Software Development Outsourcing Cost 2024 – Overview

Businesses view outsourcing software development as a vital lifeline that ensures growth. It helps to bridge the skill requirement by hiring talented developers. This model guarantees businesses high quality in software development and cost efficiency, ensures faster deployment cycles, and reduces overhead costs. 

According to a study by India Brand Equity Foundation, 62% of software and backend services are outsourced to countries like India from the US, where highly educated skilled professionals have affordable services.   

Differentiation Between Types of Outsourcing Models 

There are three main categories that businesses prefer while considering an IT outsourcing partner. These different types of outsourcing models include – nearshore, onshore, and offshore software development companies.  

• Onshore – It means that the company is in the same country as the owner’s business.  

• Nearshore – It means that the company is situated in the neighboring country from the owner’s business 

• Offshore – It means that the company is situated in a faraway country then the owner’s business. 
  

 What is the cost structure and pros and cons of each outsourcing model? 

• Pros – These companies have the same timezone and shared cultural background. 

• Cons – Onshore outsourcing is the most expensive option. 

• Cost structure – The labor costs are higher with local outsourcing. In the US hourly rates of developers start at around $60.  

• Pros – It has a better advantage over onshore outsourcing with relatively lower developer rates. 

• Cons – While cheaper than onshore, nearshore is still more expensive than offshore outsourcing. 

• Cost structure – Nearshore developers may charge between $42 to $83 per hour 

• Pros - This involves outsourcing to countries like India and the Philippines, where labor is very affordable.  

• Cons – Challenges can arise in real-time communication due to different timezones and language barriers 

• Cost structure – Developers here charge between $20 to $50 per hour. 

Why Do Companies Feel the Need to Outsource Software Development? 

Businesses want expertise that is not available in their country or city, or they want to reduce spending on hiring costs. Such talent can be accessible from a reliable software outsourcing company. For example, a healthcare startup needs a business app with advanced features to protect patient data. Instead, of building a team of software development experts, the business can outsource this project to a company. It’s what helps companies to re-focus on their main work rather than getting distracted by other things. It also helps reduce overhead costs while the hired dedicated team maintains quality and offers expertise. 

Benefits of Outsourcing: 

• Access to top talent 

• Improving flexibility and scalability 

• Implementing new technology  

• Faster time-to-market 

• Agility 

• Access to tools and support 

Outsourcing and Data Security 

According to TechTarget’s Global Security Report, 43% of businesses consider data security their top concern when outsourcing IT services. 

Data security is a concerning factor for businesses that want to outsource. To ensure that they won’t face any data security challenges in the future, they should partner with an outsourcing agency that has experience in implementing security measures, follows compliance, and has excellent risk management practices. 

Objectives for Outsourcing 

The most important aim for companies to outsource is that it is the best cost-cutting tool. It frees up more funds for other channels and reduces overheads and hiring costs. With an extended software development team, the in-house team is free to focus on core functions while there is no compromise on quality. It also uplifts flexibility in projects while driving innovation and productivity. 

Factors That Influence the Global IT Outsourcing Market: 

Cost Efficiency 

Outsourcing helps businesses save costs as operational expenses are reduced. Direct costs, such as hiring a developer or an extended development team, are more affordable than hiring an in-house team. For example, hiring developers from regions like India and the Philippines can be cheaper, from $25 to $50, as compared to charges of hiring developers from advanced countries, where they charge $50 to $150.  

Businesses can save considerably by paying for productive hours and avoiding the expenses of hiring and maintaining a recruitment team. 

Here’s an example of how companies can save their operational costs with outsourcing. Take, for example, a company that was able to avoid $600,000 in house costs that arise from salaries, benefits, infrastructure, and overhead. Instead, the cost of outsourcing was half the total expenditure, between $290,000 to $300,000, which covered everything from direct payment to the external dedicated team for development, management fees, and other expenses without even compromising on the code quality as companies like clarion technologies uses agile and best practises to ensure the code is bugfree. 

Tech trends and AI integration  

Businesses want to modernize and be at par with futuristic technology like AI and machine learning. This emerging technology implementation will help them put in place automation reducing time, effort, and saving cost. It will also help them to improve decision-making, while also helping them improve and upgrade the customer experience. 

With AI-driven analytics, companies can save up to 20% on operational costs. Building AI algorithms and deploying chatbots are examples of improving productivity and efficiency. 

How Clarion Helps Clients In Saving Cost 

After developing a custom website for shoresummerrentals , the developers helped the client in optimizing web solutions. The client offers quality shore rental online based in the US. The developers optimized their Google Maps integration, which previously cost around $700 per month, implanting user-initiated map view, reducing the loading burden, and cutting down the cost to $50 per month during peak sessions. This customized approach ensured strong functionality and huge cost savings for the client.  

Read the complete Casestudy 

Software Outsourcing Costs and Rates: Global and Regional Comparison  

Businesses need to evaluate their offshore outsourcing options; it is crucial to understand the software development rates across different regions. Also, while outsourcing cross check the past work and expertise of the development team. They must examine the challenges and advantages of outsourcing to different locations based on cost, talent availability, and software development needs. 

Eastern Europe 

Eastern Europe has advanced infrastructure because of its highly development environment. The region boasts a strong talent pool with countries like Ukraine, Poland, and Romania and top-tier talent with tech expertise and command over new programming languages like Java, Python, and C#. 

