Table of Contents:
- What is outsourcing software development?
- Major service models in software development outsourcing
- Why it might be a good idea for your startup to outsource software development
- Along with the opportunity comes the risk
- Freelancers or software companies?
- Key destinations for software outsourcing in 2023
- How much does outsourcing software development cost?
- Cooperation management
- Software development outsourcing challenges
- Can ChatGPT help here instead?
Outsourcing software development has become increasingly popular among startups looking to streamline their product development process. By leveraging the expertise of external professionals, startups can reduce costs, increase efficiency, and focus on core business activities. However, before embarking on the outsourcing journey, it is essential to consider several critical points to ensure a successful partnership and achieve the desired outcomes.
In this blog article, I’ll explore 10 key points that every startup should consider before outsourcing their product development in 2023. We will cover topics such as the different service models available, the advantages of outsourcing for startups, factors to consider when selecting outsourcing partners, and the challenges involved. By understanding these crucial aspects, your startup can make informed decisions and maximise the benefits of outsourcing software development.
Point 1: What is software development outsourcing?
In the simplest way, software outsourcing means hiring a development company or a freelancer capable of taking care of the whole software development service in order to help you achieve your advancement goals. Thanks to transposing some of your duties onto a specialised in this field third party, you ensure yourself that the work will get done smoothly, quickly and according to the best standards in the industry.
Nowadays, one has such a great variety of choices and services available that it is difficult to actually make a choice. There are many pros of going up this path, such as reducing costs and increasing efficiency of the team. Of course, nothing is ever only bright coloured, there are also a few risks or disappointments waiting for you down this alley. This may be especially troublesome when it is your first time considering hiring a third party in order to develop for you.
Imagine that choosing a software development company (or a freelancer, we will talk about it later on) for your project is much like choosing the right hairdresser. You should do some investigation first; otherwise, you may end up really unhappy.
Start with looking at their previous works, reading people’s opinions and double-checking everything before you decide that they are a trustworthy professional team. This can save you a lot of worries and even more money.
Point 2: Major service models in software development outsourcing
Outsourcing software development means mainly a few main models, which can be looked at from two different perspectives. You can either analyse it according to the forms of cooperation (project-based outsourcing and staff augmentation outsourcing model) or the forms of compensation (Time & Materials and Fixed-Price models). Let’s have a look at the first division.
Forms of cooperation
Project-based outsourcing is a model that gives the in-house software development company a lot of flexibility to plan and execute (usually the whole of) the project while the customer simply worries only about the end result.
This means that it is the development team that takes care of the whole of the project or its coherent definite part. It can be either, for example, an entire PWA app, website etc.
What is very important in this model is that the client does not have to provide any technical input or support. He can focus on the business and marketing without having to worry about the management of all the small steps and early stages of the project.
Staff augmentation is a model that aims to reinforce the core competency of your in-house staff with specialised software developers that will become a fully incorporated part of your team. It requires the client to manage the whole project. This means that the software developers will simply do their job without much possibility of providing you with innovations or unique expertise except for the stated area of their responsibility.
This model is especially useful when you do not want to hire any new employees permanently and already have some ‘technical’ personnel in your team, yet their time is limited by other day-to-day tasks. Such a mix of in-house staff overseeing the job of the outsourcing programmers can be truly miraculous. In the staff augmentation model, the hired company does not have that many responsibilities compared to the project-based outsourcing.
Forms of compensation
The other possible way of distinguishing between different types of outsourcing models is the ‘money-based’ focus. We’ll discuss the Time & Materials and Fixed-Price models, but if you want to learn more about pricing models in software development, read our article that covers that topic.
Time & Material model
The time and Materials (T&M) model relies on the so-called ‘costs of resources’, that is, developers’ hourly rates (their salary) and the additional costs of materials.
In this particular situation, it is important to focus on the milestones your outsourcing team meets on the way, not the fixed price for the whole project. After each one of these steps, you should thoroughly analyse it. Go through the number of hours and multiply it by the earlier agreed hourly wage (time) and add to it any additional costs of materials. This way, you can be sure of what exactly you are paying for and, at the same time, have better control over your project.
It is a very elastic model because, despite the earlier estimates, you pay only for hours worked.
The Fixed-Price model guarantees you a fixed amount of money you will have to pay for your project. Notwithstanding the overtime, you can be sure that your budget will not change.
What you need to know is that at the very beginning, you must undergo a very detailed specification of your project in order to be able to predict technologies used, the very amount of hours the programmers will need for each feature and set the fixed sustainable price.
