Building software in-house can drain your budget faster than you'd expect, and many businesses turn to outsourcing to reduce costs. Price is not the main reason to outsource, but cost reduction remains a driving factor for modern businesses implementing outsourcing strategies.
Bottom Line: Outsourcing costs $25-$150+ per hour globally, while in-house development costs 2.7x a developer's base salary when including benefits and overhead.
Highlights:
The costs of outsourcing software development are 40-60% less than in-house development. The hourly rates range from $25-$150+depending on the location.
Where you do business matters a lot in what you pay. If you are in North America, you will pay about $100-$200/hour for development. If you are in Eastern Europe, it is about $30-$75/hour. And if you are in Asia, about $25-$60/hour. And yet, at all these price points, you should expect a relatively high level of expertise.
The main factors influencing costs are the size and intricacy of the project. Small projects costing from $10,000 to $50,000, medium projects costing from $50,000 to $200,000, and large enterprise projects costing over $200,000 require teams of different sizes and with different levels of expertise.
Various outsourcing models provide budget flexibility. They include:
Fixed-price contracts for well-defined projects
Time-and-material contracts for projects that evolve and change
Dedicated teams that can work either onshore or offshore, at substantial cost savings: 25-40% less than comparable in-house talent.
Selecting the right partners and structuring contracts wisely can save 20-35% of budgets. This can be achieved through proper engagement models, milestone payments (as opposed to periodic payments), and clear, detailed scopes (as opposed to vague scopes that open the door to extra work claims). Those are project management basics, but too many people forget the basics.
According to some estimates, outsourcing your project can save you up to 2x less costs. Research shows that 66% of U.S. businesses outsource at least one department. To understand how that is possible, we need to compare in-house vs outsourcing procedures and prices. So, let’s jump in.
Cost Comparison: In House vs Outsourcing Development
The final choice between having development done in-house or outsourced is made based on specific needs of the business and, of course, finances. Many companies achieve success combining both methods.
The essential part is performing a detailed cost-benefit analysis that goes well beyond surface price comparisons. Look at what you need not just now but over the foreseeable future. Think about your real technical requirements and how much engineering talent you have or could have at your disposal. Consider how much control you want over your development process. Consider how much control you want over your development process, and weigh the benefits of outsourcing software development to make an informed decision.
1. Hidden Costs for In-House Software Development
In-house software has its advantages, it is all about 100% control of the project, but it requires big-bet, up-front investments. To build an internal team, you need to commit substantially across several expense categories:
Competitive salary packages
Recruitment expenses
Training investments
Software licensing and Hardware procurement
Management overhead
Replacement costs
Facility expenses
In fact, estimates show that hiring in-house developers results in costs of 2.7x the base salary. This number takes into account a range of different expenses that are tied to the process of finding and securing the right person for the job.
2. Outsourcing Software Development Costs
Because you pay only for the resources you use, rather than maintain an infrastructure of permanent personnel, your financial responsibility is narrowed to “time and materials.” duo.
"Time" as cost of IT outsourcing
Outsourcing arrangements incur costs primarily related to time, which are measured in hourly rates assigned to each specialist. Your designated development team bills you based on the actual hours they work in service of your project deliverables.
Staffing options include:
Individual developers - Hiring specific specialists for targeted project needs
Dedicated teams - Assembling complete development groups for comprehensive project coverage
Hybrid arrangements - Combining in-house leadership with outsourced implementation resources
"Materials" as outsource cost (IT Licenses & Expenses)
Costs associated with materials encompass the licenses for software, the management of servers, and the tools needed for development and project execution. These expenses fluctuate depending on the infrastructure you already have in place and the precise, technical demands of your projects.
Common material expenses include:
Development software - IDEs, version control systems, and testing frameworks
Cloud services - Server hosting, database management, and content delivery networks
Third-party integrations - API access, payment processors, and analytics platforms
Security tools - Code scanning, vulnerability assessment, and compliance monitoring
Other minor costs of outsourcing you must know about
Contract Negotiation
Negotiating contracts incurs costs additional to the principal development costs. Multiple rounds of revision and an agreement structure that is at once both complex and detailed drive up administrative costs.
Knowledge Transfer & Transition
Knowledge transfer costs such as business context sharing, technical documentation and domain expertise are incurred during project kickoff and team onboarding times. When we have a larger outsourced team, the transition period is much longer and consequently, the costs are higher.
