The Complete Guide to Software Development Outsourcing

Software Development Outsourcing

In this collection you'll learn

  • if software development outsourcing is right for you
  • when hiring is a better option
  • how to choose the right partner
  • how to establish a successful cooperation


Software Development Outsourcing


According to Deloitte’s Global Outsourcing Survey, 78% of organizations feel positive about their IT outsourcing relationship.

This is surprising as the way many companies perceive and execute outsourcing is wrong.

Many businesses delegate a project outside to save money and focus on core business, to companies that aren’t familiar with their reality.

To create a successful digital product or service, a lot more engagement and trust are required. You need partners who will throw you a challenge, maybe even question your whole concept, suggesting in return something that will actually work. 

Companies like that exist.

In this guide, we’re sharing advice on how to select the best outsourcing providers and what you can squeeze out of such cooperation.

Because you not only don’t want to end up in that 22% of unhappy ones. You want to be in 1% of those who conquered the markets after a perfect choice.

Note: Each of the topics brought up below will be deepened in time. With time these articles will create a complete handbook about outsourcing software development.

If you like what’s already here, the final version will delight you.

Subscribe for updates to receive notifications when new articles are posted. 

So, enough chit chat, let’s explore.

Software development outsourcing – What’s in it for you?

When you explore the web in pursuit of benefits and risks connected to IT outsourcing, you read a lot about time and cost efficiency, your ability to focus on core business procedures, etc.

So, what’s the truth? How software development outsourcing can actually help you?

Lack of time

It’s challenging for a business to respond to the market needs quickly when the in-house team is tied into conflicting projects and priorities.

Outsourcing helps to start the project quickly and cuts the time needed for recruitment.

Need for particular skills

If you want to add to your product something that needs to be done in particular technology you don’t have expertise with, external specialists will be a good fit. Outsourcing gives you access to various skills and responds to the lack of in-house experience.

Urge to achieve more

That’s the secret sauce we mentioned in the introduction. With outsourcing, you may get a lot more than just developers who will do their tasks.

You can also get a team of business advisors, who will assess your ideas and get some of them out of your head. Are you ready for that kind of challenge? 

Software development outsourcing benefits

Time efficiency

Outsourcing grants not only a faster start (you don’t have to spend time on recruitment, onboarding, and training) –  an external team will also be highly organized. These management skills will improve development speed.

Flexibility and scalability

That’s the big advantage of software development outsourcing. The team is flexible, you can scale it up or down, according to your project’s needs. If you want to speed things up, a new developer can supplement the team. 

The inconvenience of hiring and firing resulting from changing demand doesn’t exist.

Large talent pool

The number of developers working locally, as well as the level of their experience, is limited. It highly depends on your location (if there are big players around, they may attract talents; if you’re from a small town, it may be hard to find experienced specialists).

Outsourcing gives you access to a global pool of talents. Companies are more likely to have extensive experience with various projects so you can aim at the best experts.

Knowledge transfer

Besides having their job done, an outsourcing partner will also share the knowledge with you and your team. Your team will gain experience and learn about methodologies they will be able to use in the future.

What about costs?

That’s a tough one. For sure, you spend less on the whole recruitment process, including office space adjustments, hardware, etc. But what about the development cost? 

According to the Global Software Development Rates 2020 report, the average total cost of in-house development equals $75/h, and of outsourcing – $45/h. (The report is a result of surveys conducted among more than 357 companies from 23 countries in 5 geographical regions.) 

In general, outsourcing often offers a higher rate per hour. But in the case of hiring, you have many additional costs to cover, like taxes or benefits.

Costs are the aspect you need to consider. If you need developers for a long-term project, in-house will most likely pay off.

Challenges in software development outsourcing

Understanding your business vision

The team that doesn’t understand your business vision most likely won’t deliver the product you expect. It’s important to note this fact as getting support with clarifying your vision and goals is one of the top benefits outsourcing should provide.

While looking for a potential partner, aim at experienced consultants eager to help you, not people who will just take your specifications and deliver code without sharing any advice.


Communication issues are often caused by language and cultural barriers. Cultural differences can result in misunderstandings so it may be better to choose a company from a not-so-distant, culturally-similar location. 

Consider cultural fit also in terms of similar values you and your potential partner share.

Most reputable providers are fluent in English and you won’t find it problematic. However, if you’re not feeling comfortable speaking in English, choose a partner that speaks your language. 

Time-zone differences

If you decide on offshoring (outsourcing to a company that operates in an entirely different time-zone), your cooperation may be completely unsynchronized. It doesn’t mean you’re destined to fail. But it means your outsourcing provider has to run procedures that will ease the cooperation. 

Ask your potential partner how they organize cooperation with partners from different time zones and establish procedures you’re comfortable with. This point can indicate a high-quality partner.


Offshoring, onshoring or nearshoring?

Understanding the difference between those terms is crucial to make the best and most efficient decision.


Onshore software development means that the company you outsource to is close to you – probably in the same country. Benefits? No language, cultural or time zone barriers, ease to meet and cooperate. However, your home country wages may be high.


