Cost of Outsourcing Software Development: Factors & Budgeting Tips

Outsourcing has become the go-to -choice for IT companies whether it's about handling last-minute projects, saving costs, or boosting productivity. Research has found that outsourcing helps to save a company’s costs up to 70%. 64% of IT leaders choose to outsource their software development services to fulfill the demand for specialized skills, project scalability, or maintain the project budget. 

This shows the high demand for outsourcing software development. This trend is constantly increasing day by day due to digital transformation. Also, this has helped IT companies handle business in a more affordable and productive manner.

If you want to learn how to outsource software projects in an efficient manner then you must first understand its cost factors. In this article, we are going to discuss the factors affecting outsourcing costs and other useful tips. Let's first start with basics:

What is software development outsourcing?

Software development outsourcing is a process or business strategy where you hire a third-party company or team of experts to complete your software development project. The reason for outsourcing can be anything such as to save costs, need of any specialized skills, improve productivity, etc.

Read more: What is Software Development Outsourcing? A Complete Guide

Key Factors Influencing the Cost of Outsourcing Software Development 

You must do maths before assigning your project to a find reliable software outsourcing company. Understand the below factors to understand the costing structure more properly.

⮞ Project Complexity and Scope

If you are making basic apps like to-do lists, calculators, or basic informational apps, that require minimal interaction or coding then it will cost less. If your software needs lengthy, complex coding, integrations, special skills, multiple features, real-time data processing, third-party integrations, AI, and AR/VR, this will eventually require more developers in the team, more working hours, and an advanced tech stack.

⮞ Technology Stack

Your choice of technology can impact your outsourcing bill. Like if your project needs to buy cloud services, database management, third-party tools, or integration licensing fees, the cost will go up. Also, if your software is about a specific niche, it costs more than normal software because this will demand high–performance.

⮞ Location of the Outsourcing Partner

You must check and compare the cost of outsourcing to different countries. Depending on the location of the outsourcing partner, the pricing may fluctuate. No doubt, India is the hub of outsourcing where you can hire outsourcing partners at lower rates. But if you don't want to compromise on performance and quality, compare the cost of different regions and pick the best fit.

✅Pro Tip: Choose nearshoring or offshoring to avoid culture, timezone, language, and other issues.

⮞ Development Team Expertise

Experienced developers charge more than fresher or intermediate-level software developers. The choice depends on the level of seriousness of the project. You can trust experienced developers for important and high-priority software tasks while you can't rely on junior developers for high-level tasks.

For Example: junior software engineers charge around $69,000 - $85,000 in the US while senior software engineer's rates are $110,000 - $160,000. 

✅Pro tip: you can create a mix of junior and senior in the same project by assigning the junior level tasks to junior software engineers and complex and high-priority tasks to experienced experts.

⮞ Engagement models you choose

Usually, there are five types of engagement models- fixed cost, part-time, time/material mode, dedicated model, and hourly/monthly models. Understand your project needs properly and choose the hiring model wisely. 

Go for the fixed-price model if you have confirmed software requirements and don't have a chance of future changes in that.

If you just need any resources or specialized skills for a temporary period, choose hourly or time and material model. If you want long-term commitment for a project, choose either a monthly or dedicated model. 

⮞ UI/UX

Well-designed user experience also improves customer satisfaction but it costs more. Less complex designs have lower price tags, while interactive, cognitive, and research-based UI/UX needs expert designers and more effort. When you put UI/UX investment at the forefront, it saves your user from the friction that will exist when he is using the website and improves retention as well as prevents costly re-designs later on.

⮞ Other integrations required

The cost is also influenced by third-party services — a payment gateway, CRMs, chatbots, or APIs. Some are simple, and others require some complex customization. Third-party tools come with licensing fees that augment the budget as well. So, define integration needs early if you have any.

Hidden Costs in Software Development Outsourcing

Just considering factors is not enough, there are also some hidden factors that might add up more money in your outsourcing project. Consider these hidden costs also when you decide to outsource your project.

⮞ Communication and Time Zone Differences

Think if your developers can't communicate efficiently in the team due to language or culture barriers, what it can cause to the project quality. This leads to delays in responses, missed deadlines, and poor productivity. 

Eventually, your project will get delivered late and add up more costs with time. 

✅Pro tip: Partner with a company that takes timely delivery seriously and uses proper communication protocols.

⮞ Project Management and Oversight

Also, you might need to monitor the outsourcing team if you have handed over a high-priority project. You might also need to hire an internal project manager or add more hours to achieve the project deadline. 

The cost of managing different time zones, schedules and progress tracking can add up unexpectedly. 

✅ Pro tip: look for an outsourcing company that follows the agile method and organized process.

⮞ Quality Assurance and Testing

Skipping or rushing testing means post-launch bugs, security risks, and poor performance and that means costly fixes. Every feature needs multiple rounds of testing—unit testing, integration testing, and user acceptance testing (UAT). If the outsourcing company doesn’t have robust QA you’ll either face delays or need to hire a separate testing team. 

✅ Pro tip: Ask about how do they handle bug fixes after launch. Do they charge extra for it?

⮞ Long-Term Maintenance and Support

Software isn’t a one-time expense—it needs regular updates, bug fixes, security patches, and compatibility upgrades. Some outsourcing software development companies charge separately for post-launch maintenance and what seemed like a cost-effective project becomes an ongoing expense. If your software integrates third-party tools, licensing renewals can also add up.

