Ultimate guide on the cost of offshore software development

In Depth Guide The Cost of Offshore Software Development

If you’re reading this article, you’re probably affected by the Western tech talent shortage.

You can’t find the skills and people you need at home, so you’ve decided to go offshoring and extend your software development team in vibrant hubs like Bangalore, India.

One of the main reasons for hiring top talent abroad is the excellent value for money you can get. When you build or scale dev teams with offshore engineers, you’re not only accessing large talent pools but also reducing business costs.

But what is the real cost of offshore software development?

In this article, we share everything you need to know about the financial aspects associated with offshoring. By the end, you’ll understand the factors affecting its cost and the rate differences between hiring engineers locally compared to popular offshoring locations.

Let’s make a start!

A quick overview of the cost of offshore software development

Before diving into the elements determining the final cost of offshoring, we’ve built a comparison table showing the hourly developer rates in renowned offshoring regions.

RegionCountryDeveloper hourly rate
Latin AmericaColombia$30-48
Eastern EuropePoland$20-48
AfricaNigeria$20-46
AsiaIndia$20-40

When reading this table, take these into account:

  • The rates are sourced from professional salary calculators and platforms like Indeed, SalaryExpert, and Arc.dev. They might change due to external factors.
  • The final cost of building an offshore engineering team depends on more than just the hourly development rate. The type of offshore company you partner with, its location, and the type of collaboration affect the price.

Later in this guide, we’ll delve into these aspects in depth.

How can you calculate the cost of offshore software development?

According to Deloitte, 70% of organisations name cost reduction as one of the top reasons for offshoring.

However, estimating the amount of money or resources you’ll need to allocate can be tricky when not working with an expert partner. If you collaborate with a subpar offshore company, you may encounter hidden fees (and low-quality services).

What seemed to be a fantastic business opportunity can become an unpleasant experience. We’ve heard this first-hand from tech leaders and after building 70+ dedicated offshore teams for businesses in multiple industries.

To avoid such situations and have the ability to calculate the cost of offshoring, you need to take multiple factors into account.

Before you try calculating offshoring costs…

Before you even talk to some of the best offshore development companies, make sure you have a clear idea of your needs. It will:

  • Make it easier for an offshore company to understand what should be delivered.
  • Help your service provider to give a more accurate estimate of offshore software development costs.
  • Allow you to identify technical support and bug fixes, among other tasks, which are extra services incurring additional costs.

Even with the additional costs, offshoring is generally more cost-efficient than hiring an in-house development team. That’s because you not only save on the developer’s salary but also on hiring, benefits, social security contributions, and overheads.

And, the talent overseas is often more abundant than at home.

But a word of warning: the cheapest upfront options are often those with the greatest hidden costs and lowest quality developers.

Benefits of outsourcing and offshoring

Components affecting offshore software development costs

1. Size of the project

The size of the software project influences the development costs. The higher the number of features and other factors, the greater the team needed and so is the cost of offshoring. And, depending on the size of the project, the efforts and overall costs will increase accordingly.

2. Technical considerations of the project

Technical aspects, including software architecture, UI/UX designs, tools and methodology selected, third-party integrations, etc., impact the project’s cost. Ultimately, it relies on the scope of the software product or ongoing service you are looking to build.

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3. Time to market

Bringing your product early to the market or giving it more time will impact your development costs. 

Deadlines influence the software project in several ways. If you have an extraordinary idea but the timeframe to complete the project is shorter, it will affect the R&D, planning, and overall development. In such a case, you must hire an extended team of experienced engineers to get things done efficiently and quickly, incurring higher costs.

4. Skills and expertise of the team

Your offshore development team’s knowledge, experience, and skills directly impact the project costs. If your project is complex, you need a qualified team of senior developers, which adds to the overall project costs.

5. Additional costs 

The offshore development organisations may charge extra for maintenance and support, some licences, infrastructural costs, etc. They may even charge in case the partners want some modifications. So, to avoid any ambiguity and unpleasant surprises, such factors should be clarified beforehand.

How much does software development cost if you hire locally?

Most of our partners we help build teams come from the UK, Western Europe, the United States, and the ANZ region. One of the reasons is the extremely high talent shortage, and another is the cost — not only salaries but the office space and operations. Let’s first dive into the outlook of the salaries in those locations.

