How to Outsource Software Development in 2024: Benefits and Costs

Entrepreneurs have mixed opinions of software development outsourcing these days, and for good reason. The failure of a payroll app development project outsourced to IBM in 2007 cost the Queensland health department $1.2 billion. On the other hand, outsourcing development to the US allowed Jack Ma Yun, the founder of the Chinese company Alibaba, to bring in $60+ billion in revenue in 2021.

What did Ma know that Queensland Health didn’t?

In this article, you’ll figure out how to reduce the risks of software development outsourcing, how to choose the right outsourcing model, and how to outsource software development to turn your project into a banging business.

Outsourcing statistics and forecasts in 2024

Outsourcing continues to be of high interest among business owners every year. For example, according to Zippia’s research, around 300,000 jobs in the US are outsourced to other countries each year. Among the top outsourcing destinations, China is strengthening its position as the country to provide the most outsourcing services to the US, showing a 30% market growth year after year. India is often the choice to outsource app development for businesses: It offers the largest number of specialists for every software development task imaginable, along with one of the lowest hourly rates.

Outsourcing software development forecasts for 2024 by Statista

The one region that can compete with Asia in terms of price rates and provide quality products in outsourcing software development is Eastern Europe. For instance, despite the Russian invasion, Ukraine continues to be one of the top 5 outsourcing destinations for US businesses.

Aside from country-based choice, there's an issue of finding specific professionals. It's especially challenging with new and upcoming technologies, like AI. Since AI has dominated all the news and trends of 2023, it’s safe to say that it will continue to be of high priority for businesses in 2024. The huge market demand for specialists in machine learning and AI integration will create lots of vacancies, but yet there won’t be enough talents available to fill them.

According to McKinsey’s Technology Trends Outlook for 2023, job postings for specialists in applied AI, generative AI, and industrialized machine learning still don’t meet the standard benchmark of 2 profiles with skill per vacancy.

Therefore, in 2024 many businesses that didn’t consider outsourcing software development may eventually stick to it to have a bigger talent pool while searching for a proper implementation of artificial intelligence tools and their maintenance.

What prevents companies from outsourcing software development?

Five main risks in outsourcing software development

Stories of people who have experienced the effects of collaborating with the wrong software development outsourcing agency are similar. An entrepreneur gets hooked on a price no one can compete with and on fantastically short terms of development (in most cases, two months). But no miracle happens either in two months or in six months, and a code audit shows the app is completely unusable. Months of work and thousands of dollars are thrown out the window. The worst thing is that for most entrepreneurs, there’s no second chance to start project development from scratch because of a lack of money or having missed the right moment to release the product.

That’s why you should be aware of the five main problems you can face when outsourcing software development and arm yourself with solutions to them.

Problem #1. Backing the wrong horse

According to Clutch, there are 200,000 software development agencies you can outsource to. If you’re going to search for a remote team of developers using only two filters (price and deadline), you might feel like a kid in a candy store. To make the right choice of software development outsourcing company, you should add far more criteria:

  • The quality of previous work

  • The software development lifecycle models used

  • Code quality (it should meet set standards)

  • Flexibility regarding team size and time allocation

  • Transparency of the development process

  • Reviews from past and current clients

  • Willingness to defend their product vision

The more criteria you add, the more thorough a search you conduct and the higher your chances of finding the right outsourcing software development company.

Problem #2. Miscommunication

The core benefit of outsourcing software development is that it provides you with access to a global pool of talented specialists. But in turn, this can lead to one of the main issues with outsourcing — poor communication. Misunderstandings between you and your remote team can occur because of time zone differences, poor language skills, and cultural specifics.

What can you do to reduce the risk of miscommunication? Here are some tips:

  • Compile a plan of regular meetings via audio or video communication tools like Google Meet, Zoom, or Slack.

  • Encourage communication between your in-house and third-party teams.

  • Use collaboration tools like Jira and Asana.

  • Enlist the help of a dedicated project manager.

  • Clarify your project requirements using a software requirements specification (SRS).

  • Draw up user stories to clarify the project scope from the get-go and ensure all features are understood by your extended software development team members.

