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The best value for money in software development outsourcing

28.08.2017

Software Mind

Some believe that software development outsourcing is all about finding the cheapest contractor and the lowest price is by far the most attractive feature of any IT outsourcing provider. However, the truth is that in the year 2017, more often than not, companies interested in outsourcing do realize the dangers of prioritizing low cost. Instead, they set off to try find the very best deal – one that can bring the most benefit out of each dollar they invest. So, how do you go about finding the best value for money in software development outsourcing?

Does it always come down to money when it comes to software development outsourcing? Even if it’s true, what does it exactly mean?

If you want to save money with software development outsourcing...

Whether it is to expand the team, build a new application for a startup or acquire missing software development capabilities, for years the clients of outsourcing providers have been prioritizing price when making a decision as to who they should should entrust their projects to. It’s tempting, considering just how much the costs of acquiring labor vary among countries that typically engage in outsourcing as both clients and contractors.

But if a company that provides software development outsourcing services for you essentially does what your internal team would have had to do if it wasn’t for them, is it wise to suddenly switch attention from quality to price when outsourcing is involved?

… stop trying to

Of course, not. Fortunately, as changes on the list of the most popular outsourcing destinations suggest, more and more companies seem to agree as they replace low cost with best value for money as their most desirable trait in an outsourcing provider. What’s even more interesting, this switch in attitude ultimately allow them to save a lot of money. How?

  • Focusing on value for money compels the clients of outsourcing providers to seek results-driven models of cooperation rather than those based on rates. Actual results may even become basis for payment schedules, replacing upfront fees.
  • More capable developers obviously tend to produce code of better quality, which translates into more scalable projects that can be more easily taken over by another team and built upon.
  • Companies interested in software outsourcing are becoming increasingly adept at realizing the hidden costs of security negligence and are willing to spend more on data and application security to save themselves troubles in the future.

Where to find the best value for money in software development outsourcing?

Now, that we established that it is the best price-to-quality ratio, not the price alone, that should determine the choice of an outsourcing provider, we’re left with another question – how to pick the best place to search for it?

Let’s compare the prices of software development outsourcing in a number of cities from all over the world. Then, we’ll be able to roughly estimate the price-quality ratio based on available data and other information regarding the quality of software developers in each of these countries. In order do it, let’s make a few assumptions that will simplify our calculations:

  • The total yearly cost of hiring a software developer is about 1.5 times bigger than their salary alone.
  • The hourly cost is the total cost divided by the number of working hours per year.
  • For the purpose of this calculation, the yearly number of working hours will be 1700.
  • We’re looking at average rates for a software developer with 5 years of experience.
  • All rates and amounts are stated in American dollars based on data from PayScale.

City                 

Yearly Salary Cost    

Total Cost    

Hourly Cost   

New York

115000

172500

101,4

Chicago

85000

127500

75

London

110000

166500

97,9

Paris

65000

97500

57,3

Lisbon

65000

97500

57,3

Berlin

82000

123000

72,3

Oslo

75500

113250

66,6

Warsaw

29000

43500

25,5

Lahore

12000

18000

10,5

New Delhi

11000

16500

9,7


For an average New York-based company interested in software development outsourcing, hiring a company from another country that has similar living costs, such as countries from the Western Europe, for purely economical reasons makes little sense. The total cost of hiring a software developer is so similar that, when accounted for the additional outsourcing profit margin, no meaningful savings can be made. Getting a team from India or Pakistan is a great way to save a lot of money – even when accounted for outsourcing margins, the difference in hourly rates is astounding. However, since the quality of developers vary a lot, a potential client is risking quite a lot.

On the other hand, places such as Warsaw (Poland) and the Eastern Europe overall are considered about equal in terms of software development capabilities to any country on the list above. But since the costs of living are much smaller, so are hourly rates of software developers. As a result, a company interested in outsourcing software development to Poland has a great chance of finding excellent developers at a reasonable cost, getting an unusually great value form money.

While the calculations we provided are quite simplified and it is surely possible to find great developers just about anywhere, the results should provide good guidelines for companies in pursuit of the best value for money in software outsourcing. As being cost effective continues to overcome being cheap, software houses that provide value for money will keep on expanding. Today, you still get a chance to get on board before everyone knows about it.

Software Mind is a leading Polish software house that strives to bring excellence to the world of software development outsourcing – both through great developers and caring approach to all the common problems experiences by our clients (see our outsourcing toolbox). If you’re searching for the best value for money in software development outsourcing, contact us and let us know how we can help you.



[1]  http://www.zdnet.com/article/software-outsourcing-to-eastern-europe-which-countries-work-best/
[2]  https://www.atkearney.com/strategic-it/global-services-location-index
[3]  https://www.sans.org/reading-room/whitepapers/analyst/security-spending-trends-36697
[4]  http://payscale.com/


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