HomeBlogSoftwareSoftware Development Outsourcing: The Simple, Definitive Guide

Software Development Outsourcing: The Simple, Definitive Guide

Software Development Outsourcing

Software development outsourcing is one of the most popular business solutions, and many companies (and organizations) use different outsourcing services as an alternative model to meet their technical goals. Hiring a third-party service provider to handle software development projects gives significant value to stakeholders and enables companies to remain functional amidst disruptions. 

Before you get started, take a closer look at software development outsourcing, understand its pros and cons, and learn how to efficiently outsource software development. 

In this simple, easy-to-digest guide, you’ll learn:

  • What is an outsourced software development
  • Everything about the cost of outsourcing and when it’s the best solution
  • The best strategies to help you overcome any obstacles and reach success
  • The biggest risks of outsourcing development work
  • How to make the right choices with the vendor
  • Software development outsourcing models
  • Where to outsource, and how much does it cost?
  • How to find the best software outsourcing companies for 2023

When we’re done, you’ll have all the info you need to know about outsourcing.

Let’s dive in.

A guide this detailed needs easy-to-follow navigation, so we’ve broken everything down into different sections.

What’s Software Development Outsource

The process of outsourcing involves assigning a software development project to external development experts rather than using in-house development. The outsourcing process includes specific tasks within the project or delegating the entire venture to a chosen software outsourcing company of your choice.

Businesses often seek the assistance of a third-party software development company or an individual developer as they need specific technical skills or coding knowledge that their current in-house team may lack. Or, they may need some extra engineers to speed up the software development process. Many factors propel this decision and various customized alternatives that can be explored to meet specific requirements.

There are different types and forms of software development outsourcing. Businesses adopt different strategies to accomplish specific projects, solidify their approach to IT, sustain their software and systems, and cultivate a solid technological infrastructure and supply chain. Using software development outsourcing services is essential for modernizing and digitizing your business.

In all the models, businesses use the assistance of a third-party software developer or software outsourcing firm to contribute to or create projects right from start to finish. These projects contain anything from mobile applications development, web apps, complete platforms, or systems.

Sometimes, businesses use their professional developers who work alongside the software development teams. In others, they may involve an external company to outsource the entire software development process. The vendor company will use its professionals, such as a UX designer and project manager. By opting for the latter model, the company can focus on other areas while qualified experts manage their technology initiatives.

Software development outsourcing isn’t just for small businesses or start-ups. Many big and long-standing companies use this approach as well, as it has many benefits. Even major tech companies have used outsourcing for software development as a top-tier strategy. Software development outsourcing allows businesses to prioritize their core strengths while external development firms work carefully to deliver satisfying outcomes.

Benefits of Software Development Outsourcing

Outsourcing can bring numerous benefits, including cost savings, access to top talent, faster delivery, improved efficiency, and risk mitigation. It is an excellent option for companies looking to focus on their core competencies, reduce overheads, and leverage the expertise of outsourcing vendors.

1. Cost Savings
One of the most significant benefits is cost savings. By outsourcing, you can avoid the development costs associated with hiring, training, and retaining in-house developers. Additionally, teams can be based in countries with a lower cost of living, which translates to lower hourly rates.

2. Access to Top Talent
Outsourcing allows you to tap into a global talent pool, giving you access to the top outsourcing developers worldwide. You can choose from a range of experts with specific skills and experience in different fields of software development, allowing you to pick out the best fit for your project.

3. Faster Delivery
Outsourcing development can result in faster delivery times as teams typically have a more flexible and scalable approach to project delivery. They can quickly ramp up or down the team to meet project deadlines.

4. Focus on Core Competencies
Outsourcing allows you to focus on your core competencies since you are delegating the software development tasks to an external team. This can enable you to focus on other essential tasks, such as marketing or software product development.

5. Improved Efficiency
Outsourced teams have a proven track record in successful project delivery. With their expertise and experience, they know the best practices relevant to the software development industry and can help to improve your project’s efficiency.

6. Mitigate Risks
Outsourcing allows you to mitigate risks, including project delays and failure, which can be the result of in-house inefficiencies. Outsourced development teams typically have extensive experience working on various projects across multiple industries, making them better equipped to deal with issues.