In Coursera's Global Skills Index rating, Eastern European countries rank among the top in technology skills. The developer rates in Eastern Europe are between $50 and $150. This region has high rates of English proficiency, with countries like Poland having 70% of IT professionals who speak English. The region has a growing market and an established tech hub, making it a reliable destination for outsourcing. 

Central, Western and Northern Europe 

This region includes some of the most developed countries like Germany, the Netherlands, Sweden, and Switzerland. In these countries, there is a high cost of living; hence, the developer rates are $50 and $150. These are advanced countries with high economies. These regions offer cutting-edge technology and minimal time zone differences from Europe and North America.  

 Asian Region 

The region has countries like India, China, and Vietnam dominating offshore software development. This region has a huge population, which has resulted in large tech talent availability as compared to other regions. The standard of living is moderate as compared to developed countries. The rates of developers here range from $25 to $50 per hour. This is a lucrative opportunity for businesses that want a choice that is affordable.  

 India Outsourcing Market: A Detailed Overview 

 Competitive costs 

India offers competitive rates for outsourcing software development, but there is a perception that low costs lead to low quality. But this is a myth because many top-tier companies maintain high standards and deliver high quality. 

 Managing the Time Zone Difference 

Time zone differences in India and Western countries can be effectively managed by setting up clear communication protocols using collaboration tools and overlapping work hours. This is adopted by many outsourcing companies in India, with flexible hours of work time, which helps mitigate the impact of time differences.  

Check how Clarion Contributed to the success of Inetz Corporation, a full-service IT services provider and web application developer, with zero downtime and unsolved technical issues. 

Cultural Compatibility 

Cultural differences can impact work style, habits, and expectations. To blend and make a balance between these differences, outsourcing companies emphasize on improving their understanding of culture through training to ensure smooth project management.  

 Language and Communication 

English is widely spoken in India. However, the accents or industry-related jargon can vary. Communication challenges can be overcome with discussions, clear communication practices, documentation, and patience during initial practices. 

Low Attrition Rates 

Partnering with firms that have low attrition rates is key to mitigating this issue of high specialist turnover rates. In Clarion, while there is a low attrition rate, there is also a defined mechanism of succession planning; this ensures replacements can step in without disruptions in project timelines. 

Key Factors to Consider While Selecting an Outsourcing Company : 

Required Expertise 

While businesses look to outsource software development, the critical factor is the expertise they require. Businesses must be sure that the companies they approach have the expertise that meets their demands. This also involves their knowledge of programming, frameworks, and industry-specific technologies.  

Take, for example, a company that wants developers to have expertise in machine learning algorithms, data science, and advanced analytics. This is where it will make a great difference when the business opts for an IT outsourcing company with this expertise.  

Project Scope and Complexity  

The project scope and complexity are other vital aspects businesses must consider when choosing an outsourcing partner. More complex projects like enterprise-level software, multiple integrations, and regulatory compliances need experienced developers.  

Defining the scope of the project helps in making a clear distinction in developing a full project, MVP, or feature. This helps in aligning cost, resource allocation, and timeline. This helps outsourcing companies to meet deadlines, maintain quality, and handle or prevent problems in the future. 

Technical Complexity 

This involves software architecture, programming languages, and system integration. Projects with high technical complexity require deep technical understanding and knowledge. For example, handling AI models may require skilled developers and a robust development process. It also requires developers to have a strong problem-solving ability and understand the software’s infrastructure and functionality. 

Functionality  

Functionality deals with a variety of features within a project. A highly complex project might involve multiple user roles and data processing. These things need careful planning and sophisticated coding. High-level functionality is used in developing multi-layered e-commerce platforms with payment integration, inventory management, and user personalization. Addressing this requires developers to thoroughly understand user requirements and system interactions to deliver a smooth and intuitive experience. 

Can Your Business Benefit by Outsourcing with Increased ROI? 

All businesses want to increase their ROI, which is the ultimate goal. This can be achieved with various tactics of cost savings or employing productivity improvement measures. 

A recent study by Deloitte states that outsourcing to India helps businesses save up to 70% of costs. The total cost of developing software is reduced by 50%, and they see an increase in operational efficiency of 30-40% faster time-to-market. 

Why Choose Clarion Technologies for Outsourcing? 

Clarion Technologies has a very unique delivery model known as Virtual Employee (VE). It offers businesses flexibility, speed, and top-tier talent. It's designed to provide a fast-paced environment to eliminate the risks of quality control issues and project delays. It ensures easy integration with your in-house team. 

Here are the unique features of the VE model 

• Extensive talent pool with the top 1% of developers 

• 100% IP security with adherence to GDPR compliance 

• Easy scale-up or scale-down for project requirements 

• Full-time tech developers with a free part-time supervisor and an auditor  

Conclusion 

In 2024, partnering with a custom software outsourcing company will help businesses in accessing top talent from remote locations. It also helps them improve cost efficiencies and build a competitive edge. By outsourcing to experienced partners, businesses can focus on their core activities and adopt cutting-edge technologies like AI, cloud, and web development solutions.  

Outsourcing offers flexibility, a solution to global talent shortage and provides a quick way to adopt to changing market dynamics.