This model may not be the best choice as such analysis is a long process not always done right. Within most of the projects in the industry, there are at least a few highly dynamic changes one has to implement along the way. Due to the fact that one has to plan a few months’ work and analyse very many factors, there is a high risk of having to change or redirect the initial assumptions. It can be caused by changes in the market or things that affect all of us globally – for example, the coronavirus pandemic. Overall, just like in everyday life, it is really difficult to be able to predict every possible scenario that may happen.
In the end, barely ever a ‘fixed price’ is truly the ultimate fixed price. Despite all these facts, the Fixed-Price model is a good idea when your project is rather small and very well defined – for somewhat 2-4 weeks of developers’ work. However, you need to be aware of Fixed-Price contract risks and challenges that we describe in one of our articles.
Point 3: Why it might be a good idea for your startup to outsource software development
If you run a start-up, a unique contemporary business, it is usually quite small and without a team of developers of their own. The term start-up usually refers to an entrepreneur company at the first stage of its development aiming at promoting a new product or unique service. It is very often initially funded by the private money of the families, friends and the owner himself.
Nowadays, most of these early-stage startups are based on the Internet in many ways, as usually, when you want to sell your product successfully, you will need a website with features enabling transactions, smooth payments, communication with your client and many more. Recently it became even more popular for business owners to add to all the mentioned features and also a mobile app which will improve the whole process and make it more pleasurable for your clients. And this is exactly what outsourcing software developers will do for your start-up.
A software development team will take care of the technical side of your idea (website, mobile app etc.) and will make it look just like you have imagined it. Moreover, you will not have to create a development team of your own (an in-house team usually comes with greater expenses, logistics and certain risks).
In order to achieve all the stages of the app or web development process, with no unnecessary time loss or pain of having to learn and do it oneself, one should hire a dedicated team of developers and designers to do custom software development for them. Probably the biggest advantage of development companies is that you can partner with them for long-term cooperation or for a one-time run. It is very important as not only are your requirements met (with a product that is developed by people with great experience and expertise), but also you and your assumed co-founder have the freedom of ending the cooperation after the end of the agreed fixed-time contract or the project itself. You should see our article on the Pros and Cons of Outsourcing Software Outsourcing to find out more about the benefits of outsourcing software development.
In the case when you want your software project to be of outstanding design and have some more advanced features, you should seriously consider software outsourcing for a start-up and hiring someone from the outside. We promise that it will pay you back in the future with an outstanding product.
Point 4: Along with the opportunity comes the risk
Nothing is ever black or white, we always balance on the greyscale. This is why it is really important to make a wise choice and know what risks and what conveniences come with such a solution when the startup outsources software development.
On the one hand, software development outsourcing is very convenient for many businesses. You can find some very skilled programmers that will bring a fresh view to your team and will not be too expensive at the same time.
On the other hand, you can also come across some developers without expertise in your domain or with poor knowledge of the particular technology you’d like to use, who will turn out very pricey (especially if you will have to hire somebody new in order to clean up their mess). If you wonder where to find the best app developers, read our article in which we give you some tips!
Point 5: Freelancers or software companies?
When it comes to outsourcing software development, you have two main options. You can hire a freelancer, an independent programmer. Freelancers are known from their down-to-earth prices but often specialised in particular niches. So if your project is small or you need someone with specific skills – this option may suit you well.
The second (and probably more reliable option) is hiring a software development company. They usually consist of a team of highly skilled and experienced people who strongly rely on teamwork and mutuality. They can easily substitute for each other. However, they may be a little more expensive when it comes to simple projects. But if you’re working on a big project or need to collaborate for a long time, they’ll give you a lot of value for the money you spent.
To help you make a decision, we created a separate article about hiring freelancers vs software outsourcing companies in which we compare two types of software outsourcing. Read it and weigh the pros and cons thoroughly and see which kind of cooperation better suits your business needs before hiring anyone.
Point 6: Key destinations for software outsourcing in 2023
Nowadays, there are thousands of companies providing outsourcing services which are located all over the world. As many developed countries lack specialists in this field or their assistance is simply way too expensive, the only reasonable way for them is to look for help somewhere else. But you may wonder where to find those skilled and dedicated app developers. That’s why Mike wrote an article that will answer your questions.
Choosing the location wisely is a highly important matter as the quality, price, communication level, and many more vary to a great extent from one country to another. We analysed even more bullet points and useful criteria for you to consider, such as geographical or cultural proximity, the time zone difference and educational background, in our article about Onshore, Offshore and Nearshore outsourcing.
However, we need to underline that these are only estimated assumptions that are not always true. In every country, there are many people and companies that go beyond the area and provide software outsourcing on a level that is way above average statistics.
Point 7: How much does outsourcing software development cost?