Read more about how to define software requirements

The most telling sign that you can entrust a company with product development is feeling heard and understood during negotiations. Continue searching for a company to outsource software development to until you get this feeling.

Problem #3. Making QA solely the responsibility of your outsourcing team

A third-party outsource software development company should control the quality of a software product they develop. But what if they don’t? The trick is that you can outsource software development but not the responsibility for your software product.

You should take the following steps to control what you outsource:

  • Define the release criteria for your software product (can include time-based and project-based performance metrics)

  • Check out the test plan, including test cases and test types applied to your product

  • Choose one bug tracking system to monitor the QA process (e.g. Jira, Monday, or Backlog)

You might be interested in our post about the pros and cons of automated and manual testing.

It’s best to agree with your remote team on the frequency of product reviews and testing from your side before starting development. And for sure, the day you decide to test your product’s quality for the first time mustn’t be the day before the product’s release.

Problem #4. Code quality issues

What’s the matter with using substandard code provided by a third-party company to whom you outsource software development?

Your outsourcing partner will be the only one who understands the code. This means you will be bound to them without a chance to change your outsource development partner.

You need to ensure the software development company you outsource to:

  1. Follows industry standards (e.g. ISO standards)

  2. Follows coding standards (e.g. MISRA, CERT)

  3. Uses automated static analyzers to ensure coding standards are followed

  4. Maintains technical documentation associated with the source code

To evaluate the code your potential IT outsourcing team uses, you can check out their Git repository.

Problem #5. Leaks of confidential data

Be aware that leaks of confidential data can occur at the get-go, during development, and during post-release stages alike.

How can you prevent data leaks? Make sure the outsourcing software development company you hire will:

  1. Sign a non-disclosure agreement (NDA)

  2. Insert intellectual property (IP) protections into your contact

  3. Only use licensed software and regularly update it

  4. Store all source code on internal servers and allow access only via VPN or virtual private network

Dive deeper into: How to Secure a Website.

By using the right approach for choosing an outsourcing software development company, you can avoid most problems and get the most out of your third-party team’s expertise. But what does “the most” actually mean? Let’s see what benefits await you from outsourcing software development.

Read also: How to Find Outsourcing Application Developers

Advantages of outsourcing software development services

5 advantages of outsourcing software development

Eight out of ten businesses worldwide feel positive about their outsourcing relationships, including GitHub, Opera, WhatsApp, Basecamp, Skype, Alibaba, Slack, and Google. Don’t you agree that such business giants would place a bet on outsourcing only if there were strong reasons for doing so?

Deloitte’s global outsourcing survey highlights the top five reasons to outsource software development. Let’s take a look.

Advantage #1. Reduced costs

Outsourcing software development enables you to get higher quality for a lower cost compared to in-house development.

In 2019, The New York Times published an estimate from the staffing agency OnContracting, which said that outsourcing software development rather than hiring full-time workers could save tech companies $100,000 per year per job.

If you want to know how much money you could save by outsourcing services, contact us and we’ll provide you with a free estimate.

Advantage #2. Flexibility

Most software development outsourcing companies work on several projects simultaneously and have more employees than one project needs. How can this be useful for you?

Let’s say you decide to make a voice chat app like Clubhouse for iOS. You outsource your software project to a development team of five specialists, including a project manager, a designer, an iOS developer, a backend developer, and a quality assurance (QA) engineer. After 1,240 hours of work, they launch your app and it becomes just as popular as Clubhouse. Now you need at least one Android developer to duplicate the success on another platform. If you’re working with an outsourcing company, you shouldn’t have to worry about closing skill gaps because your development partner should already have a highly skilled Android developer.

The benefit of outsourcing software development is that it provides you the opportunity to quickly onboard as many skilled specialists as your project requires.

Advantage #3. Speed to market

Today’s cutthroat business environment requires you to quickly bring your product to market not only because someone could outrun you but in order to quickly bring in revenue. You’ll be able to do this if:

  • You hire a fully staffed team that uses proven development methodologies

  • The IT specialists you hire are experts in your niche

  • You eliminate time-consuming hiring, onboarding, and training

Outsourcing software product development fulfills all three conditions, making it possible to skyrocket your product development, as many startups have to do. Here are some examples:

  • Fab, an e-commerce platform, went from zero to $250 million in sales within two years thanks to outsourcing software development.

