Outsourcing software development has been a mainstream phenomenon in the IT business since most companies started breaking away from legacy software and taking advantage of modern technologies to successfully run their business.

Despite that fact, software outsourcing is still an area where project owners get flawed. Challenges arise in the pursuit of finding not just a skillful software development team, but an agency or vendor that has the required experience and can deliver on time.

“In 2024, spending on IT services is expected to reach over five trillion U.S. dollars worldwide, an increase of 8 percent from the previous year.”

Source: Gartner

Outsourcing software projects is a common trend for any business. It is a very frequent activity for companies looking for digital solutions for their business process automation and service delivery. However, even startups and regular IT firms outsource, either to shed workload or meet deadlines.

In this article, you’ll find all essentials of IT outsourcing that will help you answer the questions and allay concerns you might have.

  1. Definition of software development outsourcing
  2. Benefits of outsourcing software development
  3. Pitfalls to avoid when outsourcing your project
  4. Types of outsourcing to choose from
  5. Models of outsourcing existing on the market
  6. Process of software outsourcing
  7. Outsourcing vs in-house team
  8. Tips to select a partner for software outsourcing
  9. Cost of the outsourcing companies’ services
  10. Trends of software outsourcing

What Is Software Development Outsourcing?

Software development outsourcing can be described as a process of partnering with external software development vendors or managed service providers to carry out a project or a part of it. Outsourcing software development services is efficient for companies that lack in-house resources or expertise.

Other common reasons to hire an IT solutions provider can be limited development budget and timeline, absence of certain tools and licenses for software implementation, or insufficient risk and project management experience.

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Why Outsource Software Development

Why is outsourcing software development to a third-party vendor so popular?

To keep it simple, outsourcing some parts of a software solution or the entire work enables businesses to reduce the budget of their software development project. In addition to that, it allows project stakeholders to pace up and follow through with their primary business challenges.

Another plus is that it helps your software product hit the market in a short time without getting overwhelmed.

Generally, the major advantages of outsourcing software development include:

Increased Efficiency

Outsourcing software engineering allows businesses to tap into the expertise of skilled IT teams. These teams often have extensive experience in particular methodologies, domains, and technologies. As a result, they deliver solutions faster and with a higher level of quality. All that makes a software development process more efficient.

Time and Cost Control

Another benefit you can get when outsourcing your tech project is time and cost control. You see, when you delegate work to seasoned professionals, you don’t need to hire new employees and thus can avoid a lengthy recruitment process and reduce labor costs. On top of that, there’s no need for infrastructure investment and ongoing operational expenses, so you have a more predictable and controlled budget.

From another point of view, your tech partner will be responsible for the entire project delivery, ensuring that it meets deadlines and budget frames. It means that you don’t have to control all factors that can impact time and cost.

Mitigated Project Risks

Your future partner, if well-experienced, will be able to timely identify potential risks and find the best strategies to mitigate them. It can be technical issues, uncertain project requirements, budget overruns, or even communication challenges. Activities like comprehensive planning, continuous monitoring, and adaptive responses contribute to the success of outsourced software product development.

Team Scalability

Whether your project demands additional resources or needs to downsize, outsourcing provides great flexibility. You can easily scale development teams and make any adjustments based on changing requirements. Such scalability allows for staying on track and meeting deadlines while having the freedom to adapt your project resources to various circumstances.

Enhanced Product Security

It’s non-negotiable when it comes to the solution’s security. You don’t want your product or any sensitive data to face safety issues, and moreover, you don’t want to deal with their consequences.

Outsourcing partners always focus on investing in cybersecurity measures, providing an additional layer of protection for the developed software. Here, we can mention adherence to industry standards, implementation of secure coding practices, and the use of encryption technologies.

Advanced Technologies

The tech market is constantly developing, with new tools, solutions, and technologies emerging regularly. Of course, it’s hard to have enough in-house capacity to meet the required skills for adopting new trends. For example, Generative AI expertise is in high demand now, but there are not many experts with robust knowledge yet.

Top software development companies usually stay abreast of the latest technological advancements. So, businesses can gain access to cutting-edge technologies and methodologies without having to invest in constant training and skill development for an in-house team.

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No Micromanagement

When there’s a team taking charge of your project from A to Z, you can forget about micromanagement and shift the focus toward your core competencies. The strategic allocation of resources ensures that business can take time for activities that directly contribute to its unique value proposition and competitive advantage.

