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How to Distinguish Between Software Product Development and Outsourced Projects

What are the differences between in-house and outsource software development and which model would suit your business better?

Staying on the spearhead of innovation is not easy but it surely is essential for the healthy development of your business. Regardless of your industry, innovation drives your profits, it allows you to tap into the new sources of income, expand your market presence and influence, and become the best choice for your customers. This is a continuous process, and you want to be sure you have the best people at your side while you are at it. At this point, you would want to know how to distinguish between software product development and outsourced project and which way to go – whether to hire in-house developers or outsource your project to an outside vendor. Today, we are going to discuss exactly that.

Plan Your Budget

According to Deloitte 2020 Global Outsourcing Survey, among the companies who choose to outsource their projects, 70% do that because of the cost efficiency that model offers. Cost-reduction is an important factor to consider, and in some cases, you might be looking at a 40% cost reduction compared to in-house development. You need to understand how much money you can afford to spend on that project and whether cost reduction matters to you. If it does, you might want to consider IT outsourcing

Set Your Deadlines

Let’s say you plan to build a large-scale software that requires a large team of developers – hiring a whole team of in-house developers would take you months, especially if your local talent pool is pretty drained. If you have the time to spare, you can go for it and try to hire a team of in-house developers but if you don’t have that couple of extra months, outsourcing might be a much better solution. Partnering with a professional software development company, you can get yourself a whole team of world-class developers in a matter of weeks, which can help you cut the development timeline.

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Short-Term Commitment

One of the benefits of software development outsourcing is the ability to bring an entire team of experts on board without a long-term commitment. You can hire developers on an hourly model, get your project done, and move on. No need to maintain a full staff of developers when there are no ongoing development projects. Of course, if your goal is to develop a large-scale software and keep on updating it on a regular basis, long-term commitment with an in-house team might be a good alternative, so you should define your requirements before you get to actually hiring people.

Take Communication Issues into Account

One of the important factors distinguishing in-house software product development vs outsourced software development is the quality of communication between you and your development team. Evidently, you’ll be much more comfortable communicating your vision and goals to people you have right in front of you, working in the same building. In contrast, it might be more challenging to communicate with an outsourced team of developers who are located in another country and might not even be native English speakers. Communication is an important factor you need to consider when making your choice in favor of either an in-house team or an outsourced team.

Pros and Cons of Outsource Teams

To make the right choice, you need to evaluate all the pros and cons that come with both cooperation models. In-house development and outsource development have their pros and cons, and you must take all of them into account. 

ProsCons
Cost-EfficiencyLack of control
Short-term commitmentCommunication quality
Fast recruitment
Competent teams

Stick with the Option You Can Afford

Whenever you make any business decision, cost-efficiency should be one of your main concerns. You should know exactly how much you will spend and how much you will gain out of it. In this regard, outsourcing surely is the better solution as it allows you to save a considerable amount of money and get a higher return on investment. And among the outsource developers, you should also consider the ones who offer the best price to quality ratio.

The most complicated thing here is to define who of the potential vendors is actually worth your money. Select the ones who offer hourly rates you can actually afford and then go over their portfolio, check out what their previous partners have to say about their work, see how they fare on rating websites, and talk to the people who already worked with that vendor. This will help you to sift out the best developers and make the decision that would benefit your business.

Consider Nearshoring

If you want to save up even more money, nearshoring might be an even better option for you. If you are a US-based business, outsourcing your project to a US-based vendor might be rather expensive, as the hourly rates here, according to Accelerance, range anywhere from $50 to $200 depending on the tech stack and seniority level of individual developers. In Canada or Mexico, the hourly rates would be considerably lower ranging from $30 and up to $125 depending on the same factors.

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Learn the Pros and Cons of In-House Teams

To see whether in-house teams match your needs and specifications, you need to evaluate all the pros and cons of this model.

ProsCons
Better communicationLong recruitment process
More managerial controlHigh cost
Better risk managementLack of talented developers
Long-term cooperationLow retention rates

Calculate Expenses for In-House Team Management

The hourly rates are not the only thing you should worry about when hiring an in-house team of developers. In-house teams come with a whole bunch of additional expenses; first and foremost, you need to accommodate your team somewhere. Good thing if you have enough space in your building but what if you’d have to rent additional space for them? 

The second thing you need to consider is paying a decent salary with taxes considered, taxes might take a considerable chunk of your developers’ salary depending on where your team is based. Sick leaves and days off also cost you money while giving you zero productivity. You might also have to worry about insurance. Include smaller expenses like food and coffee at your office kitchen, corporate parties, bonuses, and you’ll get yourself a hefty sum on top of what you already pay.

When you work with dedicated teams of developers, it is common that the vendor takes care of all the additional expenses. The vendor will take care of all the extracurricular spending including training sessions for the employees and all that good stuff. Your vendor is likely to also take care of all the insurance, sick leaves, and days off expenses too. 

Which Model to Go With?

The average annual income of a software developer in the US is somewhere around $105,000. Add the money and time you would spend hiring your developers, benefits and social security, overhead, and you will end up with a hefty price. Let’s say you hire an outsource developer at an average price of $50 an hour with 20 working days per month. The following calculation is rather simple:

In-House Developer

Hiring CostSalaryBenefits and Social SecurityOverheadTotal
$4,000$105,000$52,000$3,000$164,000

Outsource Developer

Hiring CostSalaryBenefits and Social SecurityOverheadTotal
included$96,000includedincluded$96,000

Final Thoughts

Of course, there’s much to consider when you compare in-house developers vs outsource developers, but the most important thing here is pricing. If you choose to outsource developers, you can save up to 40% on your total project cost just because it is cheaper to outsource. Sure, you would not be able to maintain such fluent communication with the team, but the benefit covers that small disadvantage. The choice is yours to make but if your goal is to save money, outsourcing your custom software development is the way to go.

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