How to Outsource Software Development: The Ultimate Guide

As more businesses search for ways to achieve digital transformation, streamline their workflows, and cut costs, the demand for software outsourcing grows steadily. By hiring a third-party vendor to handle either some development processes or entire projects, companies access a wider range of skills and expertise, which is often cheaper than assembling and maintaining an in-house team. 

We’ve prepared a comprehensive guide on how to outsource software development. It explains different outsourcing models and their benefits, provides tips for selecting the right partner, outlines cost factors and touches upon possible challenges.

Software Development Outsourcing Models

What is software development outsourcing? In simple terms, it is the practice of attracting an external provider to perform all or some of a company’s software development tasks. Depending on business needs, outsourcing can take many forms, each with its own set of advantages and disadvantages. Let’s discuss its 4 different models in more detail.

Offshore outsourcing

This model implies that a client and a vendor are located in different regions of the world. Offshore outsourcing is popular because business residents of one country may take advantage of lower labor costs, tax benefits, and favorable exchange rates provided by another country. Additionally, companies can access a large pool of skilled developers who may not be available locally. However, communication and time zone differences can pose challenges, and there may be legal and cultural barriers that need to be considered.

Onshore outsourcing

Onshore or domestic outsourcing involves cooperating with a software development vendor located within the same country as the client company. The primary benefit of this model is that it lacks communication and cultural barriers that may exist with offshore outsourcing. It also contributes to the local economy by creating new jobs. Still, onshoring is generally more expensive than offshoring.

Nearshore outsourcing

Nearshoring means that a software provider resides in a neighboring country. This model offers a balance between cost savings and proximity, with vendors in nearby regions often sharing the same time zones and cultural norms. These similarities make communication and collaboration easier and also reduce travel costs. However, depending on the location, labor costs may be higher than those associated with offshore outsourcing.

Hybrid outsourcing

Hybrid outsourcing combines several models mentioned above, creating a custom approach that meets unique business needs. For example, a company can use offshoring for low-level programming tasks and onshoring for more critical processes that require close collaboration.

The core benefit of hybrid outsourcing is that it allows companies to exploit the strengths of different models while minimizing their weaknesses. However, managing multiple vendors is complex and time-consuming, and it may be more expensive than sticking to a single outsourcing type.

Benefits of Outsourcing Software Development

Cost-effectiveness

Traditionally, companies working with outsourced teams spend less money compared to those that recruit in-house software developers. Hiring new employees requires a significant investment of time and finances in recruitment and training. Additional expenses can also include a social package with healthcare insurance, paid time off, sick leaves, pension contributions, and other perks. When you outsource software development, it’s the vendor alone who’s fully responsible for these costs. 

Outsourcing also means saving money on infrastructure and development tools. A third-party vendor will typically have the necessary software and hardware already in place, meaning that you do not need to acquire these resources. This is particularly beneficial if you’re a small to medium-sized enterprise and have no extra funds to purchase specialized hardware and facilities.

Another way to reduce expenses is to outsource to countries with lower labor costs than in your company’s home country. For example, the salaries of developers in Eastern Europe are lower than those in the USA. This means that you can cut the overall development expenses and allocate those savings to other areas of your business.

Access to a wider pool of talent

Outsourcing vendors provide access to a broad range of developers who may not be readily available in your country. These are specialists with extensive expertise in particular programming languages, software frameworks, and industry verticals. Staying up-to-date with the latest development methodologies and trends, they can bring fresh ideas to your business.

In addition to technical skills, outsourcing implies cultural and language diversity. Working with experts from different regions, you gain a unique perspective on user experience and development processes. This is favorable for you if your company has a heterogeneous client base and needs to create software compliant with various cultures and languages.

Ability to focus on core business operations

By delegating software projects to external specialists, you concentrate on your core business tasks such as production, sales, or marketing. For example, instead of spending time and resources on programming, you can focus on identifying new markets, developing products and services, or improving customer support. This way, you’ll expand your operations and increase revenue, without sacrificing the quality of software development.

To sum it up, outsourcing lets you cut hiring and retention costs, speeds up the search for qualified IT experts, and allows you to stay agile on the market, quickly responding to its changes. At the same time, you also preserve the quality of your project and work towards keeping your business competitive.

How Much Does Software Outsourcing Development Cost? 

The cost of outsourcing services differs depending on many factors. Below, we briefly discuss the key ones.

Location of the outsourcing company

The following conditions that directly impact the overall pricing of outsourcing services vary in different countries:

• Labor costs. Wages and salaries for software developers and IT professionals differ greatly across regions. Software outsourcing companies based in countries with lower labor costs generally offer more competitive prices for their services.
• Operating expenses. The cost of running a business comprises renting office space, paying for utilities, and purchasing and maintaining infrastructure. These fees vary across locations. Hence, companies from areas with lower operating expenses can provide cost advantages to their clients.
• Economic factors. Economic conditions, such as currency exchange rates and inflation rates, affect the cost of outsourcing. A favorable exchange rate can make outsourcing from certain countries more cost-effective, while economic instability may lead to increased pricing to compensate for risk factors.

It’s important to note that while location impacts outsourcing costs, it should not be the sole determining factor. 

Skill level of developers

Software engineers with specialized skills and long-standing experience are likely to charge higher rates. Their deep knowledge and ability to tackle complex tasks contribute to their increased value on the outsourcing market.

Moreover, the demand and supply dynamics of IT specialists impact their financial expectations. If the demand for developers with specific skill sets outweighs the supply, it leads to increased rates. Conversely, when there is an oversupply of developers with certain skills, the competition can drive prices down.

