Cost of IT Outsourcing: What’s Really in the Price? | Codete Blog
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Cost of IT Outsourcing: What’s Really in the Price?

2021/02/25

The new normal brought about by the COVID-19 pandemic made organizations worldwide rethink and reassess their business strategies, budgets, and resources. At the same time, in many cases, it accelerated their digital transformation. 

When it comes to IT resources, central to digital transformation efforts, companies can operate in three basic team models: 

  • Organic team – where the IT team is consists of in-house engineers only, usually working in-office (with occasional remote work),
  • Hybrid team – where the IT team consists of both in-house, often in-office engineers and external, often remote,
  • Fully remote team – where the IT team consists entirely of external specialists, usually working remotely.

Right now, IT outsourcing seems to be in revival. Markets such as the U.S. or DACH open to delegating their tasks to Central and Eastern Europe (nearshoring). Collaboration with European partners has its advantages over outsourcing to faraway countries like India or China, not only in terms of geographical but also cultural closeness.

 

Benefits of remote collaboration with dedicated software developers

Extending software development teams or outsourcing some of their tasks to external engineers allows companies to better focus on their core competencies, but it also gives them quicker access to the talents they need. Scaling their team up (or down) is much easier than in the case of an entirely in-house model. Often, it’s also a means to optimize their operational costs. 

In many cases, outsourcing also comes with one easy-to-terminate contract (as opposed to multiple contracts in in-house teams), flexible payment periods, and a guarantee of additional resources in the event of delays. On top of that, remote collaboration enables organizations to cooperate with top-shelf specialists worldwide. In times of the COVID-19 pandemic and social distancing, remote collaboration is also the safest possible option.

Oh, and one more thing: combining in-house and external employees can give a company the perfect blend of engagement and innovation. From our decade-long experience at Codete, we can say that there are two types of software developers:

  • engineers who focus on the growth of their employer more than their own,
  • engineers who focus primarily on their own professional growth as a technology specialist.

Both of them are fantastic specialists, but they’re best suited for different kinds of jobs. The first make amazing in-house specialists, the latter – make great dedicated engineers. It’s worth considering a hybrid model to make the best out of both types of software developers. 

 

In-house business-oriented engineers+External technology-oriented engineers=The perfect blend of engagement and innovation



 

 

But let’s go back to the costs. 

 

Software development: what’s in the hourly rate?

It’s easy to think that the cost of hiring external software engineers equals their working time. But in reality, the working hours are just a tip of the iceberg when it comes to what constitutes the cost of a software developer’s hourly rate. By outsourcing their software development, companies actually get much more than just their dedicated software engineers time (and skills, of course). 

Besides the working time itself, a software development hourly rate in the outsourcing model covers things such as: accounting and taxes settlement, sourcing and recruiting specialists for the project, support in project and team management (which also includes growth and well-being of the engineers), necessary equipment and licenses, and more. 
 

What’s really in the price of a software developer’s hourly rate 

in the outsourcing model?

If you’re interested in a more detailed cost breakdown with calculations, download our free IT outsourcing PDF

 

Monthly Cost Comparison: Outsourcing vs In-House Software Development

Now, how does the total monthly cost of outsourcing a senior software developer compare with the cost of employing an in-house one? Let’s take a look at some numbers and compare our own case with Berlin (data based on custom research). 

Senior Software Developer 

Outsourcing Model

 

€7,650.00

Total monthly costs with Codete


 

In-house Model

 

€11,799.00

For a €6.000,00 monthly salary (net) 
based on Berlin

Total monthly cost of outsourcing (including paid time off)€7,650.00

Total monthly cost for the employer


 

€11,799.00
The average effective monthly cost of outsourcing (excluding paid time off)

€6,525.00


 

Monthly salary (gross)€10,640.00
Working time€5,208.00Monthly salary (net)€6,000.00
Total deductions€2,442.00Total deductions€5,799.00


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45 €/h = the average rate of an engineer’s effective working hour

145h = the average number of effective working hours per month in 2020 in Poland

 

As you can see, hiring a dedicated software engineer may not be as expensive as it may seem – especially taking into account what’s covered in their hourly rates. Hiring one as an employee comes with many additional costs. 

Moreover, a company can basically choose what they are billed for, as there are three main types of software outsourcing contracts:

  • Fixed-price contract – where the client pays for a product delivered in a given timeframe, 
  • Time-and-materials contract – where the client pays for time and work of the engineers,
  • Hybrid contract – where the client pays for time and work of the developers but also closely monitors their progress. 

We usually recommend a hybrid contract, especially for companies that hire external specialists for the first time. This model allows our partners to pay precisely for the hours spent on development while still keeping an eye on the progress of their project.

If you’d like to know the details behind the cost of outsourcing to Codete, the value it may bring to your organization (confirmed by our clients’ testimonials), and learn how we care for our software developers – make sure to check out our PDF about software development and IT outsourcing. You can download it for free.

In case you have any questions about IT outsourcing to Poland or collaboration with Codete, don’t hesitate to contact our consultants.