Offshore software development rates in western regions

Western Europe

Usually, Western European countries turn to Eastern Europe and Asia in search of tech talent and cost arbitrage through offshore software development.

Organisations headquartered in Western Europe, especially the UK and Germany report that 60% of their jobs are already outsourced in some capacity. This figure is forecasted to increase as businesses plan to offshore more in the coming years. Yet, businesses can still find skilled developers in Western Europe when looking locally — but increasingly, organisations feel restricted by the talent gap.

They simply can’t scale as fast as they’d like. 

In Western Europe, you can hire locally with a rate varying from $58 to over $80 per hour.

Australia

The Australian offshore software development market is growing rapidly today. Yet, there are some hurdles that hold it from becoming one of the top offshore development hubs: high rates, remote location, and time difference.

The average cost for software development can be as high as $65-90 per hour in Australia.

United States

The US ranks top among digitally competitive countries in the world. Yet, the specifics of its market make the region one of the most expensive offshore destinations.

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Average US offshore software development rates range from $70-95 per hour.

What is the cost of offshore software development in different locations?

Are you wondering how much custom software development costs? There are many options for choosing a software development partner, and a lot of time is needed to do your own research before making a decision.

Below is a price guide covering the offshore software development rates in some of the most popular offshoring locations.

offshore software development hourly rates

Eastern Europe

Although they are close geographically, Western and Eastern Europe vary greatly in software development rates.

The region includes countries like Poland, Romania, Moldova, Estonia, Hungary, etc. If you outsource your project to a software development vendor in the Eastern Europe region, it will cost you around $20-48 per hour, depending on the skill of a particular offshore developer.

Asia

Asia’s biggest software development offshoring hubs are China, India, Vietnam, Malaysia, Indonesia, the Philippines, and Bangladesh. The major advantage of the Asia region is its low offshore software development rates. The rates in Asia range from $20-40 per hour.

In the continent, India offers unparalleled quality software development services at cost-effective prices. The best reasons to make India a preferred outsourcing destination are favourable policies, fast-developing infrastructure and an immensely talented workforce.

Cities like Bangalore in India provide the perfect ecosystem for offshore development and are captivating the attention of stakeholders worldwide. Offshoring to Bangalore gives you access to skilled individuals with favourable arbitrage.

Latin America

The IT offshoring market in Latin America should also be considered when choosing a destination to hire a remote development team. It provides competitive talent, relatively good rates, and a convenient location. The offshore software development costs in Latin America are roughly around $30-48 per hour, which is a fair price to ask for.

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As you can see, the average cost of software development in offshore destinations is far lower than in the United States, Australia or Western Europe. The lower cost of living and overheads makes hiring offshore developers the most cost-effective decision.

A balance between price and quality

Outsourcing your software development is the right choice for businesses looking for a perfect balance between a good service and a good price. Whether you run a startup or a big enterprise, an offshore development partner will help you embody the ideas into a working solution.

Final thoughts

In this article, we tried to provide an estimation of the hourly rate you need to pay for an experienced developer who is ready to work. 

But remember: the offshore software development costs mentioned above can differ when you hire full-time, world-class developers. The actual rate can be influenced by the need for specific or niche technologies, seniority and past experience of developers, past projects, and many other factors.

Key Takeaway
1.
Cost optimisation drives offshoring, but estimating expenses without an expert partner may result in undisclosed charges.
2.
Calculating offshoring costs involves considering project size, technical aspects, time to market, team expertise, and additional expenses.
3.
Offshoring reduces developer salaries and cuts overheads.
4.
Local hourly rates for software development are higher in Western Europe ($58-80), Australia ($65-90), and the United States ($70-95).
5.
Offshore software development rates in Eastern Europe ($20-48), Asia ($20-40), and Latin America ($30-48) are generally lower than in Western countries.
6.
Offshoring balances price and quality, providing a cost-effective solution for businesses needing skilled developers.

Knowing offshore software development costs is a good place to start, as you should be aware of these rates to focus on a suitable market to find the best offshoring partner.

If you’re looking for a long-term dedicated development team, contact us. At The Scalers, we’ve helped tech leaders like you build, extend, and scale engineering teams with top talent in Bangalore, India.