The global market size of outsourced services is close to reaching $100 billion, and software development generates some of the biggest contracts. According to recent Deloitte data, around 70% of companies outsource software development to an offshore company to save money, but outsourcing also boosts efficiency and gives companies access to a bigger pool of talented tech workers. On average, offshore software development companies offer better rates than local ones, but did you ever wonder how these rates are calculated and what factors can make the costs go up or down?
How are Offshore Software Development Costs Calculated?
When an offshore software development company gives you a quote for your project, the total cost is obviously based on your deadline and the complexity of the project. However, the software engineer hourly rate can be influenced by many factors that don’t necessarily pertain to your project, but to the company’s internal processes and tax status. Here are some of them:
Office space & equipment
You may be working with the company remotely, but the company usually has physical offices, and that means office space and equipment costs. In the past year, many tech companies have worked exclusively remotely, but even so, keep in mind that they still need to provide specialized technical equipment to developers, so you shouldn’t expect a dramatic drop in pricing.
Bringing the best possible team of tech experts to the table can involve a long recruitment process, and this is something that can influence the total cost of the project. Many clients don’t know this, but tech companies often have to work with multiple recruiters to find top talent.
In a world of emergencies and deadlines, it’s important to remember that developers need to rest too. As employees in a tech company, software developers are legally entitled to a certain number of paid vacation days (which in Europe and other parts of the world is much more than in the US), as well as sick days.
Although you don’t necessarily need to have a BA or MA to be a stellar software developer, you need to constantly hone your skills. New technologies and frameworks come out all the time, and, to stay competitive, companies encourage employees to invest in ongoing education by paying for their IT courses. Also, most workers in offshore tech companies aren’t native-level English speakers so, to ensure good communication, companies also have to cover for their language training.
Every registered company must pay a certain amount in taxes, depending on their field of activity, number of employees, annual profit, and so on. Some of the most popular outsourcing destinations, such as Ukraine and countries from Central and Eastern Europe, are lucky to pay very little in corporate taxes, which is precisely what allows them to keep their rates competitive, but the picture isn’t the same all over the world.
As the client, you’ll usually be in contact with the project manager or the lead software developer, and you know that your project will be handled by several talented engineers. However, apart from those engineers that are directly involved in your project, an offshore company has many other non-tech employees “behind the scenes”, such as accountants and office managers, and this might change the way that costs are calculated.
Offshore tech talent hourly rates
More often than not, the costs of a software development project aren’t calculated in a lump sum. For accuracy and easier tracking, offshore software development companies will give you an hourly rate, which is calculated based on the factors mentioned above. The differences between North America/Western Europe and Central Europe/Asia are huge. For example, if in the US and Canada a senior software engineer can charge you between $57-$61/hour, in Eastern Europe, the rate can be as low as $25/hour, and you get the same high-quality services. Lower costs remain the primary driver behind the rise of outsourcing.
Why you shouldn’t look only at costs
Costs obviously matter when embarking on a complex software development project, but while it’s normal to want to save money, it’s not a good idea to focus only on the financial side. First and foremost, you should look at the quality you’re getting for the price. If you sign a contract for a bargain price, but the code is bad, and you have to pay extra to fix bugs or even redo the project, you end up losing money in the long run. So, try to get the best deal possible, but pay attention to the company’s reviews and portfolio.
When giving an hourly quote, offshore software development companies will take into account the complexity of your project, but costs can also be influenced by many other factors, such as taxes, office equipment, accounting, and employee education. However, even with these costs, outsourcing software development to an offshore company is usually more affordable than hiring a local company.
Dariia Herasymova is a Recruitment Team Lead at Devox Software. She hires software development teams for startups, small businesses, and enterprises. She carries out a full cycle of recruitment; creates job descriptions based on talks with clients, searches and interviews candidates, and onboards the newcomers. Dariia knows how to build HR and recruitment processes from scratch. She strives to find a person with appropriate technical and soft skills who will share the company’s values. When she has free time, she writes articles on various outsourcing models for our blog.