  • Alex Turnbull, the founder of Groove, decided to outsource the product development and got an app ready to be released in four months. Three years later, Groove’s revenue was $5 million.

  • To generate $630 million in 2020, during its early stages, Slack hired an outsourcing company. They revamped the company’s website and mobile app within six months.

These examples are just a drop in the bucket. If outsourcing software development worked well for these projects, why shouldn’t it work just as well for yours?

Advantage #4. Access to experts

To develop your project, you can demand savvy software engineers with specific expertise — for instance, in artificial intelligence (AI), machine learning, or augmented reality (AR) because AI and ML are two of the latest software development trends you will want to use in 2023. It’s easier to find the right tech talents once you have an entire world to explore.

When IKEA decided to create the IKEA Place app, they had neither mobile nor web developers on staff. The app was meant to enable users to virtually fit a piece of furniture in their rooms to see how it would look — that is, to implement augmented reality technology. In 2017, this was a revolutionary technology that required specialists with extraordinary skills. IKEA outsourced development to a company with six years of experience creating AR apps and received a fully fledged mobile app within nine weeks.

You might be interested in:How to make an app like IKEA Place

However complex your project, the outsourcing market provides you with access to 24 million software developers worldwide, so the risk of not finding the right specialists for your project is slim to none.

Advantage #5. Agility

If flexibility in outsourcing software development is about adapting to the project’s scale, then agility implies quickly adapting to external changes.

  • Legislation. In 2021, the EU plans to introduce two new laws — the Digital Services Act and the Digital Markets Act — that are aimed at stopping the spread of malicious content and improving competition. In other regions, similar laws have already come into effect.

  • Local restrictions. One of the reasons why Jack Ma Yun outsourced Alibaba’s development to a US provider was internet restrictions set up by the Chinese government.

  • Pandemic restrictions. According to Deloitte’s global survey 2020, today’s businesses are beginning to understand that quality, speed, flexibility, and cost are more important than physical location.

When you outsource software development to an agile company, it means you’ll get a partner who:

  • Can rapidly respond to unexpected changes
  • Generates quick yet effective solutions
  • Has a continuous competitive advantage
  • Awards short and flexible contracts

Now that you’re aware of the main risks and benefits of outsourcing software development, you can make a balanced decision as to whether or not to outsource. But let’s face it — you’re already curious about where to start your software development outsourcing process, right?

It’s best to start by clarifying which software development outsourcing model is the most appropriate for your business’s digital transformation.

Three software development outsourcing models: pros and cons

software development outsourcing models

Outsourcing software development services seems simple: you pay a third-party company to develop something for you. But the ways of interacting and paying vary depending on your project scope, the time you can devote to the development process, and the budget you’re ready to allocate.

Let’s figure out which of the three main outsourcing models will best suit your core business requirements.

Model 1 — Fixed price

The fixed price outsourcing model can be used when you have strictly defined project requirements and deadlines. With fixed price development, you and your third-party development team need to agree upon and meticulously write into the contract requirements, stages, and terms of project development along with the cost of outsourcing software development. By signing a contract, you trust your remote developers with your project from A to Z but with the guarantee that the price will not change during development or after project implementation. A fixed-price contract also implies that during the development process, you can’t change or add requirements that were not approved and written in the contract.

Fixed price outsourcing model

Pros Cons

No extra costs

Time-consuming preparation

No supervision

Less control over development

Low risk

Inability to make changes

Model 2 — Time and materials

Would you agree that it’s rather hard to predict project success or failure at the get-go, especially for a long-term project? You might feel helpless trying to clearly define what will work well for your project and what won’t. What you’ll clearly understand is that during project development, multiple changes will be waiting for you and your third-party development team. To account for these changes, you need to sign an agile contract that the time and materials outsourcing model provides. A time and materials contract allows you to change requirements according to your business needs at any time during the development process and pay only for the actual time and effort spent on development.

