How to outsource software development and reduce cost by up to 60%

Outsourcing is no longer something unusual for businesses and startups. For over 40 years, companies turned to employees from third-party companies for a variety of reasons, and it has become a frequent phenomenon in the IT industry, and it's still thriving today. This year, according to Deloitte, worldwide spending for outsourcing software development services will total more than $700 billion.
Software development requires a lot of effort and resources, and an offshoring team of developers can be that source of the perfect development team to create a top-notch product for you and your company. But it can be a bit tricky, so it is necessary to consider all the nuances of working with such a team in developing a proper software implementation strategy.
In this article, we will tell you what outsourcing is and what it can be, what advantages it has and what risks may arise, as well as make a plan on how to hire an outsourced development team.

What is software development outsourcing

Outsourcing is transferring some tasks to third-party companies, teams or individual employees located outside your office, city or even country. In the case of software development, tasks related to development, testing and maintenance are transferred to third-party service providers.
Of course, companies can handle such tasks on their own, and in some cases, this is even a better solution than hiring external vendors. However, they will need highly qualified specialists on staff and other resources, which the company may not have in the region where it is located. Outsourcing covers these and many other problems that a business may have.

Benefits of outsourcing development

There are a lot of questions about software projects outsourcing and its advantages over in-house developers hiring. Companies do not need to deploy complex technical infrastructure and rent an office with all the necessary attributes. All this makes hiring external vendor companies a more profitable and faster model of interaction with developers. However, there are also other advantages:

Cost efficiency

Software outsourcing is financially beneficial for various reasons:

• It reduces office costs: equipment, utilities and Internet, office supplies, taxes and other consumables.
• It simplifies the search for employees, because they will be found by the vendor company, or on specialized sites and services.
• The cost of developers from Eastern Europe and South Asia is much lower than hiring in-house developers in the US and Western Europe. You can significantly reduce costs and still pay a decent salary to an offshoring team.

Access to unique professionals from all over the world

You can find unique talents around the world via vendor organizations, which means you have a much larger pool of potential outsourcing developers you can delegate your tasks to without fear of losing quality. However, for this to work, you need to carefully choose the people you'll be working with, and think through all aspects of the job well so you won’t have any problems with software outsourced in the future.

Get better products to market faster

When you distribute tasks among your employees, the achievement of results is faster. Hiring remote employees from external vendor companies allows you not only to distribute the workload among the whole team, but also to establish continuous (almost round-the-clock) work on the project due to the location of employees in different time zones. While developers are creating your product, you can deal with business tasks: from legal aspects to marketing campaigns.

No need in micromanagement

The desire to micromanage a remote team always arises among managers who have only just learned the charms of outsourcing. However, you can safely forget about it, because a project manager is usually hired together with the development team, and this person takes over the management of tasks and the team, and becomes a kind of bridge between the external team and the business owners. Teams often work according to Agile methodologies, which means you'll get regular deliverables planned for each iteration.
Discuss the work plan, timelines and the definition-of-done by the time, and entrust management to a manager on the team's side.

Flexible scalability

Any product goes through phases of expansion, and at such times, it is quite hard to scale up an in-house team. Third party service providers solve such a problem as they can quickly find the right person to hire for your requirements without having to prepare office space, technical equipment, and increased costs for other offline needs.

Outsource software development challenges

Software developer outsourcing has a large number of benefits, which at the same time come with several important risks and challenges that are important to consider when making informed decisions about working with an offshoring team.

Project confidentiality

Using outsourcing software development services implies that you have to tell a third stakeholder the information that may be confidential. Therefore, to protect yourself from theft of secret information and reputational losses, you should include a Non-Disclosure Agreement in the contract and discuss what is a commercial secret and what sanctions will be imposed in case of breach of the agreement.

Difficulties in communication

Communicating with remote employees is fundamentally different from communicating with a full-time employee, despite the fact that the same communication tools are used nowadays. Lack of face-to-face communication imposes its own difficulties, so building a convenient communication system with an offshoring team is as important as finding such a team.