Continuous Support and Maintenance

Finally, when you leverage IT services to outsource software development, you can usually expect ongoing support and maintenance that comes after the solution’s release. The team will help you address any issues promptly, minimize downtime, and enhance the overall lifespan of your product or system. So, you don’t need to worry about how to keep it up-to-date, secure, and compatible with evolving technologies.

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Pitfalls to Consider When Outsourcing Software Development

Are you a project owner or product manager? Below is a list of pitfalls that you should look out for when searching for a vendor. It is a perfect guide if you want your project outsourcing to be successful and worthwhile.

1. Choosing a Vendor Without Any Market Research and Reference Check

Outsourcing Software Development Pitfalls: No Market Research

Firstly, don’t make the mistake of not investigating the market before you dive into a software development project. By doing this, you will know what’s obtainable for your project type. In detail, you should know how the outsourcing market works.

Do more than just sharing your idea and requesting a quote. Furthermore, have some insight into the leading vendors and agencies that offer the service you need. It is also vital to look out for additional factors such as distance, time zone, language, and culture barriers.

Secondly, before you decide on a software vendor to partner with you, reevaluate your requirements to make them coincide perfectly with your goals. Have in mind that the software developer of your choice must offer the exact service you need. They must also have experience in similar projects to yours.

Lastly, your choice should be based more on a related track record other than the workforce. Hence, make sure you get good references from credible and reliable sources like a clutch.co, goodfirms.co, and others. You should try to speak to past clients, get feedback, and check for company portfolios and public reviews.

2. Improper Understanding of the Project Cost

Outsourcing Software Development Pitfalls: Project Cost

One of the major reasons for outsourcing is to save software production costs. Although this is true, it can jeopardize your project if not well handled. In most cases, the inexperienced developers charge cheaper rates. Here is the golden rule:

Search for development teams based on talent, and always put experience over lower cost.

Beware of not having a responsible budget plan. A simple analysis shows that:

A software developer that costs $50 an hour and can complete his task in 4 months is better than a developer that charges $35 but takes about a year to deliver. Click To Tweet

It is better to avoid too cheap software development agencies and vendors. The consequence is that you may risk poor quality or total failure of your project. For this reason, it is good to opt for the milestone payment system.

To close this point, ensure that the proposal you get from your prospective development partner highlights a breakdown of the cost in a standard and official manner. Moreover, don’t forget to work out details like taxes, applicable duties, or third-party charges to the transactions with your software vendor. It will help you prevent additional or unnecessary costs from the beginning.

3. Poor Knowledge of Contracts, Privacy Law, and Legal Implications

Outsourcing Software Development Pitfalls: Legal Implications

First things first, get a lawyer. Ensure that you sign a nondisclosure agreement to protect your idea before you reveal the details of the project. Make sure you do this even if your goal is just to get a price quote. The repercussion of not doing this is that someone else could be laughing to the bank, cashing in on your idea. You should protect your intellectual property.

Privacy is next. At this point, consider the IT laws governing the legal systems of your country and that of your vendor. You don’t want to start a project that gets shut down halfway or never gets completed due to government regulation. It is always good to know what is attainable and what is not.

As a project owner, you must try to avoid being a victim of software piracy. Hence, make good efforts to ensure that your vendor does not use any proprietary in-house tools belonging to other clients’ projects without authorization.

The reason is that it may become an issue when it comes to owning full intellectual property rights. In like manner, make sure your contract has a special clause that states that you own the copyright of the software solution after completion.

4. No Technical Personnel from Your Side

No Technical Personnel From Your Side

Whatever your reason for outsourcing software development, you are still going to be a decision-maker and the main stakeholder of the project. Therefore, a lot depends on you. You have to weigh if the technical skills you are paying for are well balanced against your business goals.

If your initial reason for outsourcing is the total absence of a software development team and you lack sound knowledge of IT, then you need a “technical guy”.

This tech-savvy person will be your advisor to monitor the project better, seeing through those technical details that seem foggy to you. Majorly, this person will scrutinize the quality of service and product when you are not able to do that. On the other hand, there will be no need for such a role if you are working with a trusted partner.

5. Short-Term Partnership

Outsourcing Software Development Pitfalls: Short-term Partnership

Looking for a short-term partnership sometimes has its flaws. Usually, such software development projects lack enough time for execution and sometimes budget. In the end, it is a recipe for disaster.

