How to Calculate True Cost Savings from an Offshore Development Center

Every CFO evaluating an offshore development center starts with hourly rates. That is a mistake. The true cost comparison is more complex — and when done correctly, the ODC ROI is even better than the raw rate comparison suggests.

The Naive Model (And Why It Fails)

Naive model: "A US senior engineer costs $150/hr. A Vietnam senior engineer costs $40/hr. We save 73%." Reality: this ignores setup costs, management overhead, ramp-up time, productivity curve, and quality risk.

The True Cost Components

Fully-loaded cost per engineer (US): Base salary ($180K) + benefits (30%) + office + equipment + recruiting = ~$280K/yr per senior engineer. Fully-loaded cost per engineer (Vietnam ODC): Base salary ($35K equivalent) + partner margin + operational overhead = ~$75K/yr. True savings: ~73%.

Setup and Ramp Costs

First-year costs include: ODC setup fee (one-time), legal and compliance work (~$5K), ramp-up productivity loss (estimate 60% productivity for weeks 1–6, 85% for weeks 7–12, 100% from week 13). On a 5-person team, these setup costs typically represent 10–15% of first-year savings.

The ROI Calculation

For a 5-person senior engineering team: US equivalent fully-loaded cost: $1.4M/year. Vietnam ODC fully-loaded cost: $375K/year. First-year savings (after setup): ~$800K. Year 2+ savings: ~$1.025M/year.