Hidden costs

When you ask for outsourced software product development, you spend not only on paying for its services, but also on finding a vendor company, contracting, managers, and many other things that novice managers don't immediately think of. Costs may also increase for other important reasons: for example, something from the planned functionality turns out to be too difficult to implement and some difficulties arise, like incompatibility with the technological stack, which makes it necessary to extend the implementation period and increase the budget. Such a problem arose in the process of our work with content management systems, which we described in this article and tell about our experience with solving it.

Difficulty in selecting developers and service providers

Yes, you get rid of the problem of finding top-notch talent in your area as the search is geographically expanded, however, at the same time, the number of applicants becomes very large and it is not easy to choose the right ones. This is where reliable outsourcing and outstaffing software development companies can find the right development team for you. If you want to hire one, feel free to contact us about your project and we match the right professionals to your needs.

Software development outsourcing strategies

Hiring outsource developers and transferring product development tasks can be a big problem with unpleasant consequences for business, if you do not carefully think about all the nuances, requirements and the goals you would like to achieve with your product. To make working with development service vendors more enjoyable and successful, there are a few important steps to follow.

Make a plan for your project

Whether you have an in-house software development or made by external organizations or freelancers, you should have a clear project plan with well-defined requirements:

• Your plan should contain well-defined goals that will allow you to understand what you want to get out of your product, and it will also allow the service provider company to understand exactly what resources you need to bring your ideas to life and propose the best solution. It will be great if your goals are formulated using SMART methodology, i.e. specific, measurable, achievable, relevant and time bound. This will make your goals transparent, easy to understand and easy to implement, which will be very useful if development teams take them on.
• Another important point of the plan is to define the scope of tasks, which will allow you to make a balanced assessment of work time and required resources. It helps to make clear to you whether you need external help and, most importantly, what you can delegate.
• Establish a budget that you want to set aside for the project development. Study the market to understand the vendor companies prices, take into account hidden costs, and given the scope of your tasks, determine how much money you will spend on your product. Remember that sacrificing the quality of your product to save money is the worst decision.
• Determining at least an approximate technology stack you may need for a product will help you define the approximate requirements for the team and developers you need to implement your product.

Do you really need to delegate tasks?

Once you've figured out what kind of product you need, it's important to ask yourself the Shakespear-like question: to outsource or not to outsource? And this question has its own necessity for several reasons:

• If it is important for you to supervise and manage your employees yourself, then external development services will not suit you because of its working principles. In this case, it is easier for you to hire remote employees to join the company's staff and communicate with them directly.
• If the product you are developing is the basis of your business, i.e. it is a large product that will bring you the main profit, and it requires unique specialists of various profiles, then you should prefer to hire full-time employees. Imagine you are Meta and you want to develop the Facebook social network, a big core product of your business. Much of the product may have high secrecy that external specialists cannot be allowed to access. Therefore, an in-house team of employees will be the best solution in this situation.

Choose the type and model of remote collaboration

There are a lot of options for cooperation with outsourcing developers and each of them has its own peculiarities. Let's deal with all the variety of remote collaboration, and first let's consider the differences by location of the service provider's company: onshoring, offshoring and nearshoring.

• Onshoring means hiring a company from your country.
• Offshoring means hiring a company from a country far away from you and in a different time zone.
• Nearshoring means hiring a company from a neighboring country or a country with the closest time zone to yours.
  

Each of these three types has its own benefits and drawbacks related to cost of hiring, cultural differences, English proficiency, and development quality.
Another important difference between outsourced development teams is their hiring model. There are about a dozen different models for collaboration with development companies, but among them we can distinguish three main ones:

• Staff augmentation or outstaffing. Under this model, you temporarily hire a few developers to your team, for example, in order to finish a project or expand it. The hired employees work entirely under your supervision.
• Managed team. In this case you work with a remote team that fulfills certain tasks. Here you fully distribute responsibilities between your in-house team and the remote managed team. The only difference from the project-based hiring model, which we will talk about in the next paragraph, is that such a team works with your managers who control the fulfillment of tasks.
• A team hired for a project. The project-based model of collaboration means that you hire a development team with their manager that takes over the project until its completion. You work with third-party managers and developers to determine the timeline and desired outcomes of each iteration. You don't have to manage the remote team, the hired manager takes care of that.
  