Recruiting Your IT Partner
Market research, capability assessment, and screening processes such as technical evaluations, portfolio reviews, and cultural fit analysis is not too costly in comparison to hiring developers, but still it is a cost as well.
Another minor cost is contract finalization.
5 Key Factors Impacting Software Development Costs
There’s no simple answer to the question of how much does it cost to outsource software development. Software development outsourcing prices vary widely depending on the project and context. To know how to calculate outsourcing cost you must understand multiple interconnected variables that directly influence your project budget with different outsourcing cost models.
Factor #1: Type of Software Development
When we talk about custom software development from scratch, we are really referring to something that demands a premium price because of the kinds of things that precede any actual coding. You do a lot of planning, for instance, and try to come up with a design for the architecture that is both sensible and scalable. Then you test your software extensively. And only after you think you might have a working product do you actually implement it. Projects aimed at modernizing software systems cost ~30-50% less than new development, because the developers work with existing codebases and established frameworks. Usually, these integration projects also fall within that cost range, because they require a specialized skill set to connect different systems, which they do without building entirely new solutions. The choice of technology stack affects the pricing models across various platforms. When it comes to the native iOS development costs, they tend to average about 15 to 20% more than those for Android development. Now that price differential is largely due to the fact that Apple tends to have a much more formalized instance of a review process where all the app's various features and functionalities are put to the test. Also, the type of testing that the apps undergo tends to be a lot more specialized.
Factor #2: Size and Scope of Development
Development costs relate directly to project scope, which is the complexity of the features requested and their technical requirements.
Small projects typically involve basic websites, with limited custom functionality and only minor systems integrations. They cost what they cost because they do what they do, and they do very few things.
Projects of a medium scale consist of applications that are of MVP (minimum viable product) quality. This means the basic features of the application are present, but more advanced features would not be included in a project at this scale. They also include user authentication systems (essential for apps that serve more than one user) and basic integrations (if the app requires connection to other apps or services). These projects should take three to six months to complete.
Project Size
Scope
Timeline
Cost Range
Small
Basic websites, limited functionality
1–3 months
$10,000–$50,000
Medium
MVP applications, user authentication
3–6 months
$50,000–$200,000
Large
Multi-layered systems, cross-platform
12+ months
$200,000+
Software projects that are large have multi-layered IT components (database, cross-platform features and so on). These projects may take a year or more to fully scale up and complete with more phases in between.
Factor #3: Team Size and Expertise
The composition of the development team holds a large influence on outsourcing cost. It affects both how resources are allocated and whether the kinds of expertise required are actually available. For small projects, that means something like 3-5 professionals whose specialties cover the necessary bases: a developer, a designer, and a project manager, for instance. Monthly costs for that little team range from about $4,800 to $25,600. Five to eight developers are required for medium-sized projects. The essential roles are frontend developer, backend developer, UX/UI designer, QA engineer, and project manager. These team members will cost you something like $14,400 to $64,000 a month, depending on how darn good they are and what flavors of development (e.g., Java, Python, Ruby) they do. Large undertakings require the work of 10 or more individuals, even an elite few with very specialized skills, over 12 months or more. Large-scale, complex application software development project costs are $64,000 or more monthly.
Factor #4: Time And Complexity Of Software
Not all software is created equal. The complexity and specialization of the project will also impact the final price. Real-time processing complex software, machine learning algorithm software, and blockchain-integrated software demand $81-$100+ per hour because they require specialized knowledge. Adding "advanced features" like AI implementation, IoT connectivity, or enterprise-grade security to any of these three types of software raises the base development cost by 40-60%. A schedule extension translates to an increase in costs due to spreading the already planned resources over a longer timeframe and, in some cases, having to add more resources just to cover the project management overhead that will be needed to keep everything on track. Expect to see an additional 15-25% in project costs if the project schedule stretches out beyond the 12-month marker.
Factor #5: Partner Location and Reputation
The hourly rates for high quality software development outsourcing depend a great deal on geography. In North America, for instance, developers charge between $100 and $200 per hour. Meanwhile, in Western Europe, you might find rates ranging from $50 to $150 per hour. And these figures don't even account for the cost of living in different areas!Developers in Eastern Europe charge between $25 and $60 per hour, yet they produce work of high quality and meet rigorous standards. Their proficiency in English matches that of developers anywhere. What is more, even at the upper end of their pay scale, they represent a good value for American companies.Reputation ensures partner pricing. Proven records and industry know-how go a long way in justifying agency rates. Established firms that have worked with Fortune 500 clients charge a premium of 20-30%. Even so, some established agencies charge rates that are not 30-40% higher than those of competitive studios offering much better value. Why? Because proven expertise and past performance across different regions and industries go a long way toward justifying better studio pricing.
