How Much Does It Cost to Outsource Software Development?

There is a chance you are planning a new project that is going to become a breakthrough in the tech market. Business analysis is ready, as well as technical one. Finally, unless you have an in-house development team, it’s time to think about a team of dedicated developers and consider software development outsourcing rates.

At this point, you have a couple of choices that can lead you to totally different outcomes. Before you jump into any decisions, we want to let you have a quick look at the research we did specifically for this article. Now, let’s talk about these options and have a look at the cost of developers belonging to various locations — this should all help you choose the most suitable country for outsourcing.

Software development outsourcing, when and where you need it.

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Outsourcing a software development project: The basics

With the average cost of developing a relatively simple software application ranging between $60,000 and $150,000, according to Business.com, thousands of organizations around the world now use outsourcing services to build and test software. Companies that consider outsourcing software development as the best solution to turn the idea into reality have a choice to outsource:

• onshore (to the country of their location);
  
• nearshore (to the country that is close by or shares a border);
  
• offshore (to a far-distance country, usually overseas)

While making a decision, these options have to be investigated in terms of the initial goal because the price varies drastically. However, the opportunity to save with outsourcing is not the only reason why companies want to outsource in the first place. It also happens because nearshore and offshore dedicated teams have a proven ability to develop high-end products.

Now, let’s look at the example of outsourcing software development cost in action. For instance, you need the code to be developed within 500 hours, for which you will need at least five middle-qualified programmers who have to be paid hourly. Taxes, benefits, office space, equipment, training, and travel costs have to be considered as well. The table below will help you better visualize this example.

Naturally, this is not the final price of a custom software development project, as it’s also going to need the services of QA engineers, business analysts, UI/UX designers, system architects, and other specialists, depending on the specifics of the project. Still, the development part is usually the most expensive one; therefore, it’s the one we use for comparisons.

It’s also worth noting that offshore software development rates can vary greatly from country to country. Moreover, the rate for software development in a specific outsourcing region changes over time as some destinations lose popularity and others emerge. Still, what do the rates in 2023 look like? Here are the software development rates by country and region.

The cost of software development outsourcing in North America and Australia

It is not a surprise that the US, with its major tech hubs like Silicon Valley, Seattle, Boston, Atlanta, and Texas, is rightfully considered one of the most technologically developed countries and therefore a great place to look for software development services. Starting with web developers and ending with network communication architects, this region offers high-quality services that are believed to be among the best in the world. But with that opinion also comes the notion of high pricing, and this is the reason for many geeks wanting to relocate to these areas.

However, the very things that attract software specialists to the United States also mean a higher overall cost of software projects for US-based businesses. For American companies, the cost of hiring the right software development specialists may be a bit steep, even though quality usually prevails in the list of values. Until recently, the quality and reliability that US software development offers usually caused American companies to think twice before outsourcing development elsewhere. However, with the looming threat of a recession, offshore software development outsourcing becomes something that businesses are more likely to consider.

The United States is not exactly among the most popular destinations for outsourcing, at least among foreign companies. A US-based business, however, may consider searching for a software development partner — usually, for limited-time projects or when rare and niche technologies are involved. Indeed.com estimates that an American software developer, on average, earns $115,882 as a base salary, which can go all the way up to $185,025. Australia can also be mentioned here, for developers of the latter charge only 10-15% less than American ones — $105,000 on average, to be precise.

Pros

• No language barrier
• Strong work ethic
• Similar communication style

Cons

• High cost & overhead expenses
• Complicated tax system
• Strict employee-related laws

How much does it cost to outsource software development to South America?

A couple of years ago, this region wouldn’t have been considered a prime destination for finding an offshore software development company. However, the decision of many businesses to outsource development to South America is no longer surprising, as this place has one of the top outsourcing markets with high-quality services and reasonable salaries for software developers. Moreover, because of its close proximity to the US, Latin America is a popular choice among companies that prefer to meet their development partners in person.

These days, countries like Mexico, Colombia, Brazil, and Argentina are producing more and more professionals in the software development field by giving them better education and more job opportunities. Compared to Central and Western European prices, Latin America may be considered a good bargain for American companies as a nearshore type of outsourcing. Salary.com estimates that the average annual salary of a software engineer is $11,310 in Brazil and $14,035 in Mexico. 