Each model fits different solutions and requires a different level of understanding of how to work with remotely hired teams. Therefore, if this is the first time you delegate your tasks to someone, we recommend using the staff augmentation model. This way, you can easily understand what it is and still be able to manage the aspects that you can't leave unchecked for now.

Choose an outsource vendor company

Now you choose a vendor company that will help you to find developers for your needs. Carefully study the experience of vendors, gather feedback about them, and find out about the technical experience of the team to be sure that they can implement the functionality you require in the product. You can use several sources of information about companies that supply development services to find all the information you need:

• Feedback Websites about Vendor Companies. Clients often leave feedback about companies on services like Clutch, Hubspot Agency, GoodFirms, and many others. These are good sources to find information about potential teams you want to work with, from other companies.
• Freelancing and outsourcing portals. Services and websites like TopTal or Upwork have tools to directly connect with companies that can provide developers for your projects, or you can simply find the information about the companies you can later partner with, their location, experience and price ranges.
• Consult with colleagues, peers and industry experts. No matter how progressive the world becomes, word of mouth is still one of the most powerful channels of information where you can learn anything. Don't be afraid to ask for information from colleagues, clients and experts about a particular development team or company.
  

This way you can narrow down your list of potential outsource vendor companies to those that have worked with similar projects to yours.

Discussing details and signing the contract

Once you have a few potential candidates left on your shortlist, consult with them about possible collaboration, development of your product and other issues of concern, such as:

• More precise technical requirements. Most likely, after a detailed study of the market and discussions with representatives of outsource software development companies, you will have a clearer idea of what your final product should look like.
• Terms of cooperation, where you negotiate the model of cooperation and duration of the cooperation terms.
• Cost and deadlines for the work. Each company has its own price, which depends on many factors: the country where the team is located, their experience, specialization, complexity of the project and much more.
  

After discussing these issues, it becomes clear who you want to deal with in the future. Once you've chosen a company, move on to discussing the details of the deal: legal aspects, performance criteria and non-disclosure agreement. Discuss the working conditions, the metrics you would like to achieve, the rights and obligations of both parties, what information is confidential, what sanctions will follow in case of breach of agreements and many other things that should be enshrined in the contract. Once the parties agree on all the requirements, they sign the contract, which may also include the following attachments: non-disclosure agreement, service agreement and statement of work.

How much it costs to outsource software development

It is impossible to say exactly about the software development cost to an outsource team, as the cost will depend on many factors:

• The main cost factor is the development team location. The cost of developers depends on a particular place they live in, the level of taxes and many more. That's why we can observe such a serious variation in salaries around the world: if in the US the average developer salary is about $100,000 USD per year, in Eastern Europe it will range from $25,000 to $50,000 USD per year, and in India it will be about $10,000 USD per year in terms of the current rupee to dollar exchange rate.
• The current factor follows directly from the previous one: the outsourcing model also affects the cost. So onshoring, nearshoring and hybrid collaboration models will cost more or less than offshoring because of the development cost in different countries.
• Experience and technological skills make a developer unique. And the more unique developers are in the market, the more expensive their services will be. It is also important not to forget that the more complex the project, the more difficult it is to select a development team for it. This is where the developer with the most unique skills will be needed.
• Obviously, the development cost will also depend on the team size. This factor will definitely affect the cost if you didn’t choose a fixed-price model, where you specify the amount of completed work and its cost.

Conclusion

Custom software development outsourcing requires focus in choosing the right partner and weighing decisions about transferring one or another responsibility to an outside organization. It is also important to discuss all the subtleties and details of joint work, so that there are no problems in solving possible disputable moments. Compliance with all the requirements will make working with external vendor companies a pleasant activity, and joint work can turn into long-term cooperation and even partnership.
If you want to find perfect outsource developers to create your own products or if you have any questions related to delegating tasks, interacting with such teams and further development processes, fill out the form on our website and we will be happy to answer your questions and offer you options for further cooperation. We have been working with companies for many years, and we became true partners with some of them.
For example, we are working on a healthcare application where patients can monitor their health status and tell about their well-being so that doctors can prescribe treatment more accurately. As a result of our work, the app became much faster, and over the past year, about 15,000 users started using it.