmenting your team.

How Much Does It Cost to Outsource Software Development?

Today, outsourcing opens endless possibilities for software development. You’re free to choose between local vendors, companies from neighboring countries, or even go overseas to find a perfect team that meets your standards. Regardless of your choice, you’ll see that every company is unique in its own way, which results in a wide range of pricing options.

Factors that define the outsourcing rates

One of the most common IT outsourcing contract hiccups is related to pricing. Both parties must clearly understand how, when, and where the prices are formed. To have a better idea of how the development cost is formed, familiarize yourself with the factors that define software development rates and existing collaboration models.

Geography. Location is one of the most important factors affecting the overall cost of software outsourcing. Vendors in countries with solid, thriving economies would charge more than companies from developing countries.
Experience. Teams with a background of dozens of large-scale projects are usually ready for any challenge you give them. This, however, comes at a considerable cost. No one would argue that experienced development teams cost more than junior ones, but thanks to offshore outsourcing, you’ll have no problem finding a senior software development team for the price you’d typically pay for an average team in the U.S. The final decision depends on your needs, which takes us to the next factor.
Scope of work. Project specification is what usually balloons the cost of outsourcing, even more so if it includes the whole process of software development from A to Z: project management, design, development, quality assurance, and so on. And while the previous two factors are pretty self-explanatory when it comes to costs, it’s not always clear how much you’ll have to pay for the project, especially if the project is long-term.
Timeframes. Speaking of time, lasting collaborations with development teams always result in a heftier price tag but come with extra benefits for your company. Outsourcing providers are interested in long-term partnerships when working on sophisticated projects. Some vendors even provide discounts depending on the estimated project length. When hiring a team of 10 developers for two years, the rates you have to cover may be the same as those for a 5-person team hired for one year.
Hypercompetition. This term characterizes the IT service purchaser market, where several factors work together to determine broad, value-based decision making. Hypercompetition drives the lowest value deals. And the problem is that clients often fall for those deals, putting their projects at risk.

Collaboration model

In addition to the general factors that affect development costs, your bill will depend on the business model you choose for collaboration. Let’s talk about these models in more detail:

Time and material (T&M). In this model, you pay exactly for the time the outsourced team spends on the development. While not ideal for projects without predetermined requirements, it perfectly accommodates small and medium-scale projects where the scope can be clearly defined but may need adjustments as development progresses.
Fixed price. This model works best for small projects where you know the scope of the project and don’t expect to make any changes once you start. The fixed price business model is the best model for testing the waters and seeing if a third-party vendor can deliver quality results within the specified budget and timeframe.
Dedicated team model. For companies hiring an outsourced team for long-term projects with evolving requirements, the dedicated team model can be the right move. This model implies paying the external team a fixed amount of money each month, providing flexibility to scale resources up or down as needed.

Hybrid model. Some companies, including ours, also offer a mixed model of collaboration, combining elements of the T&M and the fixed-priced model. In this model, you pay a fixed price for certain aspects of projects while enjoying the freedom to introduce changes as you go.

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How Outsourcing Companies Operate: Tried and True Outsourcing Strategy Step by Step

So you’ve decided it’s time to outsource. The next question is who you can trust with this important task, considering the risks. Make sure you approach the choice of an outsourcing development partner with all care. The process shouldn’t be too hard if you follow these several steps.

Define your project requirements and goals

Before choosing a contractor, you need to decide on the functions you’re going to outsource. A clear understanding of the tasks, required results, and deadlines will make collaboration as efficient as possible, reducing the risks in key processes and boosting your competitiveness in the long run.

Research for outsourcing vendors

There are thousands of IT companies out there. How to choose the right one? You can start by googling, just like you always do when looking for other products or services. But be prepared to pile through a hundred pages. As an alternative, you can also refer to websites like Clutch or Top Tech Biz. They provide all the info you need on the best IT companies on the market, such as the costs and customer reviews. Pick any area you’re interested in, such as the best web design creators in the U.S. or the top back-end software providers in Asia. There are also links to company websites where you’ll find plenty of information to help you choose.

Research the provider’s background

While you’re putting together a list of potential outsourcing partners that meet your requirements, you can start communicating with some of them. Rash decisions lead to poor results, so take your time to talk with managers, discuss the terms of possible cooperation, and also get more information for making an informed decision:

Check their accounts on Dribbble, GitHub, and Facebook.
Ask for a video call and get them to arrange a tour around the office for you.
Chat with key people who will be involved in your project.
If you have technical expertise, ask them to show you snippets of their code.

