How much does it cost to outsource software development? The major concern of many startup entrepreneurs looking to save money on software development projects is whether outsourcing really helps fhem to achieve their goals towards cost-effectiveness.

Is low-cost software development a good choice?

Same project. Same requirements. Different price. What’s wrong with that?

It’s an open secret that you can receive quotes for the same RFP (Request for Proposal) ranging from $5,000 to $150,000. How do they differ? How to select the vendor? Finally, what to expect from a selected provider?

No worries. We’ll help you fill the gap by sharing some basic thoughts on the reasons for such a huge price range and what you can expect from each type of company.

At the basic level, these providers can be divided in the way described below.

Mass Market

Companies that tend to offer template-based development. They are the lowest cost and often deliver software products of the worst quality. Often, customers have to take their failed projects to more experienced vendors and lose both time and money.

They never say “No” to a project and are not concentrated on their customer’s success. They tend to employ the cheapest developers or even outsource your project to a very low-cost freelancer. Their absolute goal is to spend as little time on your project as possible.

You shouldn’t expect high-quality maintenance and support services. In most cases, these companies don’t even provide this type of service, since the code quality is low and their customers face the need to hire another agency to finish their project.

Their customers are usually jobbers, who don’t have any business and marketing homework behind the specification. Oh, well, they don’t even have the specification. As a rule, projects by mass market providers end up as “failed”.

Freelancers

The result varies greatly on the level of experience and self-management. Hiring a freelance contractor can often turn into a risk.

It’s hard to tell the basic cost you are expected to pay because their rates depend deeply on individual factors like experience, portfolio, location, and even their self-esteem. So the price range is huge.

You can hire a brilliant guru developer at $35 per hour and be over the moon. As well as you can throw $150 per hour away and find yourself alone with your unfinished/failed project in the middle of nowhere.

Another way freelancers make money is that your project will be their part-time activity. Well, it’s good when you can turn your hobby into a monetized source of income, but chances are high that your freelancer will quickly get burned out and quit the job before it’s done.

Are you considering to hire a freelance developer or designer? Well, shortlist only those guys who’ve been doing freelancing for at least one year. It often happens that freelancers go back to a full-time job, once they realize they can’t make it. And there’s no surprise because it’s impossible to handle several complex projects at a time alone.

Small Company

This type of companies is usually established by developers who code on their own. The company size is usually 1–10 employees, including management. Due to lack of resources, they can’t take large complex projects and mitigate risks associated with the development process.

The result depends greatly on the ethical level of management as they don’t have any established processes.

Mid-sized Company

These companies usually have up to 200–300 people on board. Their proposals are normally based on a per hour estimate. Mid-sized companies usually have established, efficient, and transparent management processes.

This type of companies usually makes perfect sense to be hired as a long-term partner, because they already have:

• Experience with custom software development;
• Experience with related technologies and can quickly find additional resources for your project;
• Experience with additional services like design, SEO and business analysis.

With higher rates, these companies are more efficient and deliver faster and of higher quality than their more affordable mass market competitors.

Large companies

These companies are normally defined by the number of employees and offices. They are often located in as many countries as possible (Ukraine, Belarus, Bulgaria, Poland, for example), since they have high turnover and growing need for new talents.

Very often companies of 500+ people establish their own educational centers and internship programs to have a pool of specialists upon your request. But it also happens, that your project will be trusted to a growing talent curated by a more senior colleague.

A single drawback of working with large companies is that their processes are too tight. Well, in most cases this fact only benefits the customer, but large enterprise will be less flexible compared to their smaller competitors.

Once you need to change several lines in the contract, you’re likely to face a rush of bureaucracy and will spend more time, instead of having a direct call with the decision makers of smaller companies.

Premium Development

Usually, these companies serve the needs of enterprise-level customers. Their projects usually start at $200k and are normally long term.

It’s hard to label these companies by the number of employees or any other common metric. Instead, these companies are usually located in the most luxurious business centers, pay salaries above average, and arrange loud parties.

All that results in a $100-$250 hourly rate and a $500,000 price for an average app.

Hiring a boutique software development company is a safe way in most cases, as you can be sure your project will be completed and of expected quality. This option is also suitable for companies that can’t choose the best way to waste their money. It’s just a perfect fit.

The table below describes briefly the key criteria customers use for selecting candidates.

Rules of Thumb When Choosing a Vendor

1. If your project is long term, steer clear of mass market and freelancers. Small companies are at risk zone as well, because they tend to be unstable and may cease to exist before your project is completed.
2. If your project is very simple, very short term, and classic (meaning that there are plenty of similar websites or apps on the market), it is OK to try your luck with freelancers. As long as they have very relevant experience.
3. If you are very well funded and your project is not in a rush, it is OK to look for boutique development companies or large development companies. You will end up paying a lot, but the risks would be pretty low.
4. If you need the best value for money, and long term relationship, look for mid-sized companies that provide a mix of flexibility and reliability at the same time

Last but not least, the following rule is actual is you want to hire a true expert:

The key tip on your way to hiring a remote partner is never to pick the cheapest option. Really, regardless of location, portfolio, company size, technology stack, the average rate should not go under $25 per hour. Everything that is below $25 hourly rate should be a red flag for the decision maker.

To be on a safe side, select your perfect candidate based on their relevant and competitive portfolio, reasonable rates, and communication.