Signing a short-term contract makes your software project liable to be done hastily, with the aim of delivering it fast. The danger here is the omission of important development details or an improper view of your business goals.

As a result, you might risk having software of poor quality. Besides that, such projects end as a one-off rather than a lasting business relationship.

Thus, it is a more effective approach to look for a long-term partnership for outsourcing any type of tech project that might arise. You tend to win by building a lasting relationship alongside the software. Besides, a warm relationship is good for business and partnership. It strengthens commitments and agreements.

6. Don’t Demoralize Your Team, Encourage Them

Don’t Demoralize your Software Development Team

Don’t wait till the end of the software project to complement your development team; give kudos and credits whenever it’s appropriate. Praise them when they complete sprints successfully, as it will boost their efforts subsequently.

Make your team feel appreciated even though you pay them. Outsourcing your project makes them indirectly work for you, and they deserve the same treatment as your in-house developers. The cycle of software development has its challenges. It is only fair if you help the developers keep a high moral always.

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What Are the Types of Outsourcing?

When you choose a software outsourcing company, it is good to know that there are several options for how you can do it. Outsourcing can be broadly divided into three main categories, depending on the location of a development vendor.

Types of Outsourcing

Onshore Outsourcing

This option suggests that you hand your IT project over to a different company that is situated within your national borders. An example of onshore outsourcing is hiring a software development company based in Chicago, while the location of your business is in Seattle.

Another term for this type of outsourcing is homeshoring. It offers such benefits as accessibility, cultural and language similarities, and ease of control. On the other hand, onshore is often more expensive than other forms of outsourcing.

Nearshore Outsourcing

When opting for a nearshore form of outsourcing, you delegate software engineering or any other IT service to a company outside your country but still near its borders. In this case, a company out of the US can partner with a company from Mexico or Canada.

Similar to the previous type, nearshore software outsourcing provides you with smooth communications as, most likely, you’ll be in the same time zone. On top of that, hiring a trusted partner from a neighboring country may lead to some essential cost savings.

Offshore Outsourcing

There’s a wide range of software development outsourcing companies out in the world. It makes it possible that, for example, a US-based company can choose to outsource IT services to a distant location like Eastern Europe or SEA. That’s called offshoring.

The advantages that come with this form of outsourcing are low labor and operational costs. Additionally, the time difference can provide value for those involved in continuous tech and customer support or maintenance work.

Software Outsourcing Models

Software Outsourcing Models

When you think about outsourcing software development services, it’s essential to understand the ways you can partner with your vendor. Below, we highlight the common engagement models that describe the level of ownership and responsibility shared between the two parties.

Staff Augmentation

Staff augmentation is the model of hiring IT resources when you need to extend your in-house team. Usually, you start with evaluating existing staff capacities and then deciding what skills and expertise are required to implement the project.

This type of partnership allows you to leverage the experience of externally hired software developers to augment the efficiency of your business. It provides you with professionals who work on your terms.

Dedicated Team

This model of engagement means that you turn to software outsourcing services whenever you need to ramp up a project team of the right size.

Commonly, you have full control over the development process on your side while your dedicated team provides guidance across every step of the project implementation.

Project-Based Outsourcing Model

With project-based outsourcing, as the name suggests, you delegate an entire project development to a chosen outsourcing partner.

This type of collaboration takes a huge part of work off your hands since the development team is responsible for the delivery of your project from cover to cover.

Based on your requirements, the company you decide to outsource will handle every stage of the software development journey and make sure the end result addresses your initial goals.

Software Development Outsourcing Process

Software Development Outsourcing Process

Once you know the pros and cons of outsourcing software development and have decided on what model of engagement better suits your needs, it’s time to dig deeper.

Since it’s always good to support your decision-making by having an overall sense of the topic, let’s move to the next part and explore how to outsource software development.

#1 Evaluating Your Team Expertise

Don’t rush to outsource software developers without estimating your in-house resources. This can be considered the number one step in the whole process. You need to evaluate the expertise of your team and define the gaps to bridge.

By doing so, you’ll quickly find the right skill sets to complement or extend the capacity of your IT staff.

#2 Defining Your Project Goals

It’s hard to overstate how important it is to define your project goals. Before moving to a software vendor choice, think thoroughly about the request you’re going to approach your future partner with.

It’s essential to have a clear vision of your software solution — the issues it should cover and challenges it should address. This way, you’ll face no difficulties when you have to communicate your idea to the development team.