Evaluate capabilities and expertise

The next step is to figure out if the vendors you choose are up for the task. Here’s the fastest way to do this:

Check their portfolio. Explore their projects. Is there something from your industry? If there are websites, visit a few and see if they look great. If there are mobile apps, it would be a good idea to test them, see what rating they have. And if you have an opportunity, feel free to chat with previous clients, especially if they’re from your niche. They have no interest in covering the truth about the vendor’s work.
Check their technologies. If you’re not a developer yourself, it can be difficult to assess the technical potential of an outsourcing partner. What you can figure out, though, is how extensive their expertise is. A decent software development company keeps its tech up-to-date, constantly expands its field of expertise, and invests heavily in courses for employees.
Get in touch with the team. Find out what certificates they have. For IT outsourcing, the company must provide a full range of services (this includes design, coding, testing, and all types of tasks). Otherwise, you may have to look for another outsourcing provider to finish the job.
A blog may also provide a lot of info about all the aspects behind a company, from workflows to English skills. Good vendors are always striving to bring something new to the table. So the more articles you’ll see on the blog, regardless of the topic, the better.

An outsourcing company is also positively characterized by its openness to dialogue and cooperation with colleagues. This means that they have something to offer to the public, and they’re not afraid of being researched.

Ready to start on your development or testing project?

Determine standards of quality

Every customer is looking for the best software product development partner on the market. You expect the job to be done professionally, quickly, and preferably without extra expenses. And would you hire a team that doesn’t know what ethics means? That’s unlikely. Do you know if the vendor can scale to meet your requirements? Make sure you do. Have you asked how flexible they are when it comes to unpredicted challenges? All these questions should be answered before you even consider putting a company on your list of potential outsourcing partners.

Make a shortlist of candidates

It’ll take a lot more than a day to find the right team for the job. It’s quite likely that you’ll have to give up free time for a few weeks unless you have a dedicated team doing the research. If not, be sure to consider the following factors when sorting through vendors:

Is the vendor’s pricing policy adequate?
Has the vendor shown steady growth over the years of work?
What’s the situation with their location, tax regulations, and time zone?

Discuss the project with the selected candidates

It’s great when the team has expertise in your industry. But the ability to ask and listen is just as valuable. There are no products that would be exactly the same. Every business is unique, and there’s nothing worse than dealing with know-it-alls who always “know best” what you need. So be sure to start cooperation with a discussion of a business idea and carefully work out all proposals and preferences. Nobody says it’s going to be a quick conversation, but the result is surely worth it.

Test the candidate

A small test task will help you finally decide who’ll be your contractor. However, keep in mind that reputable outsourcing developers never do test tasks for free. The test will help you tell for sure if the outsourcing vendor fits your goals.

Discuss the specifics of the contract

The legal aspects of business are always the most boring ones, yet they require special attention. There may be various requirements, depending on the project specifics, but the most common one is data security. Usually, contracts are negotiable. This is the last stage before getting your project outsourced.

Why Is QArea Your Reliable Outsourcing Partner?

QArea is fully committed to providing software that meets the highest demands of the customer. If you are looking for a vendor who keeps the standards high and costs low, then our team will gladly take over your project.

Our development expertise

Need an awesome UI design for your app? No problem! Want a top-notch online store with various payment methods? You got it! We have expert teams for all major software-related tasks that quickly adapt to rapidly changing requirements. Need something non-standard? We will get you engineers with strong tech skills and niche domain expertise, eager to take on a unique, challenging project.

Excellent code quality

At QArea, we strongly believe that good code should be concise and clean. These two Cs make the foundation of every project we embark on.

Customers all over the world

Since 2001 when our first office was established, we have completed more than 200 hundred projects for small and large businesses around the globe. From Canada to Australia, companies use software developed by our software engineers.

Flexible pricing

In software outsourcing, there are no one-size-fits-all solutions. If your project needs extra attention with a pinch of extraordinary, we will assess the costs and reach a mutually beneficial agreement.

Focus on results

Your software is our challenge, and we love challenges. No matter how large the project is, our team will keep working on it until it meets your standards of quality.

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Conclusion

Outsourcing opens doors of opportunities for both start-up vendors looking to delve into the tech world and seasoned companies that want to augment their internal resources. However, it comes with its own challenges. From choosing the type of outsourcing that best suits your project goals to finding a tech partner that understands what you want, you need to be careful and plan strategically every step.

At QArea, we have over 23 years of experience in helping companies of all scales build successful software solutions. Whether you are looking to outsource routine tasks, need specialized expertise, or want to speed up time to market by expanding your internal team, we’re equipped for any challenging task. Take the first step by dropping us a message, and we’ll drive your business forward!

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Written by

Andrew M., Technical Writer at QArea

Andrew is an insatiably curious geek who loves writing about technological innovation, business development, and digital transformation in the globalized world. Throughout more than 5 years of experience as a writer for different media, startups, and tech companies, Andrew has meticulously studied every aspect of the tech industry and loves sharing his knowledge with the international community.

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