The Real Cost of Hiring vs. Outsourcing in Software Development

Dayana Mayfield


Close Banner

Free Template & Financial Spreadsheet

Create your SaaS business plan

Sign Up

Outsourcing your software development is not a bad idea, and it is one of the most significant trends in the IT industry. Most companies look to outsource software development for its cost-effective benefits, but of late, there has been a trend towards outsourcing to get the best talents. According to a CIO survey, 46% of CIOs prefer outsourcing access to a more excellent skill set.

On the other hand, many companies prefer in-house hiring for software development for the sole purpose of better control of resources and processes. So, what should you choose for your next software development project? Let’s discover!

In-house vs. Outsourcing: The Real Deal

In-house development of software is done within your organization. It involves the hiring of full-time developers on-site, with regular remuneration and employee benefits. Apart from the cost of the recruitment process, and hiring, the cost of on-site infrastructure is also substantial.

On the other hand, outsourcing software development will reduce hiring costs, and infrastructure expenses are too low. The only drawback with outsourcing is the lack of control over remote reams and the development process. However, some businesses help with the management of remote teams.

Let’s discuss the pros and cons of both in-house and outsourcing of software development.

In-house Software Development: Pros

Project Expertise

The in-house development team has higher expertise in projects, especially in the specific technologies that you use. You can even train your in-house employees for one particular project related approach and skill set.

It helps the organization achieve error-free products and even offers direct support to clients.  You can hire specialists for your project with salaries and employee perks that will provide expertise. These specialists also have enough experience to provide direct support to the customer as there is only one touchpoint for interaction: your organization. Sustaining these employees can be hard, and that is why you will need tools for employee engagement. 

Instant Changes

With in-house development, you can easily make quick changes in your software with one-on-one communications that can occur quickly on-site. However, rapid changes need proper coordination of resources, even if it’s done in-house. For example, you need adequate communication tools in place to ensure higher productivity.

Greater Collaboration

With in-house software development, collaboration becomes more efficient. Take an example of updating the content on the go, where you need content creators, designers, and developers all in sync for providing the perfect user experience.

In-house Software Development: Cons

Higher Expenses

There are many different expenses that in-house software development can incur, from hiring to infrastructure costs. Apart from the usual outlay, the cost of employee training, collaborative tools, project management tools, and even the price of delays due to employee absence can be much higher than working with a vendor.

Lack of Focus

Employees on the regular payroll may need the motivation to achieve that productivity. For example, you need to offer incentives and other perks to keep the in-house employees engaged, which is not the case with an offshore team. As the vendor takes complete responsibility for the project and an extended team, you don’t need to worry about its execution.

Lack of Skill Set

With in-house software development, you can’t have flexibility due to the lack of multiple skill sets. Let’s take an example of software with a backend based on node.js and a frontend developed with Vue.Js. With an in-house development setup, you will have to hire separate developers for each technology. It will increase the cost and need more time with the employee on the boarding process.

When to use in-house software development?

The right resources

A software development team may be formed of six or more professionals, including senior engineers, a PM or product manager, developers (one/two), a UX (User Experience) designer/architect, a user interface designer, and QA or Quality Assurance engineer so, if you have the right resource, time, energy, and enough budget to recruit all of them, then this your cup of coffee for sure!

It is essential to know that hiring highly skilled and experienced professionals may need significant time and money investment, even if you hire someone to recruit it for your firm permanently.

Complete Control

If you want complete control over software development, then an in-house team is the best option, especially when building off-the-shelf software. Take an example of a Salesforce that has many remote teams worldwide but still has an in-house team to better control its CRM solutions.

Data Security

In-house development is a great way to ensure that the data is kept within the organization. If you are working on disruptive innovation in the software industry, you may not want to share vital data with remote developers. There are ways to ensure security even for outsourced projects, but in-house software development can be safer.

Outsourcing Software Development: Pros

Better Efficiency

One of the most significant advantages of choosing an outsourcing vendor is that you can easily have extended teamwork with an in-house team; this way, you can maximize productivity and focus on the core product. With the in-house team working in collaboration with the outsourcing team, you can be confident of higher efficiency and a better software product.

Competitive Edge

With an extended team of developers, you get a competitive edge amidst competitors. Take an example of creating custom software. The main difference between custom software and off the shelf software is that the customized version has personalized features for users. While off-the-shelf software caters to a wide range of users, the components are standard for all of them.

Risk Mitigation

The most significant risk with software development is launching a half-baked product. With outsourcing, you can leverage MVP or Minimum Viable Product. An MVP is a shippable product that comes with the most basic features. But it is a great way to reduce the risks by constantly integrating the feedback from users with further iterations.

