Best Practices

Why Do Companies Outsource Software Development?

Table of content

Show
HIDE

Outsourcing software development is increasingly common today, as businesses worldwide turn to third-party vendors to deliver fundamental solutions to alleviate pressure on in-house staff. Other common outsourced services include accounting, customer support, social media marketing, and payroll processing. 

The global market for outsourced services is worth an astonishing $92.5 billion — and that’s only set to grow as more companies continue to leverage external teams’ capabilities. 

But why do so many businesses turn to software development outsourcing companies in the digital age? And what benefits does it offer? 


Software Development Outsourcing: Fundamentals

What is software outsourcing?

Software development outsourcing is a business tool that allows companies to hire an incredible team of needed professionals, usually at a significantly lower cost than hiring in-house.

What does software outsourcing look like?

You basically treat the outsourcing team as your own employees, except for several things:

  • legal issues (e.g., taxes);
  • infrastructure issues (e.g., working place, settlements, tech equipment)
  • employee benefits;
  • onboarding.

All of these are taken care of by the software outsourcing vendor you're partnering with. Your responsibility is to find a dedicated and trusted outsourcing partner and agree on the cooperation.

Key Factors Driving Companies to Outsource Software Development

Outsourcing software development is a big step for any company, from startups run by a small team to global corporations. There’s always an element of risk and doubt, but that’s understandable: deviating from established processes is rarely easy, no matter how necessary it may be. 

But in the majority of cases, stakeholders find outsourcing to be in their best interests, with 78% of businesses having a positive view of their outsourcing relationships

Here are the main reasons why outsourcing is good.

Key Factors Driving Companies to Outsource Software Development

Reduce business costs 

This is the biggest driver for companies choosing to outsource software development. According to research by Deloitte, almost 59% of companies outsource with an aim to reduce or control their costs.

Every organization benefits from reducing its costs: this frees up more funds to channel into other areas of the business (personnel, hardware & software upgrades, office expansions, increased salaries, etc.).

Outsourcing is a more cost-effective option for businesses for a number of reasons.

  1. Reduction in overheads.
    With savings of up to 60 %percent available.  Working with external workers means you’re paying for their services only, without the common expenses associated with in-house staff, such as sick pay, hardware, rent, software, training, etc.
  1. Hiring costs reduction.
    Software development outsourcing is mostly done online and it’s much faster and cheper than in-house hiring. All the information and testimonials/reviews you need to gain an insight into their capabilities is just a few clicks away. Compare this to the cost of advertising a vacancy, hosting interviews, onboarding, and other tasks related to hiring in-house workers: according to Glassdoor, the average employer in the United States invests around $4,000 into hiring a new employee.

why companis outsource guide

How WhatsApp cut costs using software outsourcing

Leading brands have embraced outsourcing for software development. WhatsApp, for example, outsourced the development of its iPhone app to a freelancer but eventually brought him aboard the business full-time.

The pair behind WhatsApp, Jan Joum and Brian Acton, chose to outsource development as the beta version of the app experienced severe technical issues during its early stages. This was a cheaper alternative to paying a local specialist to bring the app to a market-ready position.

This decision paid off massively, as WhatsApp  has more than 1.5 billion active users each month, with 68 million based in the United States alone.

Gain access to world-class capabilities

Outsourced software development empowers businesses to connect with the world’s best specialists, no matter how many miles lie between them. It’s not a case of trying to bring them in as full-time employees: the gig economy means that collaborations can occur for one-off projects with no further obligation. 

Working with professionals on a project-by-project basis can bring pleasant surprises, too. While a company will provide the software developers with a clear brief and targets to hit, the specialists can identify opportunities to make a product even better and put plans in motion on their initiative (after checking with the business, of course).

Video chat, project management tools, prototyping, and more keeps teams connected during the entire outsourcing process. Any potential issues or breakthroughs can be discussed as easily and quickly as they could be in a shared office, but at a lower cost (again: no overheads).

How IKEA powered up their forces with software outsourcing

For example, IKEA — the Swedish furniture giant — is committed to mastering the smart home through its Home Smart initiative. But as a furniture company, IKEA doesn’t have the expertise to handle all of this in-house. It requires innovative thinkers with access to cutting-edge tech and the resources to make IKEA’s vision a reality.

Outsourcing to the right partner will give IKEA immediate access to the brightest technology teams on the planet, without even needing to ever be in the same room. They aren’t restricted to choosing providers from their local talent pool — they have an entire world to explore.