Rates of software outsourcing depend on many factors, such as location, the size of your project or the technology used. So, what about some real numbers? Let’s take a look at the statistical average costs of mobile app development for 2023, created by Clutch.
- Ukraine – $25 – $49 per hour
- Poland – $50 – $99 per hour
- United Kingdom – $150 – $199 per hour
- India – <$25 per hour
- Philippines – $25 – $49 per hour
- United States of America – $100 – $149 per hour
- Mexico – $25 – $49 per hour
- Canada – $50 – $99 per hour
- Australia – $100 – $149 per hour
There are also some other features that may influence the hourly rate proposed to you by the outsourcing company.
Level of expertise
Big companies and tech startups usually try to group the developers on the market based on their experience. However, given the junior/mid/senior categories, it is rather difficult to give judgement on the exact boundaries between these classes. They may also be very unreliable (from the point of view of the employer) and unfair towards many programmers and their skills.
When it comes to the hourly rates, usually, the bigger the experience and abilities, the higher the rate. However, it is important to remember that senior developers from established companies tend to work quicker due to their technical skills and industry knowledge. This means that even though you pay more per hour, the work on the project will get done quicker, which equals a lesser amount of hours you will have to pay for.
Overall, though, it is definitely best to combine developers of different levels of expertise in the same team. It will pay you back with fresh ideas, proven technologies and a more optimal price. To make the long story short – less complex and repetitive tasks can be done by the junior members of the team, more challenging ones are definitely a perfect fit for mids, and the overall architecture and coding quality can be ensured by seniors.
For a more in-depth breakdown of pricing ranges based on skill levels and other factors, see the comprehensive raport by TechReviewer. In this research, they thoroughly analyse the opinions, attitudes, and expectations of software development companies when it comes to their pricing strategies. Whether you belong to a software company, are a potential client, or work in industry analysis, this report offers a valuable source of information customised to meet your specific needs!
Scope of work
In outsourcing software development, you should not be scared of your idea for a project and if you have a great concept with some neat (yet affordable) designs, just go for it and hit the developers up. If its composition, the actual size of the project or anything else turns out too pricey for you, the outsourcing company or the freelancer will help you to cut the costs. They can do so through, for example, the use of different technology or some ready-to-implement mockups, which significantly lower the number of hours they have to spend on coding.
The price of startup outsource software development also depends on the very geographical location the company is from. You may not want to choose the countries where the costs of living are rather high as it increases the hourly rate to some enormous numbers. Such places are usually the most developed countries. This is why one should seek software developers somewhere where there are lower costs of living and English (or your target language) is widely known at a high proficiency level.
Such places, usually located in Eastern Europe, provide you with service on the same level but simply cheaper. The educational background is usually very similar to the more expensive outsourcing areas. Actually, European universities place pretty high in the rankings, and their alumni programmers sometimes climb even higher.
Type of service/technology
The type of service and technology used within a project may also affect the price. Sometimes the exact choice of tech stack saves the time the developers spend on your project, which literally converts to the lesser amount of money you pay in the end.
For example, using a hybrid mobile framework, such as React Native, is a great means that, thanks to having one codebase for two platforms (iOS and Android), the developers spend less time on your project. That equals a lesser amount of hours you have to pay for. Another example of cutting expenses in an easy way is using templates or any other kinds of ready-to-use components that cut down the amount of coding the developers have to do for you.
Point 8: Cooperation management
There are also some unmeasurable things that can also slightly affect the overall cooperation with the developer. Some of such features are:
Complexity of the project and Innovations
Developers are more than happy to apply innovations and modern technologies (but battle-tested ones!) in practice. From the developers’ perspective, the greater the challenge, the more interesting the project.
If you would like to include a technology that developers don’t know just yet, don’t worry! It’s the software house’s role to train developers (who are usually more than willing to learn new skills) or to hire required specialists. While employing a reliable software company, you can rest assured that they will provide a well-prepared final product and take care of the necessary resources.
If participating in your project will make them proud, your cooperation may be very fruitful from the very beginning! Who would not want to take on a challenge which, at the same time, will be a walking advertisement of their skills?
It matters to the software outsourcing companies if your software project will be successful or not. They do what they can to make your dream of conquering the market come true. Why do they care, you think? Because your success is also their success. Developers will joyfully put some mockups of your app or web design in their portfolio (with your consent, of course!).
Why should you agree to showcase your app in their portfolio? For two main reasons. First of all, that assures you that they do all they can to make it successful. Therefore, both parties, you and they, can be proud of your co-achievement. The second reason is simple – you’ll get a free promotion of your app and another backlink to your website (so you can gain some SEO benefits!).