Why You Should Start with Outsource Software Development

Outsourcing is a quicker and more economical option for both, startups and established businesses since it eliminates the need for renting an office space, constructing a complete development infrastructure, and assembling a highly-skilled team. However, what are the other justifications for software development? Let’s find them out.

1. Access to a Greater Talent Pool: Outsourcing enables startups and established businesses to access a bigger talent pool, which includes highly skilled developers and top industry experts with specialized skills. Software companies hire experts who work on different projects over time, so they have an extensive knowledge base and are experts in their respective fields. Businesses may tap into an expertise level that might be hard to find in-house.

2. Better Scalability: Software development provides businesses with access to a wider pool of resources when they need them; this translates to greater scalability. For instance, when the company needs to expand quickly, the outsourcing vendor can step up by providing additional resources.

3. Customized Solutions: Outsourcing software development provides businesses with unique and customized solutions that meet their specific requirements. These solutions are designed based on the business’s requirements and can be tailored to their specific needs, making them a better fit for the company than off-the-shelf software solutions.

4. Reduced Risks: Outsourcing comes with lower risk because the outsourcing company takes responsibility for ensuring that the project is completed on time, within budget, and with the required quality. This prevents businesses from dealing with contractual breaches, poorly designed software, and other repercussions that can arise when software development is conducted in-house.

5. Greater Focus on Core Business Activities: Outsourcing development allows companies to free up their resources to focus on their core business activities. This helps them to grow their businesses faster and more efficiently by focusing on their core competencies rather than trying to be experts in software development.

In conclusion, outsourcing software development is an effective way for businesses to reduce costs, mitigate risks, access talent, and focus more on their core business activities. With outsourcing, businesses can get custom-built solutions that meet their specific needs and they can scale up or down quickly without the pressure of maintaining an in-house team.

Common Types of Software Outsourcing 

There are four common types of outsourcing: 

1. Onshore outsourcing: refers to contracting third-party software development services within the same geographical location as the hiring company. This option is ideal for companies with relatively simple projects or those that require close collaboration with their partner.

2. Nearshore outsourcing: involves tapping software outsourcing services located in a nearby country or region. This option is ideal for companies looking for cost-effective services while still maintaining a good level of collaboration with their development partner.

3. Offshore outsourcing: refers to hiring a software outsourcing provider located in a distant country, usually with lower labor costs. This option is ideal for companies with large and complex projects that require a large workforce.

4. Homeshoring: this involves delegating the project to a software development team within the city or country you’re in. With close proximity, the teams can be invited to face-to-face meetings.

What Are The Best Outsourcing Models

The world of outsourcing is rapidly expanding, and it is essential for businesses to understand the basic outsourcing models that are commonly used. 

Staff Augmentation: This approach entails assigning the responsibility of assembling the software development team, overseeing daily tasks, and concluding the project to the software development partner. However, the client retains the right to decide on personnel matters, such as who to hire and fire, as well as how big the team should be, and delegating responsibilities among the developers.

Dedicated Team: with this approach, the custom software development company takes care of all aspects of the project, while the team is reserved for future assignments. 

Project-Based: this setup operates on a per-project basis and keeps the client informed of the progress through regular reports, unlike a dedicated team that works with the client on a long-term basis.
better business outcomes.

Risks Of Software Development Outsourcing

Although software engineering outsourcing offers certain advantages, this approach also presents risks and challenges. Learn them in advance to make well-informed choices and outsource software ventures with ease.

Choosing the right software outsourcing partner

1. Define your business needs: Before you start talking to vendors, make sure you know your requirements, your budget, and your timeline. This will help you identify vendors who can meet your needs, and avoid wasting time on those who can’t.

2. Research the outsourcing market: Look for vendors with a strong track record and experience in your industry. Check their portfolio and references, and read reviews from their past clients.

3. Communication and collaboration: Look for vendors that communicate effectively and have a transparent collaboration process. This will ensure that your project is delivered on time and to your satisfaction.

