This article by Jyotirmay Samanta, CEO at BinaryFolks explains how software outsourcing helps businesses to save costs and also what are the things one should avoid to make sure their software outsourcing is a success!
Saving money is a major motivation for any industry. And when you can pay less for similar or in fact, superior quality, why not? About 45% of companiesOpens a new window outsourcing IT functions say that the main motivation for hiring an offshore development team is to save money. Software outsourcing results in greater economies of scale and makes it cheaper for a firm to hire offshore software developers to develop software or automate processes than to carry it in-house.
In this article, our aim is to clarify as to how software outsourcing helps businesses save operational costs and also provide a few tips on what NOT to do while outsourcing.
How software outsourcing reduces cost?
Reduces costs associated with long strenuous interviews
Do you know how much money a company spends screening and interviewing one candidate? Around 2-2.5 hours per candidate coordinating and conducting primary interviews. And every position would have, say, a minimum of 50 candidates. Assuming, the recruiter bills roughly 40$ per hour (W.r.t the US national average), it means $100 on each candidate. That’s WOWW!
Apart from that, you need to post the jobs on a job board or you need to attend career events. Those have its separate share in your company’s finances.
With outsourcing, this won’t drop to zero but would significantly reduce. With software outsourcing, you run a quick RnD to search for the best software outsourcing companies and take a look at their expertise, portfolio and client testimonials.
Then you have a few one-to-one communications with each and finally, settle with one of them. Though there are cost overheads here too, but much less than that of hiring in-house developers.
Salaries, taxes, and other perks decrease substantially
When you hire someone new, they would take a little time to get used to the environment and get comfortable in their new role. So, you will be losing quite a few weeks before the employee achieves full productivity. So, you are basically losing money. Also, the more complex the job, the longer it takes for the employee to get comfortable. Also, adding to this, you would also need to spend a significant amount of money training the new employees.
Then, of course, there is the monthly salary, taxes and other benefits too. Moreover, the salaries need to be revised every single year, so there’s that too. Also, hiring an experienced skilled employee locally would cost you much more than hiring a similarly skilled experienced employee offshore.
But, with outsourcing, there are 2 models:
Money spent on resources based on hourly rates of labor
End-to-end management of the entire software project within a fixed price and time that is agreed upon by both parties
So, you hire an offshore software development companyOpens a new window and you know beforehand how much roughly the project will cost you. Also, no tax or perks overhead and no question of yearly appraisals. So, outsourcing software development means hiring amongst a pool of talented employees, deep industry knowledge, and the latest technologies to provide optimal solutions at much lower costs.
Infrastructure costs also take a dip
With employees sitting at a different continent altogether, you don’t need to worry about office spaces, desks, laptops, stationery and other infrastructure for them. These will reduce your costs significantly.
These are the three major areas of cost savings when it comes to software outsourcing. In the next section, we also provide you with a few tips to make sure your cost savings are for the long term and not temporary.
TIPS for outsourcing software the right way :
 Just because software outsourcing reduces cost, it doesn’t mean you say yes to the ridiculously cheapest option.
If you want to build a full-fledged travel app and the company promises you an app like Airbnb at $2000, there’s a red flag. It means they don’t understand your requirements in their entirety. They just throw around a number in order for you to fall prey.
If you blindly go for the cheapest offer, you might actually end up paying the whole amount you thought you will save and much more!
So, one way might be to not ask for quotes right away. Make sure that your software outsourcing company understands what product you are trying to build. Once they have the complete picture, a plan, and the end-to-end user flow, then is the time to ask for estimates.
 Be careful with freelancers.
You might think hiring freelancers is easier and cost-effective, but the hassles when you need an upgrade or some additional minor work will account for much higher costs in the long run.
Also, freelancers can disappear. That means your software project and a considerable amount of money disappear with them too. Because of a vast array of choices and the lack of contractual obligations, freelancers might abruptly quit your project in favor of another.
They will not dedicatedly work on your project as they often juggle several different projects at once. This restricts them from realistically evaluating the scope and hence they start falling behind schedule and miss their deadlines.
 Get rid of freelance marketplaces
Freelance marketplaces give a first impression of being easy and time effective, but I’m sorry to disappoint. The sheer amount of low quality and copy-paste bids and proposals that one receives for one single project makes it difficult to separate the wheat from the chaff.
So, if you are not careful while filtering, you might end up with an incompetent company and pay much more than your anticipated cost.
Before we go :
According to StatistaOpens a new window , the global market size of the outsourcing industry has reached $45.6B in 2000 to $85.6B in 2018. With globalization and interconnected economies, outsourcing software development is no longer a distant dream. For a company that outsources software successfully, it becomes their greatest asset, their competitive advantage!
Not only does outsourcing reduces cost, but it also doesn’t overwhelm your in-house staff with work that doesn’t match their skill level. This further allows them to focus more on strategic goals in alignment with the business.
But, all these strategies for cost savings would be a disaster without proper due diligence and a lot of initial time investment. Remember: The key to software outsourcing success lies in choosing the right software vendor!