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What Is Software Outsourcing and How Much Does it Cost?

Are you looking for a software house to create your app? Nowadays, thanks to outsourcing services, the whole world is at your disposal. You can opt for locally-based services or choose nearshore or offshore development. Whatever your decision is, you will see for yourself that every part of the world plays by its own rules, which often translates into pricing differences, caused mostly by the economic situation in the region as well as varying skill levels of developers.

Moreover, there are a lot of outsourcing models: staff augmentation, nearshore development, offshore development. Sounds scary, huh? No idea what option will work best for you? No worries, today we will explain it all.

How much do software companies charge per hour?

To put it simply, we can divide the whole world into four regions regarding the cost of software development: Europe, Asia, North America, and South America. These are the main regions that we will take a look at today in terms of service costs, developers’ competencies, but also English language capabilities.

How much do software developers in Asia charge?

Asia is known to be an outsourcing hub and is very often people’s first thought when they hear the word ‘outsourcing. Developers’ hourly rates start at the incredibly cheap $10, sometimes reaching $60-70, and in some extreme cases, even $150 per hour. These affordable and tempting prices often attract companies from all over the world and are the main reason to outsource their project to Pakistan or India.

One of the biggest challenges when it comes to collaboration with Asian companies is the sheer numbers of vendors offering development services so finding a reliable partner is like finding a needle in the haystack. It’s not impossible, but with the huge discrepancy in levels of experience, skill, and professionalism it is rather good luck than excellent due diligence to find the truly good Asian development agencies.   We know the struggle is real because many of our clients have approached us after a bad experience with an Asian company, with poor quality code, out-of-date libraries, poor documentation, and many crucial features not working properly. On the flip side, several companies have collaborated successfully with Indian or Filipino vendors and continue to outsource their projects to Asia.

How much do software developers from Latin America charge?

It might seem like Asian vendors offer the most affordable hourly rates, but actually, Latin American companies can offer even less expensive IT services. The hourly rates are around $20-50 or about $60 in Mexico that tends to be a bit more costly than other countries in the region. In this case, communication remains one of the most significant challenges, as Spanish is the main language spoken in Latin America, and speaking English is often a problem. Moreover, the region has never been notorious for its excellent developers, something that might change in the future, but right now collaboration with Latin American vendors can be challenging and there is a good possibility that it won’t bring about the desired results.

How much do software developers in North America charge?

We’ve mentioned North America, but let’s focus on the USA. That’s the world’s technology hub and your most obvious choice when looking for software development services. Without a doubt, hourly rates in the USA are the highest in the world. The average rates in the USA start with $50-100 per hour in the case of junior developers and can reach $140-200 per hour for a senior developer’s work. The average cost of software development can be twice as much as in Europe, and that’s why so many companies opt for offshoring and collaboration with European providers.

What does a professional development team look like?

One of the main success factors in software development is the team that will participate in the project. At itCraft, there is always a Project Manager, a team of developers that, depending on the project's scope, will include native iOS and Android developers or ReactNative or Flutter developers, frontend, backend, full-stack developers that are indispensable for developing the solution. UX/UI Designers are engaged during the design phase of the app interface, and QA Engineers are responsible for testing the software and the ultimate quality of the final product.

All medium to large projects kicks off with a UX Design workshop. These workshops are the initial stage of the development process vital for understanding the business objectives and goals of the project, define the technology necessary to deliver those objectives, and define the MVP (Minimum Viable Product – the leanest form of the app which the market will accept). This analysis is conducted by Business Analysts, Tech Leads or System Architects, and Senior UX/UI Designers who analyze and consult on the best possible solution from business, technology, and user experience perspectives.

During the development phase, only the team members required to complete the sprint backlog tasks are engaged. If a project is of a larger scope, the team is expanded to meet deadlines with Regular Developers to assist senior developers and more QA ENgineers to ensure thorough testing. A sample pricing breakdown comparing small and medium-sized projects can be found on our pricing page, where you can also learn more about mobile app development cost.

Different types of outsourcing

You are already familiar with the costs of hiring developers in different parts of the world, you know where you can look for competent specialists, and additionally, you are aware of what kind of specialists should (or can) take part in the team working on your project. Now it’s time to explain and analyze the various types of outsourcing that you can choose from.

Staff Augmentation vs Specialists outsourcing

I could describe these two types of outsourcing separately, but they are actually easier to understand when explained as one. Outsourcing itself means subcontracting a company to perform a given job. In terms of software development, we subcontract human resources to make a project a reality.

The main difference between Staff Augmentation and specialist outsourcing is that staff augmentation consists of involving the vendor’s employees as part of the in-house team, and in the case of specialist outsourcing you delegate part or the entirety of the project to the service provider. There is also an option to choose full custom software development with the widest scope of outsourcing services.

Imagine that you want to create an enterprise app for production process management. Let’s say you have your own team that can create this app, but you are lacking an iOS developer. It doesn’t make sense to hire a new person as the developer is only needed for a small part of the whole project, so your best option would be outsourcing. You can contact a software house and subcontract a developer who will still work in this software house, but you will pay for the hours worked on your project. This is what Staff Augmentation is.

Now let’s say you have a manufacturing company and you want to create an app, but you don’t employ any developers and don’t see any sense in creating new job positions only for the duration of the project, or maybe you have an in-house team able to develop Android app, but not the iOS version. Therefore, you can outsource your project (or part of it) to an external provider. In this case, we are talking about outsourcing.

Nearshore outsourcing

Nearshore development is yet another kind of outsourcing that, at a closer look, is simply a buzzword. We can keep using the phrases explained above: ‘project outsourcing’ or ‘specialist/developers outsourcing’. If there are additional factors, for instance, the team that works on the outsourced project is located in the same region or works in a similar time zone, then this type of outsourcing is called nearshore development or nearshore outsourcing.

Offshore development

Offshore development, in turn, is the exact opposite of nearshore outsourcing. The characteristic traits of this type of outsourcing are the highly skilled developers, but at the same time, in many cases, much lower service costs thanks to lower cost of living in a given country which is normally located in a remote part of the world. Offshore development outsourcing has a lot in common with another popular term: overseas outsourcing, and it speaks for itself.

What are the software costs factors?

To sum up, the cost of custom software development can vary dramatically and depends on many factors, like which part of the world you outsource to, whether you have your own in-house team and only need to outsource part of the project or whether you want to delegate the whole development process, and last but not least, the seniority level of developers that will be involved in your project.

Junior developers will always be significantly cheaper than senior developers. In many cases, the investment in the higher hourly rate for the more experienced developer is well worth making. The seniority level is not just a pretext to charge more, but senior developers' experience allows them to work faster and more productively, and in the long run, become more cost-efficient compared to a team comprised of juniors.

There is much more to discuss software development costs and the pricing factors.