4. Expertise: Choose a vendor that has a team of experienced software developers and engineers who are experts in the latest technology trends.

5. Data security: Ensure your vendor has strict data security policies in place to protect the confidentiality of your sensitive information.
6. Flexibility: Choose a vendor that is flexible and can adjust to changes in your project requirements or timeline.

Project control

To ensure project control, it is crucial to establish a clear project plan, timeline, and budget from the beginning. The project plan should include a detailed scope of work, project goals, and expectations. Regular progress updates and reports should be shared with the project stakeholders to ensure everyone is on the same page.

Having a strong project management team in place can also help maintain control over the project. This team should oversee the project’s progress, ensure that deliverables are being met, and take corrective actions if necessary.

Additionally, using project management tools such as project management software, collaboration tools, and time-tracking software can help keep the project on track and prevent scope creep.

Sensitivity data safety

Hire an outsourced company that takes data security seriously and has proper policies in place to safeguard your confidential information. Ensure your development vendor follows industry-standard security protocols, such as data encryption, secure data transfer, and proper access controls.

Regularly communicating with your partner, monitoring their work, and accessing their code repositories can help you identify any irregularities and potential security breaches. Regular security assessments or penetration testing can help identify vulnerabilities and fix them before they become a liability.

Finally, restrict access to sensitive information on a need-to-know basis to reduce the risk of data theft or leakage. You can also consider segmenting sensitive data on a separate system with restricted access.

Hidden costs

Additional expenses that are not made clear upfront can pose a threat when outsourcing IT development. To mitigate this threat, it is crucial to carefully select the engagement model and contract type (which we will elaborate on later), request accurate assessments, and establish reporting and payment methods beforehand.

How To Choose Your Outsourcing Partner

There are many factors to consider when choosing outsourcing software development services. Below are listed the most important factor to look for in your nearshore software partner.

  1. It is essential that your chosen outsourcing service not only have experience in popular software projects methodologies such as Agile and Scrum, but also expertise in relevant tools and methods specific to your industry, including appropriate programming languages, adherence to standards, knowledge of intellectual property regulations, and more.
  2. Effective communication channels and structures are crucial to the success of a project, particularly if you are collaborating with a software provider based in a different country or location. To avoid obstacles, it is essential to set up communication channels from the begging and eliminate language barriers when seeking software development services.
  3. Transparency is crucial when it comes to outsourcing software development. It demands everything from workflows and code quality to timelines and is essential to ensure that cost structures are clear.
  4. In today’s global marketplace, businesses can access talent worldwide making outsourcing an attractive option for accessing hard-to-find expertise. However, it’s essential to ensure that the team is fluent in English and that there are minimal time zone differences. 
  5. Working with a team with a solid reputation is also important to maintain high-quality standards. 

How To Estimate The Cost Of Software Outsourcing

The cost of outsourcing can be a complex process. It impacts many factors, such as location, expertise level, project scope, etc.
Here are some steps to help you estimate the cost of outsourcing:

1. Define your project scope: Before you start getting quotes from companies, make sure you have a clear understanding of your project needs. Identify the features you want to include, the timelines, and the level of expertise required.

  • Scope of the project
  • Timeline for completion
  • Features you want to include
  • The platform you want to develop for

2. Determine the hourly rate: The hourly rate of the development company can vary widely based on factors such as expertise level, location, and reputation. Do some research to determine competitive hourly rates that align with the level of quality you are looking for.

3. Estimate the total hours: Once you have determined the hourly rate, estimate how many hours it will take to complete the project. That depends on the complexity of the project and the level of expertise required. For example, if the project requires ten developers working full-time for 12 weeks, the number of hours would be 10 x 40 x 12 = 4800 hours.

4. Calculate the development cost: Multiply the estimated hours by the hourly rate to determine the project’s total cost. For example, if the hourly rate is $50, and the estimated number of hours is 4800, the total cost of outsourcing software development would be 4800 x $50 = $240,000.

5. Consider additional costs: In addition to the development hours, there may be additional costs such as project management, testing and quality assurance, and other expenses. Make sure you factor these in when estimating the total cost. 