Time and materials software development outsourcing model

Pros Cons

Quick start

Vague deadlines

Ability to make changes

Hard-to-predict budget

Partial payment possible

Time-consuming discussions

Model 3 — Dedicated team

In most cases, to bring complex long-term projects to life you need an in-house development team. In this case, you’ll have full control over the development process and your in-house team will be focused only on your project. That’s all fine and dandy, but what if your internal developers’ skills aren’t sufficient to implement your project and you don’t want to get involved in the laborious process of finding tech talents? The dedicated team outsourcing model can pull you out of a jam.

To find the specialists you need, you can appeal to a software outsourcing company. According to your requirements, the company can quickly select candidates and, after your approval, form a dedicated team. Like your in-house team, a dedicated team will work only on your project. You’ll need to pay monthly for each specialist you’ve “borrowed,” including a fixed service fee for the outsourcing company. Control over your project’s progress along with the number of developers remains in your hands.

Dedicated team outsourcing model

Pros Cons

Full control


Ability to make changes

Hard-to-predict budget

Partial payment possible

Time-consuming discussions

Which software development outsourcing model should you choose? To help you make the right choice, we’ve prepared a summary:

Comparison of software development outsourcing models

The right way to outsource software development

7 steps to successfully outsource software development

Now it’s time to make the software development outsourcing process sweet and simple for you.

To do this, we’ve divided it into seven steps with tips to complete them smoothly:

Step 1 — Define your project aims and requirements

You need to define your project requirements as clearly as possible. First, this helps you clarify what you want to develop. Second, it helps the outsourcing software development team you’ve chosen better understand your idea.

Step 2 — Research the best countries for outsourcing

You can find a software development outsourcing company onshore (in your own country), nearshore (in a neighboring country), or offshore (in a country with a different time zone). What option is best for you? Choosing an outsourcing partner is no easy feat, what with the variety of selection parameters. We’ve devoted the next paragraph entirely to this step.

Step 3 — Find the best outsourcing companies in your chosen country

You can select the most credible outsourcing development companies in a given country using tools like Clutch, GoodFirms, and Upwork. They can give you a lot of information about potential partners including:

  • Level of expertise
  • Previous projects
  • Reviews from reliable clients
  • Rates
  • Ratings and awards
  • Time on the market

Step 4 — Contact three to five potential partners

Based on ratings on Clutch, GoodFirms, and Upwork along with your personal preferences, choose three to five top companies and contact them.

Step 5 — Select the best option

The safest approach to starting outsourcing is to test an outsourcing company with a small task before entrusting them to develop the whole project. You can ask a company to design a logo, make a landing page, or create a user persona. If the company is open to go on a few dates before formalizing the relationship, that means you’re on your way.

Step 6 — Sign a contract

Discuss what type of outsourcing model can satisfy both parties and put your agreement on paper. The most commonly used documents in software development outsourcing are:

  • SLA (service level agreement)
  • SRS (software requirements specification)
  • SOW (statement of work)
  • NDA (non-disclosure agreement)

Step 7 — Monitor the development process

Before your third-party team dives into the development process, reach an understanding of the following:

  • A schedule for remote meetings

  • A schedule for checking intermediate results

  • The approximate budget for software product development

You’ll be able to remotely control the development process from your end, matching intermediate results with agreed requirements and specifications, thus enhancing the chances of getting just what you need.

How much does it cost to outsource software development

Average outsourcing software development rates by country

Country Coursera skill ranking 2023 Country’s average hourly rates
Germany 3 $150–$200
Japan 5 $200–$300
Indonesia 6 $25–$50
Slovakia 7 $50–$100
The Netherlands 8 $200–$300
France 9 $150–$200
Belgium 10 $250–$350
Ukraine 15 $25–$50
Bulgaria 18 $50–$150
Colombia 19 $25–$40
Norway 22 $200–$250
Poland 24 $80–$150
USA 78 $100–$350
Canada 82 $100–$250
Kenya 98 $50–$100
The Philippines 99 $20–$50
Nigeria 100 $10–$50

As we can see from the approximate numbers, the regions with lower outsourcing software development costs are Southeast Asia (except for Japan), Africa, South America, and Eastern Europe. On the other hand, regions like Australia, North America, and Western Europe operate with higher average software development outsourcing costs.