Pros

• Close proximity to the US
• Affordable hourly rates for IT services
• Job laws that favor employers

Cons

• Language and cultural differences
• Work ethic can be relaxed
• Costs are rising annually

Offshore development rates in Western Europe

Western Europe is a unique region in terms of software development outsourcing. On the one hand, it has high-class specialists who were raised there and therefore understand local business specifics; it also attracts expats from Eastern Europe, Asia, and even the US. On the other hand, labor in Western Europe is pretty expensive, so one of the main benefits of outsourcing, which is the ability to cut costs, can get lost if you plan to outsource to Western Europe.

Here are some software outsourcing rates by country in Western Europe. Payscale estimates that software developers in Norway earn around $72,000 annually, while Danish developers make nearly as much as their Norwegian colleagues — about $70,000 annually. German developers are paid $60,000 annually on average. Overall, the outsourcing cost in Western Europe is rapidly catching up with North American rates, so hiring software development teams in this region is more of a question of logistics and prestige rather than an attempt at cost reduction.

Pros

• Well-educated engineers
• Excellent work ethic and time management
• Everyone strictly follows the law

Cons

• Vendors tend to favor long-term contracts
• High software developer rates
• Significant taxes and employee benefits

Outsourcing market rates in Eastern Europe

Even though Eastern Europe is not geographically far from Western Europe, the two regions are not that similar when it comes to outsourcing. Key differences, of course, concern software development outsourcing prices. For example, a software developer in Ukraine has an annual salary of $27,000, which is similar to Romania, where an engineer makes about $26,000 annually. A software developer in Hungary earns about $32,000, and a Polish developer makes around $38,000 per year.

There is a clear difference between software development rates in North America and Eastern Europe. Do not be too skeptical though, because the quality of provided services is considered high. Thanks to in-depth and widely accessible physical, mathematical, and IT education, Eastern European countries provide the whole world with professionals who can work with complex coding, difficult data analysis, and hardware architecture. As a cultural peculiarity, people from Eastern Europe tend to appear very determined and curious about technological innovations, therefore quickly adapting to the newest technologies and tools. For example, for the past several years, Ukraine has been demonstrating excellent results on worldwide hackathons, which proves their level of professionalism over and over.

Pros

• Endless talent pool
• Lenient laws for foreign businesses
• Thriving IT industry

Cons

• Non-native English proficiency
• Different cultural values
• Time management differences

Software development cost when outsourcing to Asia

Another vast area of the world to explore in terms of outsourcing rates is Asia. This is a popular destination among companies that want to take advantage of the lower cost of outsourcing software development while keeping the quality of the solution at an adequate level. For example, the services of Indian developers are rated among the most affordable ones in the whole world, with an annual base pay of a little over $10,200. Developers from China, at the same time, earn a little under $21,000.

Some Western companies have certain prejudices when it comes to the software development process and its outcomes, especially quality-wise, when working with a software outsourcing company from Asia, since lower costs are often associated with below-average software quality. However, this is simply the question of who you choose to outsource to. A precise approach to selecting the region for software development and the company can not only ensure project cost savings of up to 30%, but also give you the best outsourcing quality.

Pros

• Many emerging outsourcing hubs
• Developers cost less than anywhere else
• Wide range of IT services

Cons

• English proficiency can be limited
• Unclear outsourcing-related laws
• Different time zones

Software development hourly rates around the world: The ultimate comparison

Outsourcing is commonly chosen by companies to cut their expenses on development, but it’s clear that cost varies considerably based on the vendor’s location. Here is a table that will help you visualize the salaries of software developers around the world and choose the best location, particularly price-wise, for outsourcing your project.

Should you hire locally or choose offshore software development instead?

While the ability of a company to cut costs with outsourcing is a big advantage in favor of the latter, the total cost of the project is not the only criterion you need to make the choice between outsourcing and hiring in-house specialists. Here is when to use outsourcing and when to hire an internal development team.

At the same time, we want to point out that the complexity and quality of outsourcing services delivered by custom software development companies grow by the minute. While businesses would mostly use outsourcing for simple tasks a few years ago, now you can trust your outsourcing partner with pretty much anything. Software development outsourcing helps companies spend less on software while enjoying a much lower cost to hire compared to the local market. So, there is no reason to not at least give outsourcing a try.

Your idea plus our execution equals a flawless software product.

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QArea — Your trusted software outsourcing partner

One thing is clear: software development rates are not universal globally, depending on the location of software development companies and some other factors. However, clients understandably want to receive high-quality end products without thousands of edits during the process. This is why it’s important to choose your development team based not only on the average hourly rate of each specialist, but also on things like product development experience, work ethic, and others. This is why more and more companies choose Ukraine as their outsourcing destination, and why we can become your reliable and cost-effective development partner.