To sum up, if you make the developers believe in your project, they will do their best to help you achieve the best results possible.
Point 9: Software development outsourcing challenges
Employing someone to work for you remotely means not seeing them often (if ever). In some cases, this may lead to difficulties with checking up on your outsourced developers and their progress. Of course, it depends on the very person you work with and the things you agree on at the very beginning. That’s why we always advise getting to know each other well and checking whether there’s chemistry and good vibes between both parties before we start the cooperation.
The outsourcing partners of software development companies are usually very flexible when it comes to calls, group chats and other forms of communication and make sure to update you on their work each week. This is why you should set your priorities clearly.
Nowadays, the Internet era makes everything possible, and as communication is the key to great cooperation, you may want to give some more thought and attention to it. If you decide on your communication channels, for example Skype or Slack, to check on your developers’ sprint backlog and the pace of their work every week, and they agree on it – so be it!
The possible problem one may encounter is the level of English (or any other language you wish to communicate with your team) of a developer coming from a foreign country. This is one of the things that should be checked at the very beginning, as it is really difficult to communicate via Google Translate.
So, if your first language is, for example, German and you wish to use it with your team, it is important to ensure that at least one of the outsourcing developers will be able to speak and write it fluently. Of course, the better the knowledge of a non-English foreign language, the more likely the hourly rate will be (slightly) higher.
One other thing we thought was also worth mentioning at that point is first impression. If you talk to your potential outsourcing partner, pay attention to their attitude towards work. You will probably see if they are excited about taking up your project or whether it will be a pain to work with them. But remember, it works both way – being kind and communicating your needs properly can make the cooperation proceed smoothly.
All these points above, regardless of being based on some soft unmeasurable skills, make it easier for you to get a good developer to take care of your project. Sometimes even though they are busy, they will happily squeeze into their schedule something that is innovative, fun-composite and very toney.
Point 10: Can ChatGPT help here instead?
If you’re thinking of outsourcing software development in 2023, you might be wondering what place Chat GPT takes here and whether it can help you build your software product. Indeed, as you could have seen on the internet, ChatGPT can generate code in response to your requirements. In some cases, it can even output code of acceptable quality.
However, does it mean you can “hire” Chat GPT instead of a professional software developer to build your product? As real-world practice has shown, even more often Chat GPT outputs a code of poor quality, which requires reviewing & optimising by an experienced developer. This, in turn, means additional time and effort from a software developer.
And from our experience, it often turns out that optimising the code output by ChatGPT takes longer than writing the code with your own hands from scratch. You should also be extra careful when looking for bugs, since ChatGPT is pretty good at “hiding” them in the code output.
As one of our developers has said, using ChatGPT for writing code is like working with a junior developer who despite having a great store of knowledge from the past, also lacks common sense. Would you hire such a specialist for building your product?
In addition to the issues related to code quality, there are several other considerations to keep in mind when using ChatGPT for software development:
- Data privacy concerns: It’s important to note that any information you provide to ChatGPT might become public. In many companies, the use of chatGPT is already prohibited due to privacy concerns. For example, Samsung recently banned its employees from using ChatGPT after detecting a data leak. It seems like the only way to be 100% sure your data is safe is developing or buying your own AI tool exclusively for your own use.
- Limited knowledge base: ChatGPT itself acknowledges its “limited knowledge of the world and events after 2021.” This means that it does not have access to the most up-to-date information, innovations, or technologies. Consequently, relying solely on ChatGPT may lead to incorrect outputs or outdated insights.
- Copyright issues: Even if you manage to obtain code generated by ChatGPT, it raises questions about copyright ownership. Imagine launching a great app only to discover later that someone claims you have used their code… This concern extends to texts, images, and code generated by AI tools. There is still no legal regulation regarding copyright in the context of AI tools, which further complicates the matter.
Summing up, using ChatGPT is definitely not a good option for generating the production code. However, if used wisely, it can potentially help the development team speed up the process of developing the software.
If you’re running a startup or are a tech leader, outsourcing development can help you save money and develop software faster. Even though it can be tricky, you can tackle the challenges by setting clear goals, communicating effectively, and monitoring progress.
Software development outsourcing can help you tap into a pool of talented developers and accelerate your business growth, but you have to make the decision wisely. In one of my previous articles, I’ve listed out 16 tips on how to choose the best software development company.
If you’d like to get a consultation about the product development outsourcing – feel free to contact us with the use of the contact form!
Since 2016 Mike has been helping international companies to gather and analyse requirements for their apps-to-be and guides them through the first stages of the development process. He aims to help our clients reach their business goals by focusing on their target groups.
Having such a background, Mike shares his knowledge to help companies choose the best software developer that suits their needs.