Offshoring means hiring a team from far away. For example, if your company is based in the USA, you offshore to countries like Poland, Ukraine, or India. Most probably, the wages will satisfy you. However, you need to be careful about language, time zone and cultural barriers. Have that in mind while searching for a perfect partner.


Nearshoring can be defined as an in-between option. In that case, you outsource to a company that works in a similar time zone. It puts the communication on the higher level and make onsite meetings easier.


In-house development vs software development outsourcing

If you have any doubts about hiring vs outsourcing, it’s time to face them.

When hiring is a better option?

It all comes down to analyzing 8 aspects:

  • cost & time to recruit,
  • costs of development,
  • talents nearby,
  • flexibility and speed of development,
  • communication (with language and cultural fit),
  • project management,
  • security issues,
  • time zone differences. 

It’s also essential for you to decide, how much time you’re willing to spend on the project-related activities (will it be the core of your business?).


IT outsourcing trends

The National Outsourcing Association conducted a research that shows the direction modern IT outsourcing will take in 2020+.

There are a few insights you may find useful while choosing an IT outsourcing partner:

  • Value over price – the lowest prices won’t be the most popular offers anymore, collaboration, value will be appreciated more.
  • Several providers – clients will prefer to choose multiple providers for one project.
  • New outsourcing areas – IT outsourcing providers from Central and Eastern Europe are expected to be the most popular ones.
  • Emerging business models – outsourcing partners will share responsibility and the contracts will become outcome-based.

Where to find a reputable partner?

  • Ask your connections for referrals.
  • Check out Clutch.
  • Post a question on LinkedIn.
  • Ask Google.
  • Lookup sites like Appfutura, Goodfirms, The Manifest, Crunchbase.
  • Attend events for software developers.
  • Check out who built apps you like or your competitors’ apps.

How to choose the right company?

We’re finally here: it’s time to make a choice.

Three crucial aspects differentiate your perfect fit from a mediocre company:

  • People – responsible, proactive, passionate, and ready to share their advice.
  • Expertise – experienced in working with your specific type of construction, required tools, and materials.
  • Process – transparent, adjustable, speed, and outcome optimized.

Start with defining your vision and product requirements, and then look for a partner that specializes in that field. Look at their previous work, reviews, tech expertise.

Tips on choosing a partner:

  • aim for the quality, not the lowest bid,
  • be open-minded,
  • ask lots of questions (about their experience, portfolio, the way they will organize a project, communication habits).

How to spot the best ones? 

A truly great partner will challenge you from the beginning. Instead of boring sales talks, they will tell you the truth about your idea immediately.

If you aim for the highest quality, be prepared for a harsh disappointment – many companies on the market do not share this characteristic. 

But don’t give up!

Think with whom would you prefer to work with: 

  1. Someone who will take your specification, translate it into code without any consultations, and hope it will end up ok?
  2. Someone who will be brutally honest and advise you on the better solution, probably saving your project from a disaster?

Finding a company described in the first case will be easier, but the end product might not fit the market as well as anticipated.

On the other hand, an engaged partner will be harder to find, but the cooperation will more likely translate into a product that suits your business vision.


When a freelance developer will be enough?

When your demand is limited and all you need is one developer, you probably also consider hiring a freelancer.

The solution has its pros and cons, as always. It may be sufficient for you if you want someone for a small project, who is available right away. And of course, let’s not forget about the cost – it surely will be lower than in the case of a software house. 

What are the consideration points then?

Remember that:

  • most of the freelancers have little or no business expertise,
  • scaling the team up when needed may be difficult,
  • in most cases, you won’t be able to count on their consultancy skills.

Toptal is the most popular solution for hiring freelance developers. Although it’s not a fit for everyone – the platform is expensive and aimed at enterprises.

However, there are plenty of Toptal alternatives on the market, e.g. Gigster, Gaper, YouTeam, or Adeva. Each one of them is different and offers different benefits.

How to establish successful cooperation?

Make your expectations clear

“Early in the process, both teams must have great clarity not just on the project’s objectives, but also on project methodology, deadlines, budgets, and more,”

– Paul Brownell from Nearshore Outsourcing.

You need to know what you want to achieve, share it with your partner, make sure they understand it, and be open to suggestions.

Establish a toolset

Choose the right toolset for communication and collaboration between you, your team, and a vendor. Slack, Jira, Trello, SharePoint are only examples. Your partner should advise on the best toolset. Make sure you understand how everything works and what it’s used for.

Set up procedures

How will the team report progress to you? Will you work in Scrum/Kanban? Establish procedures that will allow you to track the progress and provide feedback.

Clarify your role

Determine the level of your engagement, appoint decision-makers and team members who will stay on top of things.

Communication instead of micromanagement

If you want to have a true strategic partner, communication is a better alternative to micromanagement. Give them space. They are experts and know how to organize work to bring the highest value to the table.

What’s next?

Finding a perfect fit is a crucial part of the process, only then you can delegate the work with a high sense of security.

If you want to deepen your research and knowledge, remember that more insights are about to come. Subscribe for updates, to get notified every time a new chapter is published.

Get smarter in engineering and leadership in less than 60 seconds.

Join 300+ founders and engineering leaders, and get a weekly newsletter that takes our CEO 5-6 hours to prepare.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.