6. Get quotes from multiple vendors: To get the most accurate estimate, get quotes from several software development companies, allowing you to compare rates and quality before deciding.

7. Project management fees
The cost of project management, communication, and coordination between the outsourced software development company and the client is included in the project management fee. This fee is crucial to the overall cost and can vary between 5% to 20% of the total project cost.
The project management fee aids in the efficient management of the project and the fulfillment of the client’s demands. It includes the expenses involved:

  • Quality control
  • Project planning
  • Project reporting
  • Risk management

8. Infrastructure and technology costs
When outsourcing software development, it is crucial to have access to the necessary tools and technologies. Consider the expenses of licenses and subscriptions for these tools in the overall cost. This includes but is not limited to the cost of a software development platform, a bug-tracking tool, or project management software, which should all be accounted for in the final cost.

9. Maintenance & Support
Companies that outsource software development generally provide continuous maintenance and support services, for which the expenses involved should be taken into consideration when calculating the final cost. The maintenance and support services cover various aspects including resolving bugs, enhancing performance, updating software, and providing technical assistance. The expenses involved in these services vary and can typically range between 5% to 20% of the overall project costs, depending on the extent of support required.

By following these steps, you can estimate the cost of outsourcing and ensure you get a fair price for your project’s needs.

Best Outsourcing Strategies

1. Determine Your Needs: Before searching for a developer, define your requirements first. Identify the skills, experience, and qualifications you need for the project. Sometimes not the entire project needs to be handled over to an external team. Do some case studies before and decide what can be kept in-house and what should be outsourced.

2. Choose the Right Outsourcing Partner: Finding the right partner is essential. Look for a company with a proven track record of delivering high-quality work on time and within budget.

3. Start with a trial: No matter how experienced are the developers you work with, it’s always better to start with a trial period. That way, you ensure the work relations are good on both ends, and also you’ll see if the outsourcing firm can deliver output promises.

4. Set Clear Expectations: Set clear expectations with your outsourcing partner from the start. Define project timelines, milestones, and deliverables. That will ensure everyone is on the same page and working towards the same goal.

5. Communicate Regularly: Communication is key when working with an outsourced team. Schedule regular check-ins to discuss progress, exchange ideas, and address any issues that arise.

6. Monitor Performance: Set up metrics to monitor progress and track performance. This will help you identify any issues early on and make any necessary adjustments to the project.

7. Provide Feedback: Provide regular feedback to your outsourcing team. This will help them improve their work and ensure that they are meeting your expectations.

8. Build a Long-Term Relationship: Building a long-term relationship with your outsourcing partner can lead to better outcomes. Over time, they will become more familiar with your company, your goals, and your expectations, making it easier to work with them on future projects.


Outsourcing development is not an easy decision. All process is both cost-effective and challenging. Yet, by choosing the right service provider, careful contracting, and clear communication of your business needs, you can acquire in-depth technical knowledge and establish development tactics without additional expenses. 


What is software outsourcing?

The process of software outsourcing involves assigning a software development project to external development experts rather than using in-house development. 

What is software outsourcing’s definition?

Software development outsourcing means hiring a third-party service provider to handle software development projects. 

Is IT better to outsource software development?

Additionally, outsourcing can be highly advantageous in terms of quick expansion and cost-saving measures. For startups, it could be the preferred solution to remain within financial limitations without expending much effort in recruiting personnel. These days, both big and small enterprises resort to outsourcing.

What are the pros and cons of outsourcing?

Knowing the benefits of outsourcing will help you decide if this could work for your business. Here are three reasons to give it a try: you don’t have to hire more employees, you have access to a larger talent pool, lower labor costs. Despite the many benefits of outsourcing, you don’t want to go down this path until you compare these to the potential drawbacks: lack of control, communication issues, problems with quality, and impact on company culture.

Why do we outsource systems development?

The reasons for businesses to outsource their software development extend well beyond simply cutting costs. Outsourcing enables organizations to tap into the most talented professionals worldwide, save significant time by avoiding the expenses of hiring and firing in-house personnel, gain increased agility, and quicken their product development cycle.

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