#3 Choosing a Partner

The next step is to choose a trusted partner you can delegate the work to. There are numerous software development and IT services companies out there, and selecting one requires some effort. Further down the line, we’ll provide you with more practical tips on how to pick a reliable company to collaborate with.

#4 Collaboration

Once you’ve chosen a trusted partner, you can finally sign a contract. Don’t forget to encompass such vital documents as Service Level Agreement, Software Requirements and Specifications, and Non-Disclosure Agreement.

Here, the collaboration on your software solution takes full speed. An experienced project management team will lead you through the entire process — from business analysis to the implementation, testing and deployment, guiding you at every stage.

#5 Maintenance and Support

Ideally, the partnership doesn’t end after the product launch. Based on the agreements, your vendor will keep supporting implemented software solutions and work on the improvements if needed.

According to the contract details, minor tweaks and bug fixes may be done without any charges levied. However, when it comes to system updates or feature upgrades, you’ll likely have to pay some extra costs.

Outsource Software Development or Use an In-House Team?

If you still have doubts about whether to go for outsourcing software development or choose to implement the project on your side, think once again about the key arguments that will help you make a decision.

Your budget might be the number one factor you will consider. While, at first sight, it seems that implementing a project internally is less expensive, outsourcing provides more opportunities to focus on your core business operations. Thus, it’s a cost-effective solution in the long run.

Another aspect to keep in mind is the technical expertise of your team. For example, your IT staff might be good at web development but lack experience in building mobile applications — something you hunt for. Or, you need to build a hardware solution but your team lacks embedded engineering skills.

Finally, you may face an overload of your in-house resources, which results in increased development costs and shifted deadlines in the end. The time and budget play a significant role for the majority of projects, but, in case the company focuses on accelerating digital transformation, they can be pivotal.

How to Choose a Reliable Software Development Company for Outsourcing

Once you’ve decided to leverage custom software development outsourcing, you’ll probably wonder what to start with and what factors can help you choose a reliable partner. Previously, we’ve covered the first part by highlighting the key action points.

Now, let’s underline the moments to focus on in order to narrow down the list of possible candidates and gain all the benefits of outsourcing your project. So, the companies that you take into consideration should:

Outsourcing Software Development Costs

The next question you might be posing is what cost to expect when you consider outsourcing software development. As you may guess, there’s no one-fits-all answer since every request is unique with a varying scope of work. Each particular case requires an estimation of the project’s ballpark range.

Learn more about How to Estimate a Software Development Project

On average, an estimate should reflect the tasks, resources, rate, duration, and third-party services. For example, if you need to build an IoT product, and your potential partner doesn’t support its development from cover to cover — they can turn to an embedded software outsourcing company to fill the gaps. Thus, involving third-party services.

There are other factors that impact the cost of custom software outsourcing. Among them are:

Read the Guide on Custom Software Development Costs

The location of your team will also greatly influence the project cost. Below, we provide an approximate range of rates, depending on the regions where software development companies operate.

Rate per hour, $
Europe 20-170
Asia 10-150
Latin America 20-150
USA 50-200
Canada 30-180
Realistic Software Project Estimates

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Digital transformation drives companies to adopt the latest innovations in technologies and accelerate their IT initiatives. Thus, shaping new opportunities for outsourcing software development.

So let’s briefly cover the trends to stay up-to-date with and understand the reasons why businesses turn to delegating their projects.

As you see, emerging technologies force companies to shift their focus and start outsourcing software development, which brings a number of benefits.

Getting on with Outsourcing Software Development Project

To sum up, avoid all the pitfalls of outsourcing software development by choosing a vendor that most suits your requirements. Also, try to prevent software project delays when the project kicks off.

Always look at the bigger picture. The software market is dynamic, and users want the utmost satisfaction. Outsourcing provides the means to meet up with demands for software creation and updating. Notably, it is the reason why it’s not a one-off project but rather a recurring long-term process.

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Your option of a software vendor or agency requires a lot of deliberation and careful choice. A good vendor should see your line of vision and be willing to help you achieve it. Therefore, it is better to go for trustworthy partners.

Velvetech provides custom software development services that cover a vast range of companies’ needs. Our partners and clients are businesses from different private sectors. We have shown a strong capacity in IT consulting and delivered as a trusted software development vendor.

Our specialists would be glad to discuss your software development challenges and come up with the most suitable solution designed for your business needs. Contact us today for a consultation.

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