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Benefits of software development outsourcing

Published on 
June 15, 2020
Danil Vilkhovskiy

Benefits of software development outsourcing

Software development outsourcing is a widespread practice. But why is it so popular? What is its economic rationale?

To catch the idea, let’s discuss the common advantages you can get with software development outsourcing services.

Lower labor costs

Labor costs stand for expenses you incur to pay for a job to be done. The arguments that vote for an outsourcing practice split into two parts.

First, it makes great sense when your company operates in a high labor cost country, such as the USA or most European countries. In this case, giving away your software development project to a company located in a country with lower labor costs is a good idea. Thus, you can save your budget within the project just due to labor cost difference even if you hire top-rated professionals.

Second, when you bring the full project pipeline in-house, you need to employ engineers with relevant skills in your staff. In other words, you have to pay a salary to your employees on a monthly basis. It may make no difference if they work hard and full time on the project during the whole period of their labor contract.

But what if they have some downtimes you still have to pay? What if their opportunistic behavior prevails over their responsibilities due to:

  • contract imperfectness resulted in poorly specified responsibilities
  • undefined KPIs to measure and adjust the salary fund accordingly
  • recruitment mistakes resulted in hiring an engineer of low productivity

If even one bullet point is the case, you will encounter an issue of overpaying for the results. On the contrary, when you outsource software development to the third party, you, typically, pay not for the time but for the scope of work. Thus, you are more likely to enjoy lower labor costs calculated within the completed project framework.

Lower overhead costs

When developing a project in-house, you run not only labor expenses but overheads and accompanied expenses as well. Typically, these costs include at least:

  • Facilities rent
  • Workplace equipment expenses
  • Utility bills
  • Onboarding expenses
  • Accounting and project management expenses
  • Training and HR-management expenses
  • Insurance expenses
  • Etc

However, when an outsourcer takes over your software development project, you get rid of all these expenses in terms of the project.

Higher product value

Yes, software development outsourcing helps you to increase your product value significantly.

First, entering the outsourcing market, you get access to the amazing pool of talents. Thus, they can bring out a lot of valuable ideas and implement them in your project. That is to say, every new worthy feature increases your product value. And talents exist to find these features and put them at your service.

Second, entrusting your project to skilled engineers, you take full advantage of their deep industry and domain expertise. Even provided your project is unique, great chances are they still have already completed a few close-to-similar projects. They know the market. They know their job. Due to their experience, they know how to avoid future issues. After all, you know, a stitch in time saves nine.

So, if chosen properly, outsourcing enables you to complete your project with lower total costs of ownership (TCO) and higher product value.