✅ Pro Tip: Before finalizing a partner, review their post-launch support policies. Do they offer free bug fixes for a certain period? What’s their cost structure for updates? Transparency now prevents headaches later.

Cost Estimation Models for Outsourced Software Development

The hiring model you choose also affects the cost of software development. In fact, you can save half of the development cost by choosing the correct pricing model. All you need is to be clear with what you need.

⮞ Fixed-Price Model

A fixed price model is best if you have defined projects like a static business requirement which has a hard possibility to change in the future. This model is not flexible because if you need to update anything in software, you will need to spend more money on it.

✅ Pro Tip: Only use this when project details are 100% clear to avoid surprises.

⮞ Time and Material Model

Here you pay for actual hours worked, this model is great for evolving projects. However, it may add up more if timelines are extended or tasks take longer. 

✅ Pro Tip: Set a clear roadmap, track hours closely, and negotiate a reasonable hourly rate to stay within budget and have some room for adjustments.

⮞ Dedicated Team Model

If you have a well-established business and have a continuous pipeline of software projects then choose a dedicated model.

It is also good for outsourcing regular work to your outsourcing partner and developing a consistent relationship. However, it requires ongoing investment as costs depend on team size and engagement duration.

✅ Pro Tip: Use this when continuous development and support is required.

⮞ Hybrid Model

Hybrid is a mix of fixed-price and hourly models. If you have specific functionality or need help with certain areas of software, then an hourly or monthly rate is a smart option. However, if the features or functionality keep evolving, you might need to hire a dedicated software developer again and again.

✅ Pro Tip: Use this for complex projects where initial requirements are fixed but you expect frequent improvements.

Read more: In-House vs Outsourcing Software Development: What’s Best for Your Business?

7 Best Practices to Reduce Software Development Outsourcing Budget

Below are some well-researched good practices to keep the software development budget in control. Using this will surely help you to execute the project in a better and more reliable way.

1. Use Open-Source Software 

You can also use free and open-source tools and platforms if your software project doesn't demand much requirements. You can use vs code, GitLab, and many open-source platforms to develop software with some minor features and functionalities. 

2. Only Use Third-Party Integrations If Important

Third-party integrations always come with some licensing fees so you should avoid as much as you can. You can tell your developer team to write scripts, and codes, or integrate free tools for custom software requirements. Analyze your project requirements do you really need third-party integrations? 

3. Use Agile Methodology

Use agile methodology because it will help you to catch the software issues while testing at an early phase. Hence you can save on rework and future changes. 

Research says over 71% of software development companies prefer agile in their software development cycle. This also helps you to save cost, and time and ensure a high-quality launch of the software.

4. Consider Risk Management

Do you know 29% of software project fails because of wrong testing and using poor quality assurance practices? If you don't plan your project properly, it could give birth to future risks and hidden costs. Hence make sure you create a solid risk management strategy to avoid future issues and execute the project within the decided budget.

5. Choose a Minimal and Functional Design

You can also have wonderful software with minimal design and good functionality. If you don't need fancy UI, then it's good to avoid aesthetic UI because this will add more cost to your budget. If your software functions well and serves its purpose better, then users will definitely use your software who just want to get their tasks or operations done.

6. Choose the Right Outsourcing Partner

Choosing the outsourcing company decides the entire thing. Make sure to give priority to quality work over budget because cheap things come with hidden price tags. You might get temporary peace when you hire a cheap outsourcing partner but it will definitely add future updates and changes in upcoming years.

At Maneksoft, we are more concerned about results and inclined towards quality work hence we always follow a standard coding style and advanced tools and tech stack to future-proof our client’s project. Schedule a call to learn more about us.

7. Use Automation Tools to Speed Up Development

Rather than hiring internal staff or paying an outsourcing partner, you can use automation to speed up your development or manage repetitive tasks like code building, testing, deployment, documentation, and other non-tech work.

Key Mistakes to Avoid in Outsourcing Software Development Costs

Even experienced people can make mistakes if the project is done in a hurry. Hence it's better to go through key mistakes before working on any project to avoid it. Below are some basic but costly mistakes that you must avoid. 

1. Underestimating Costs

If you are just overconfident about the project, that it will be completed within your budget then you are wrong. Don't make the mistake of underestimating your cost. Do research from every angle and every phase of the software development life cycle to learn the possibilities of costing.

✅ Pro Tip: Consider these points without fail: Post-launch bug fixes, licensing fees, or extra development hours

2. Overlooking Quality

If you focus on high-quality work, you will get more clients and projects so never make the mistake of hiring cheap developers to cut your project costs. Poor quality code is a debt that will come back to you in the form of technical or security issues.

Because in the end, you have to fix this by hiring other experienced developers. Which will need rework again, time, effort, and money.

3. Poor Communication and Misalignment

Every step of software development can go in the wrong direction if there is poor communication. Hence always understand project requirements properly and use the real-time collaboration tool where every discussion and data related to the project is stored so the team can check there to verify the details and requirements.

Conclusion

Hope our blog helps you to prepare a budget-friendly quotation and find a reliable software outsourcing company. As technology and user needs are constantly changing, hence it can be difficult to get an idea about the exact cost. But by having a detailed discussion with the developers and the team, you can understand their approach, coding style, technology preference and other things to assume the range of budget.

Also, focus on long-term vision while you outsource partners, this will give you peace for the long-term and avoid frequent arising problems.