Nearshoring Prowess

There are many types of outsourcing, like homeshoring, nearshoring, offshoring, and onshoring. Homeshoring is all about choosing a vendor in the same country or state. You can select a partner in nearby countries or a region near your headquarters with the nearshoring. While offshoring is all about complete outsourcing of the project to another country.

Nearshoring can be great for your software development projects as it reduces the time zone differences between you and your vendor.


Costing is the most significant factor that prompts companies to choose to outsource software development. About 57% of companies decide to outsource software development due to cost-effectiveness.

When you choose to outsource, the cost of hiring top-tier talents or even infrastructure cost is on the vendor, and with a fixed cost package, you can even limit the budget that suits your project.

Outsourcing Software Development: Cons

Communication in Task Management

Outsourcing teams are often remote, and you will need reliable task management tools to have collaborative communications. Take an example of the Zoho projects that help with the logging of billable and no billable hours. But the fact that you need to invest in such tools is a drawback of outsourcing.

Apart from the normal issue of time zone differences and network problems, dialects can be a potential roadblock in communication. Other factors that you should keep in mind are.

●       Dialect

●       Pronunciation

●       Vocabulary

●       Syntax

●       Accent

Security issues

As you are about to share vital data with the vendor for the project, you need to have robust data security. It can incur huge costs, especially with the type of infrastructure vast amounts of data need for security purposes.

When should you use Outsourcing?

Lack of hiring resources

When there is a lack of hiring resources or you may not have the luxury of spending too much on the recruitment process, it is best to look for outsourcing teams. Even if you think of hiring freelancers, the need to control remote developers for productivity is not that easy, which is why an outsourcing agency can be your best option.

Faster Development

With the outsourcing of software development, you can ensure a bug-free product in a short period. Many outsourcing firms offer an agile approach for software development, which can provide rapid production and incremental iterations.

Multiple Technologies

When you are working with different technologies for the same software, outsourcing can offer many skill sets. For example, you are using various frameworks for the frontend and backend. 

For which, you will need developers of different skill sets. Apart from that, there are APIs or Application Programming Interface that is used for third party integrations. You will also need API developers. For example, you can use API technologies to develop chatbots to help your customer relations. There are tools available, like Engati, that make it easy for non-developers to create a chatbot.

In-house vs. Outsourcing: Difference in cost

In-house development costs

The most significant factor that determines whether to go for in-house development or outsourced development is costly. In-house development will incur costs like recruitment, infrastructure, task management tools, employee training, and other expenses. Though you can use job boards like Linkedin, and others to find new talent and even possible leads; but, the costing part is still higher.

But, these are the necessary costs; the problem starts when you start counting the additional costs. Now, each software, whether off-the-shelf or custom, needs certification and licensing. Taxations and other mandatory fees back up the licensing costs. Apart from these expenses, the company’s cost or CTC for each employee is much higher than an outsourced project.

Outsourcing development costs

When you choose to outsource, the development cost is often derived from three significant engagements.

1. Time & Material Engagement:

Here your vendor will provide time and material for the full project. The only catch with this model is that you are the project manager for the entire project. The project coordination, task management, and productivity are on your shoulders.

2. Dedicated Team Engagement:

Here, a dedicated team takes complete responsibility for the project and assumes management of the project.

3. Fixed Price Package/Engagement:

A fixed price package is usually for short term projects and often involves different freelancers or collaborators.

Apart from these modes of engagement, the bulk of outsourcing costs come from the developer’s fee. Most developers charge on an hourly basis.

The rates of developers or development teams on an hourly basis differ across demographics. Then there is also the consideration of developer experience. From senior level to fresher’s, there is a three-tier system. The rates of these developers depend on which tier they belong to.

Here are the rates for developers for some regions across the world.

●       United States: $39,000 per year – junior, $102,699 – middle, $202,000 – senior.

●       United Kingdom: $19,673 per year – junior, $69,454 – middle, $149,510 – senior.

●       Poland: $8,000 per year – junior, $84,000 – middle, $152,000 – senior.

●       Ukraine: $15,000 per year – junior, $32,000 – middle, $49,000 – senior.

●       Romania: $12,000 per year – junior, $18,000 – middle, $50,000 – senior.

●       Moldova: $10,000 per year – middle.


The best practice for planning software development is to have a checklist of all essential points of consideration. The in-house vs. outsourcing software development list must include advantages, disadvantages, why you need them, and budget. Once you have all the pointers indicated on the whiteboard, just compare them to these factors. It will help you understand both approaches well and let you choose the most suitable for your software project.

Close Banner

Building a product?

Discover the DevSquad Difference

Learn More