Save time on hiring specialists 

According to Glassdoor, the average length of the businesses’ job interview process was 23.7 days.  

Hiring new software developers involves a number of steps. First, there’s posting an application at various websites and/or browsing LinkedIn for potential candidates. Next involves whittling the list of applicants down to the best, followed by interviews. And that means managing schedules to find an appropriate slot, which could drag the process out further. 

Any developers you hire on a full-time basis must have a broad range of skills and be suited to different projects your business plans to undertake in the future. That makes the hiring system even more complicated and time-consuming. Plus, any training that’s required incurs more delays and costs.

But when outsourcing development to external teams, it’s far simpler. You don’t have to worry about finding developers with a diverse skill set for years of projects. You need to focus on picking specialists with the capabilities suited to the project at hand. 

How GitHub saved time&money by outsourcing developers

GitHub’s team, for example, wanted to bring expert Scott Chacon in to build the first iteration. However, they couldn’t afford him at that time, so employed him as an outsourced contractor. That worked out for the best, and he went on to become the company’s CIO.

This saved them the time, effort, and money of hiring a full-time developer. They paid for the specific skills required, and it was a resounding success.

Increase flexibility of scaling your project

Businesses choosing to outsource software development avoid recruiting, hiring, training, and integrating new employees into the company culture. They can simply look for the professionals they need, with access to their own equipment and software, before setting them to work on a specific project or product. It’s quicker, easier, and more cost-effective. 

Another benefit is the simplicity of scaling. When projects require a little extra expertise or more resources, additional work can be outsourced to one or more vendors. Companies have the flexibility to respond to changes as they occur and take action to address them with a fast turnaround. 

How BaseCamp grew their business by outsourcing

BaseCamp, for example, found itself struggling to cope with its rapid expansion in its early days. When the company was still known as 37signals, its growth caused it to become “disorganized” and lose focus. This led to performance issues, and the team realized it couldn’t go on with such a slap-dash approach. 

BaseCamp had to learn to scale responsibly if it was to avoid mistakes and outsourced development of its app to a team of freelance developers. Dollar Shave Club outsourced the development of its Android app to experts in Ukraine, which brought customers bold new features (scanning credit cards) and helped grow the company’s membership substantially

outsource software development

Decrease your project’s risks

Developing and releasing new products carries inherent risk, even if market research demonstrates a high likelihood of success. But risks can be incredibly difficult for startups and SMEs branching off into a new direction, or with no proven formula for bringing successful products to market. 

A business can go through the effort and expense of hiring full-time developers, paying overheads for months, only for a product to fail. This can be devastating and, in the worst cases, impossible to recover from.

Outsourcing software development to other companies works brilliantly instead. You can mitigate risks associated with developing products by working with a team that utilizes a high-quality project management system, has established an effective workflow and has proven success in creating applications that generate solid ROI. 

How Slack reduced business risks by staff outsourcing

For example, Slack relied on programming outsourcing for effective beta testing, focusing on copy and design, which helped it become one of the most widely-used communication tools on the market, handling more than 1 billion messages each week

Outsourcing software development to an experienced team with a strong portfolio of applications under its proverbial belt is a cost-effective way to reduce risks and, ultimately, avoid financial challenges down the line. 

Outsource Software Development
Why do companies outsource software development?

Software Development Outsourcing Models

Software development outsourcing isn't a one-way process. It includes different cooperation models, so business owners can pick the one that suits their business best.

Here are three main options:

  • Project-based model;
  • Dedicated team model;
  • Outstaff model.

Let's take a closer look ar each one.  

Project-based model

Using a project-based model, you hire a software outsourcing company to implement the part of the work that is already planned and defined.

Pros:

  • You will get what you need within budget;
  • Since the project's deadlines are agreed upon in advance, chances are high that the project will be delivered on time.

Cons:

  • The project-based model gives you less flexibility, making risk management extremely difficult.

Dedicated team model

You hire a team, and together, you define the project scope. Unlike the project-based model, a dedicated team is more engaged in your project. This software outsourcing model suits long-term projects with vague requirements and projects that lack specific expertise.

Pros:

  • You communicate directly with the dedicated team and control the workload;
  • You're free of all the hiring and administrative tasks, so you can focus on the core of your business.

