Calculate Software Outsourcing Costs In Full Details (PART 1)

This guide aims to clarify any software outsourcing costs issues and doubts, help you analyze outsourcing costs, calculate outsourcing costs, and provide you with some fantastic tips and strategies to help you save more outsourcing costs.

For entrepreneurs, everything is about starting, launching, and expanding new businesses within budget. Outsourcing is a cost-effective way to gain expertise without wasting financial resources.  However, most entrepreneurs still have their ban on outsourcing software development to other countries.

Hence, understand your outsourcing costs, calculate your return on outsourcing investment with tips and strategies for reducing outsourcing costs are essential. Let’s get started!

Chapter 1: Cost overview

software outsourcing cost

Understanding the cost of outsourcing is a prerequisite for successfully signing an outsourcing contract. In fact, when planning to outsource IT services or development for many companies, the first thing they think of is the cost of outsourcing. It is now generally accepted that most companies outsource to save costs.

Source: Classic Informatics

To understand how much you save, it is important to understand the cost of outsourcing from the inside out. But before we talk about outsourcing costs, let us first understand some overwhelming statistics about outsourcing costs.

Proven statistics on outsourcing and cost reduction

Outsourcing is not a new technology, but it has been used in industry since the 1960s; it has grown into a mammoth in the past half-century. Let’s start with a study by Gartner to understand it better.

A study by Gartner found that in 2011, global IT outsourcing spending exceeded the benchmark of $300.7 billion. After adjusting for growth, by 2015, this global expenditure should increase by 4.4 GR. From 2019 to 2022, there is an increase of 4.42%.

The need to increase the limited budget of entrepreneurs and the increasingly digital transformation of the company’s industry are key drivers of outsourcing tendencies.

Why can’t you calculate the actual outsourcing cost?

Some companies are essentially organized and data collectors. They know the importance of analyzing the operating costs of their business and can compare the two estimates if it is you. Congratulations! You already have a competitive advantage.

But for those of us who need to put in more effort, let us briefly discuss the challenges companies face in outsourcing costs.

Before you start outsourcing and study outsourcing costs in more detail, you should pay attention to your ongoing costs. One of the biggest obstacles companies faces when outsourcing is their low-cost awareness.

What is this?

Low-cost awareness: This is the inability to understand the true cost of ownership at various levels (such as processes, products, and activities).

Understanding cost is not the only obstacle to calculating cost-there are many other obstacles. Some of the other problems most organizations face are:

• Poor data collection
• Difficult data analysis
• Lack of collaboration

They are also problems with correct cost estimation and will hinder your success when outsourcing.

Lack of complete information about operating costs may prevent you from understanding the true cost of outsourcing. Before considering outsourcing to cut costs, you need to calculate the actual cost of operating your business.

software-outsourcing-costs

Chapter 2: Software Outsourcing Costs

Outsourcing is an effective way to reduce operating costs! We have revised this number many times, but many companies are still unsure of the actual cost of outsourcing.  Although some people say that the cost of outsourcing is the amount you pay to the supplier based on the quotation, others prefer the possibility of outsourcing and additional costs.

To break down the cost of outsourcing, let us look at the actual outsourcing cost, the bills associated with the company, and the hidden costs.

outsourcing cost

What are the direct software outsourcing costs?

If you outsource IT, Web development, or other services, how can we gain a deeper understanding of the cost of outsourcing without knowing how much we need to pay in advance? These are the main components of outsourcing costs.

Salary or check

Cost is mainly the remuneration or salary you pay to remote developers or the team you hire to develop remote products. Depending on the needs of your project, you may need to hire a developer to work on your project with your own company or your entire team, or even hope that another company will manage all product development.

outsourcing cost

We are outsourcing product development. What are the costs included in it? Let’s find out.

Hire a single/free developer

You can hire a developer, full-time programmer, or programmer to work for your project for hours, months, months or sign a long-term contract as needed.

When is the best time for you to hire developers?

• You need someone to meet your specific technical needs
• Expert needs for the project

You can save all the money you get by paying only the time remote developers work for you. Otherwise, you will have to spend some time and rest when the internal developers are not working. This is the cost that you might have to pay for hiring a remote product developer from Vietnam. The cost is only $20 per hour, and the maximum is $45 per hour. For other countries/regions, the cost may range from US$50 to US$150.

Learn more: Hiring International Tech Talents – Why, Where and How?

Hiring a completely remote team

If you are looking for a team to develop or design a specific part of a product, you can hire a remote team, which can be your complete team, including developers, designers, evaluators, QA and QA managers. … Design. Or equipment used for specific tasks (such as design, development, etc.). You can form a team to carry out comprehensive work abroad or form a team to extend your internal team. A dedicated team is part of your internal team, just working in different locations. They can set your salary and use the skills they bring to the project.

When should a complete development team be hired?

• It would be best if you had a dedicated team to handle complex projects
• You want to include a team of experts as an extension of the internal team

Get a complete product team, and everyone develops from the outside Personnel to internal team housing developers, quality maintenance analysts, and support, complete equipment, etc., can reduce costs. You don’t have to hire experts from any field alone, and you will get a team that understands all the professionals you need.

View more: What does it take to manage an offshore team?

Complete product development

In this process, you will join a company that will fully manage your project or product development, from brainstorming to creating an MVP and launching it after being tested by a hosted project.

When should product development start?

• It would be best if you built a complex product or software architecture.
• From product ideas to development, implementation, and expansion, you need a partner.

You only need to provide your ideas and your specific details to the company that wants to integrate the software. For managed product development projects, you need to submit requirements, obtain a quotation from an outsourcing agency, form a team, and complete the design. You can even assign a project manager, so you can even save on product development management costs.[/su_box]

Read more: A complete guide to benefit from MVP Development

What are the hidden costs of outsourcing software?

Do you think you have everything in the tabs? Have you considered the cost of hiring developers and obtaining a complete outsourcing contract? Does the invoice include the cost of choosing an outsourcing company?

You may overlook the time cost of knowledge transfer that the new team needs to adapt to the project!

Although most people think that paying the project cost of an outsourcing company or paying remote developers is the only cost they will incur, you should also consider other costs.

There are many costs hidden in your outsourcing contract! Let us explain some of the hidden:

• Employment costs
• Transfer or transfer of knowledge costs
• Server management costs
• Outsourcing contract drafting costs

Maybe you want to read: Hidden costs of mobile app development

Reliability is one of the elements to make the best decision! Hence, we shall show you our reputation via Our Case Studies.

Continue to read chapter 3 and chapter 4: Outsourcing Cost Vs. In-House Cost: How to analyze and calculate right?

In case you want to hire offshore development center with InApps Technology, contact us.