Is Outsourcing My Company’s Development Needs The Best Choice?
Brandon Estes February 24, 2023
In today's market every business needs a sleek, updated website for existing and potential customers to interact with. Without a website customers view businesses as illegitimate, lower quality, or even as a possible scam. Even if your company has a website but it looks outdated, customers tend to click away in search of a more modern and eye-catching option.
In-House vs. Outsourced Development
If you don’t have a website or are in need of a tone up you may find yourself asking the question: “should I outsource the work or is it better to hire on a new team to create and manage the website for me”. While both outsourcing and in-house options have their pros and cons, it’s important to note that in 2021 60% of all companies outsourced some or all of their development needs (including: website, application, or other software projects). Not only do a majority of companies outsource this kind of work but that number is growing! 2021 saw 4% of all companies switch from in-house to outsourcing solutions.
So why are companies not using in-house developers to create their own software, websites, and applications? Well the answer is money of course! While to the outside perspective building a website or a basic application may seem like a small addition in personnel for an existing business, it's actually quite the undertaking. The vast majority of projects will require a team of at least four employees. You may be thinking four employees sounds like a lot just for a basic company website; why can’t one skilled developer just learn how to do everything themself? It may be possible for one person to learn all aspects of a project on their own with the resources available to them on the internet; it simply isn't practical, or in some cases possible, for a single developer to compete with an entire team by themselves. If we think about it, this makes a lot of sense. One person, even if they are an incredibly talented developer, must know: design, front-end development, back-end development, and be able to manage the project all on their own. Compared to a team of four professionals each who are specialized in one of the respective areas it’s hard to imagine that the lone developer is going to create the better product in the end. And this is assuming this hypothetical jack of all trades developer is even possible to find and hire.
Ok, let’s run the numbers on what a group of 4 professionals would cost; and remember this is the minimum number of workers a project requires. These four hires would include a front-end developer, a back-end developer, a UI/UX designer, and a project manager. All of these positions would have varying salary and benefit costs associated with them but the average hourly cost to a business by position (this includes salary, benefits, cost of expanding other areas of the company such as HR, cost of equipment needed, and other miscellaneous costs) is: project manager $150-$215/hr, back-end developer $180-$275/hr, front-end developer $160-$265/hr, and designer $80-$150/hr. Averaging these together we find that the cost for each employee would be about $184.38/hr (Note: this number does not factor in the significant cost difference between designers and the other three positions. This number is therefore skewed lower than one would expect the end cost would be. This is done intentionally to compare against the average price of outsourced work).
Now let’s take a look at a basic website project; with our estimated cost to the business being $184.38/hr and factoring in the fact that there is a team of 4 on this project, we get the cost of this project being… $5900.16 per day??? How is that even possible? Well the answer is fairly simple: start up costs combined with the fact that all 4 employees are being paid for 8 hours of work each day. When a company chooses to create an in-house team they often have many projects going on simultaneously so that they can justify the cost of employing all four employees. When the employees are limited to only one project to work on; the developers will have a significant amount of downtime while they wait for their coworkers to finish one part of the project that may be preventing them from working on the next part. This is exactly why the numbers show more and more companies outsourcing this type of work as time goes on. It’s simply cheaper for a business who does not need to constantly develop multiple different projects to outsource.
Onshore vs. Offshore
The first idea that comes to mind for most businesses is “ok if I am already outsourcing this work, why shouldn’t I save even more money and outsource to a company overseas”. This is a good point, many manufacturing companies save unbelievable amounts of money by sending jobs overseas. However, development work is a completely different animal for a few key reasons. Firstly, a huge risk that most people wouldn’t even consider, is the security concerns associated with important data traveling overseas. When data leaves its country of origin, let's say for example the United States, it becomes much more susceptible to interception by third parties. This could be from targeted attacks on your company specifically, or just poor security implementation outside of your control allowing for anyone to copy or even steal that data during travel. Secondly, and a more obvious issue is the cultural and language differences that are likely to arise when dealing with developers from another country. This has been an issue in outsourcing for over a decade now and for the most part hasn’t been completely resolved. After many years of working on solutions, even call centers still run into this issue. Other concerns include: difficulty holding individuals accountable, communication becomes more difficult with time-zone differences and potential language barriers leading to misunderstandings in aspects of the project, not to mention the increased difficulty in researching what agencies are dependable and which agencies provide poor quality products.
Comparing the costs per developer between the United States and India, which are two of the largest countries for software development outsourcing. We find that to outsource to an agency in India the average cost would be between $20-$30/hr (Note: this is the cost of the individual developer from an agency and does not reflect the cost an agency would charge for an entire project.) likewise, the cost associated with the american counterpart would be $28-$39/hr (Note: again this is the average cost of an individual developer from an agency not the cost of an entire project). As we can see there is about an $8-$9/hr difference between the two developers. Only a nine dollar difference to eliminate the risks above is precisely why most companies have kept software jobs in America when outsourcing. Not to mention American developers commonly have certifications in their respective expertise and come with many years experience, often providing links to projects they worked on in the past.
Ultimately, each individual business must make the right decisions for itself based on its own needs and structure. The data gathered for the purposes of this insight were collected from multiple web and application development agencies, research agencies and government payroll, salary and tax statistics to ensure accuracy at the time of writing. While each company’s experience will be different and require individual application of the above mentioned situations and statistics; all analysis detailed above was constructed with realistic scenarios in mind given the data collected, as to best reflect the needs of the largest possible subset of businesses. I hope this insight proves useful in making the right decision for your future and highlights the importance of choosing the best option for your specific business.
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Insight by Brandon Estes
Brandon is a Data Analyst passionate about understanding how data and trends can impact business, as well as how to best leverage situations to generate untapped growth. His background in mathematics and programming allow him to find new insights and methods of interpreting data for customers.
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