Cons:

  • Since the requirements in the dedicated team model aren't 100% defined, it leaves room for unmet expectations. Of course, you can solve this problem through transparent communication and clear agreements.

Outstaff model

The outstaff model assumes that you hire a couple of professionals that you need. This model is a perfect match if you lack specific expertise and need a professional to cover that scope of work.

Pros:

  • You get the needed expertise and skills;
  • You reduce hiring and onboarding costs.

Cons:

  • Depending on the contract with outstaff workers, you may lack flexibility if the project requirements change.


Where to Find Software Development Outsourcing Providers

To find a reliable software outsourcing company, I advise you to check the trusted resources, such as:

First, any reliable outsourcing company must have a profile there, at least. Second, you should dive in and check for the reviews. If the company has recent reviews, you may find the industries, tech expertise, and services they deliver. This information gives you a bigger picture, so you can prescreen the future outsourcing vendor.

Software Development Outsourcing Cost: The Best Regions to Outsource

I have mentioned above that one of the reasons why software outsourcing is so beneficial and popular is its cost efficiency. The price of web development outsourcing is usually far lower than in-house hiring, and it depends on many factors:

  • The complexity of the product;
  • The scale of a product you want to develop;
  • The number of outsourcing specialists involved;
  • The location of a web outsourcing company;

Even with so many uncertainties, we can calculate the approximate cost of your web app.

Try out our App Development Cost Calculator

I want to stop briefly and highlight the difference between the rates in different regions. Check out the map below, and you'll see that hourly rates in Eastern Europe, where the Uptech team works, are between $25-50, which is significantly lower than in Western Europe, U.S., and Canada. From our experience, developing a web app of the middle complexity takes 1200 hours or 3 months and a team of 5 specialists. With the average rates at $40-50/hour, it'll cost you $48K - $60K to build a web product with an outsourcing company like Uptech.

Why Our Clients Decide to Outsource to Uptech: 3 Cases

Aspiration

We've been working with the Aspiration team since 2016. During that time, we passed a lot together: design optimization, refactoring, separation of code layers, migration, and many more milestones.

Aspiration is a US neobank focused on sustainable and green investing with 3M active users. Here’s what Head of Product at Aspiration says about us:

"They provide high-quality work very responsibly—we’ve built a strong relationship and get along well."

GOAT

We’re been working with GOAT,  the leading sneaker marketplace since 2019. Our long-standing relationship has resulted in several ambitious projects:

  • iOS and Android apps (buyer-facing app);
  • Alias(seller-facing app).

We put trust and teamwork at the center of our collaboration, which resulted in a top-notch product with a smooth user experience, and here’s the feedback from Chris To, SVP of Technology at GOAT.

“Uptech’s ability to deliver work of high quality has exceeded our expectations. The team is technically skilled and collaborative, and their work is consistent. We’re impressed with Uptech’s commitment to the product’s success.”

EaTable

We started to work with EaTable, a food-tech company from Sweden in 2021 and the project is all about collaboration, trust, and innovative solutions. EaTable is entering the ghost kitchens industry and our goal is to create a fairly effective solution to the users' problem, so they chose EaTable instead of available alternatives. Here’s what we achieved for now:

  • Product discovery;
  • UX/UI design;
  • Web&Mobile app development;
  • Quality Assurance.

We keep working on the product and Emanuel Possnert, EaTable Co-Founder shared his feedback working with us:

“They ask questions, provide suggestions, and learn about our business in order to make a proper product.”

Summary

These benefits demonstrate why companies outsource. We live in an age dominated by software, and businesses must produce quality products to secure a foothold in a crowded marketplace. 

Trusting an external team with the ideal skill set to create a product of high value to users has real potential to pay off. It’s easier than ever to find third-party specialists willing to work on a project-by-project basis — and every company should take advantage sooner rather than later.

uptech

have a project
for US?

Let’s build your next product! Share your idea or request a free consultation from us.

contact us
You may also read
Congratulation 😊
You’ve joined the Uptech Community. Please check your inbox (or spam folder) for your first Uptech newsletter. 
Oops! Something went wrong while submitting the form.
Congratulation 😊
You’ve joined the Uptech Community. Please check your inbox (or spam folder) for your first Uptech newsletter. 
Oops! Something went wrong while submitting the form.

Uptech is a top-rated product development company. Over 6 years of work we've helped over 150 companies to build successful mobile and web apps.

Let’s discuss your development needs.

x
// ====== exit popup ========///