The table also shows that higher average costs don’t always indicate the best skill set among the developers. For example, Ukraine, Indonesia, and Columbia are in the top 20 of the most skilled countries, but their hourly rates remain low due to the lower cost of living.

Here’s a partial list of services you can use to find the best outsourcing software development company:

  • The 2016 HackerRank survey of over 1.5 million developers in 50 countries shows which countries have the best programmers.

  • The 2020 TopCoder chart shows general country ratings based on top rated coders and compares 28 countries globally.

  • The 2019 Kearney Global Services Location Index compares different software development outsourcing regions according to four categories: financial attractiveness, skills and availability of tech specialists, business environment, and digital resonance.

These services can change your view of the outsourcing market. Although the United States is considered the home of programming geniuses, US developers aren’t the most skilled. Developers from Asia and Africa are the cheapest but can have issues communicating in English. India has the fastest-growing concentration of IT specialists, but they have low scores on PHP and HTML tests.

To choose the middle ground, take a closer look at Eastern Europe. It’s rich in technical institutions, possesses one million skilled developers with an upper-intermediate level of English or higher, and offers mid-range offshore development rates.

How much does it cost to outsource software development to an Eastern European company? We’ve drawn up a list of approximate costs at a $35 hourly rate for different business niches:

Factors influencing outsource software development costs in 2024

Factors influencing outsource software development costs in 2024

To create a project whose estimate will not exceed your budget, we recommend exploring the factors that affect the costs of development and understanding how you can adjust those costs. For example, suppose you need an app with complex functionality and can’t cut project’s features. In that case, you can always fit the cost frames you have by partnering with an outsourcing team with lower hourly rates.

In this section, we will briefly overview the factors that influence costs to outsource your software development in 2024.




From the previous sections, you already know that a team’s geographical location significantly influences outsourcing development costs. The differences in living costs, economic factors, and regional wages are the factors behind the different price ranges. And that brings you many options to choose from.

Team experience

Regardless of the team role and position, every specialist has a certain level based on their skill set, experience, and confidence. In software development, these levels are broken down into junior, middle, and senior. The higher level means a better knowledge base and expertise, indicating a higher hourly rate for a specialist. In Ukraine, for example, you can hire a:

  • Junior specialist for ~$15–25 per hour
  • Middle specialist for ~$30–45 per hour
  • Senior specialist for more than $50 per hour in general

Project size & duration

Basically, outsourcing software development is built on the hourly rates of the team members you hire. This means the longer the development lasts, the more you will have to pay for the billed hours. There won’t be a scenario where you can have additional requirements spring up mid-process and have them implemented for free. Any factor that prolongs development time, whether it is new requirements, updates, or complex functionalities, will eventually contribute to higher costs in a contract.

Project complexity

Similar to the previous factor, project complexity directly affects the development time frames and, thus, the outsource software development price. So, if you need to lower your project costs, you may reconsider adding complex features that require more time to develop and won’t affect the product’s quality if gone.

For example, the scale of mobile app development project based on its complexity shows that it takes:

  • 2+ months to build a small-complexity app
  • ~6 months to build a medium-complexity app
  • 8 months to more than a year to build a complex app

Following the trends

A smart decision is to follow modern development trends and consider integrating technologies that are booming to attract more users. But you need to remember that some of the trends raise the project complexity and therefore cost you more money to develop. So, it’s up to you whether your budget can allow it or you will fare better by making it simple yet effective.

In-house development vs. outsourcing

According to our approach to software development, every business requires a unique solution, and we have to define the best strategy to follow the path that fits best. And the first step towards that is considering every option. Although outsourcing software development is a great choice for many small businesses, in-house development is also a considerable pick for those needing more control over the development. To learn more about how and when in-house development can outshine outsourcing, feel free to read our article on the matter.

Outsourcing software development: Conclusion

Like any other service, software development outsourcing has notable successes and failures. In this guide, we’ve collected crucial pointers and recommendations to help you avoid a negative outsourcing experience.

Consider outsourcing software development like a magic wand. If you can find a trustworthy software outsourcing company — voilá! After a couple of months, you’ll get a fully fledged marketable website and/or mobile app while keeping within your budget. To make the magic happen, contact us for a consultation.