Complexity of the project

Large and complicated projects require more specialists with diverse skills. For example, to create a sophisticated web application, you’ll need business analysts, front-end and back-end developers, database specialists, QA engineers, and UI/UX designers. Hiring and managing a larger team naturally incurs higher costs in terms of salaries, benefits, and coordination effort.

Complex projects also demand additional resources, such as specialized software tools, hardware infrastructure, or third-party services. For instance, if the project requires extensive data processing, it might necessitate the use of virtual machines and high-performance cloud computing servers, which come with their associated costs. Integrating and configuring these resources can add to the complexity and ultimately increase the overall cost of the project.

Timeline for delivery

When it comes to development costs, every day counts. Complexity adds intricacy to the process, resulting in more stages, iterations, and tests. The longer the development life cycle, the more expensive the outcome is. Tight deadlines may also require additional resources, such as overtime work or extra staff, which increases the final price.

Yet, rushing the development process can also increase the likelihood of errors and the need for revisions, further adding to the expenses. Properly managing the timeline and striking a balance between speed and budget is crucial in determining the overall project costs.

Find more details about software development costs in our blog post. 

How to Find the Right Outsourcing Partner

Businesses should carefully consider numerous aspects when choosing an outsourcing partner and negotiating contracts to ensure that they receive high-quality software products or services at a reasonable price. Follow our brief five-step outline below to get an idea of how to successfully outsource software development.

Risks and Challenges Involved in Outsourcing Software Development

Just like with in-house development, you should be ready to resolve challenges and mitigate risks that come with outsourcing. Here are some of the most common problems that you can encounter:

Communication issues

Working with an outsourced team can present communication hurdles due to language barriers and different time zones. Misinterpreted requirements, late responses, and difficulties in conveying complex technical concepts result in project delays and decreased productivity.

Cultural differences

Work styles, business practices, and communication norms vary in different countries and can lead to conflicts. Such inconsistencies may require extra effort to bridge the cultural gap and foster effective collaboration.

Data security concerns

Delegating software development tasks to external parties often involves sharing sensitive information with them. That’s why data security becomes a significant concern, especially when dealing with intellectual property, customer details, or proprietary algorithms. To avoid unauthorized access or critical data leakage, it is crucial to establish robust security measures.

Project management and quality control 

It’s not always easy to coordinate geographically dispersed teams because of the communication issues mentioned earlier. The lack of direct control makes it difficult to ensure effective project management and accurate execution of the scheduled plan. Additionally, it may be problematic to establish a comprehensive quality assurance process and make the team adhere to it.

As a software outsourcing provider, SaM Solutions offers various cooperation models, including end-to-end development, a dedicated team, and staff augmentation. We let every client choose which level of control over the project works best for them.

Dependency on the vendor 

Outsourcing always means relying on external partners and dependency on their unforeseen circumstances. For example, vendors can fail to meet their obligations due to economic or political instability, as well as natural disasters in their countries. It can disrupt the project timeline, deliverables, and overall business operations. 

Certainly, it’s impossible to predict everything and avoid all the problems. But you can mitigate these risks by having several outsourcing partners and drafting a fallback plan just in case.   

SaM Solutions’ Best Practices for Managing Outsourced Projects

SaM Solutions, as a long-standing player on the software development services market, has created a wealth of best practices for effective project management. To foster productive collaboration and guarantee successful outcomes, we adhere to the following guidelines: 

Set clear expectations

Every project begins with establishing detailed objectives, deliverables, and requirements. This includes defining the scope of work, timelines, quality standards, and expected results. We document these aspects and ensure mutual understanding with our clients.

Communicate effectively

We build efficient communication channels so that both parties have a shared vision of project progress, challenges, and milestones. By leveraging collaborative tools, having regular meetings, and hosting video conferences, we avoid misunderstanding and achieve full transparency.

Establish a project management framework 

Our project managers are dedicated to implementing robust processes and driving efficient coordination. With a focus on effective project management, they define clear roles and responsibilities, establish milestones and deadlines, and utilize advanced project management tools to track progress.

Monitor and evaluate performance

Conducting regular software reviews and assessments is one of our team’s key priorities. We welcome constructive feedback from partners and ensure that any issues or areas for improvement are promptly identified and addressed. This proactive approach, as well as compliance with international quality standards (such as ISO9001, ISO/IEC/IEEE 29119, and ISTQB), helps us deliver impeccable software solutions.

Ensure data protection 

Data security and intellectual property protection are critical considerations in outsourcing. At SaM Solutions, we implement robust measures, including secure data transfer protocols, non-disclosure agreements, and access controls. Our processes are based on international standards, including ISO27001 and GDPR.

Address cultural and time zone differences

Having vast experience working with clients from different countries, we recognize cultural differences and time zone variations. All our team members make an effort to accommodate these differences in communication styles, work practices, and decision-making processes. We strive to establish clear expectations regarding availability and response times, encourage knowledge sharing, provide necessary resources, and foster a collaborative working environment. Our aim is to build a strong partnership based on trust and mutual respect.

Have a contingency plan

We understand the importance of being prepared for unexpected scenarios. That’s why we strongly advocate the development of a comprehensive contingency plan. Our team proactively identifies potential risks and works collaboratively with our clients to establish effective strategies for mitigating them. 

Why Choose SaM Solutions as Your Outsource Software Company?

For 30 years, SaM Solutions has honed its expertise and refined methodologies to deliver custom software development services to clients from healthcare, telecom, manufacturing, automotive, and other industries. We offer a variety of services, from IT consulting and app development to software modernization, testing, maintenance and support. Our proven track record, commitment to excellence, and teams of developers experienced with cutting-edge technologies make us a trusted partner for organizations seeking a reliable outsourcing provider.