IT Outsourcing Pricing Models: Minimize Your Development Costs
Dedicated Team Arrangements
Dedicated Team model combines cost efficiency and team stability for long-term projects, which makes it sensible anytime you need the 12-factor version of a web service.
Budget optimization features:
Reduced per-hour costs through monthly commitments
No recruitment or training expenses
Consistent team knowledge and project understanding
Scalable team size based on project phases
Companies typically save 25-40% on development costs using dedicated teams compared to hiring equivalent in-house developers.
Extend Your Team
Expand your team with elite developers integrated into your in-house team’s efforts. This service is ideal for businesses with established workflows and talent. In this case, they simply need more manpower or expertise.
Fixed-Price Model Benefits
This model works best for projects that are well defined, with requirements that are quite clear and that are expected to change very little (if at all) during development.
Cost advantages include:
Guaranteed project completion within agreed budget
No surprise expenses or scope creep charges
Simplified financial planning and cash flow management
Reduced administrative overhead for contract management
Fixed-price models typically cost 15-25% more than time-and-materials approaches but eliminate budget uncertainty for projects with stable requirements.
Time-and-Materials Flexibility
The models of time and material (T&M) provide the utmost flexibility for projects with requirements that are in the constantly evolving stage or that have an uncertain scope.
Financial benefits include:
Pay only for actual work performed
Easy budget adjustments for changing project needs
Lower initial cost estimates compared to fixed-price contracts
Transparent billing with detailed hour tracking
T&M models reduce overall costs by 10-20% for projects requiring frequent modifications or iterative development approaches.
Hybrid Model Cost Efficiency
Combining multiple engagement approaches that allow cost optimization in different components of a project is the essence of hybrid outsourcing. For the core development part of a project, we use dedicated teams. For the specialized tasks that every project has and that often require high-level expertise, we use a fixed-price or time-and-material (T&M) arrangement.
Strategic cost benefits:
Match payment model to specific work requirements
Reduce costs by 15-30% through optimized resource allocation
Maintain budget control for critical project components
Access specialized expertise without long-term commitments
Regional Cost Optimization
The geographic selection of a location has a significant impact on your strategy for making your outsourcing budget go further. Eastern European developers cost $20-$50 per hour. Teams from Asia are between $25-$60 per hour. Compared to North American rates of $100-$200 per hour, these are relatively low price points.
Contract Structure Impact
Your budget optimization is directly influenced by contract terms. Three contract elements, in particular, can help ensure that your payments correspond with the work being delivered, that the project stays on track, and that cost overruns are avoided by maintaining development quality. These three elements are payment schedule, milestone definition, and scope management.
An ideal balance of cost and delivery quality makes Eastern Europe especially appealing when the project involves constructing intricate software. Why this area and not others? Here are some reasons: Well-educated work force; languages not a major issue (Eastern Europe has more than its share of English speakers); strong infrastructure (e.g., the availability of good Internet service); time zone proximity (not too far ahead or behind); and a significantly lower cost of doing business. The Indian and Asian regions offer the most in terms of cost savings for high-volume projects that have standardized requirements.
Nearshore Software Development Rates by Country
Eastern Europe has become the leading nearshore location for software development, providing an impressive mix of technical know-how, cultural similarity, English proficiency and operational ease that make it look ever more appealing to companies in the West. You can explore the best software development outsourcing companies in Eastern Europe for a closer look at top-tier options. Poland is a top technology hub with a strong education system that turns out highly capable developers. Statista says that the development services they provide are in the range of $30–65 per hour. Next to that, being a part of the EU offers an additional layer of security to international clients. To learn more about the leading companies, check out the best software development companies in Poland. Romania serves as a main tech center for high-value development work. It is consistently ranked as one of the top 10 countries in the world to outsource to, and has even recently seen an uptick in bringing work back in-house. With a remarkable blend of low-risk operating environment, government backing for the IT sector, Romania is indeed a serious player with a competitive $25–50/hour rate. To explore more about the top It leaders there, read our blog on the best software development companies in Romania.The Baltic nation that has achieved the most digital advancement is Estonia, with its capital, Tallinn, serving as a center for fintech innovation. Offshore software development rates typically range from $35–60 an hour, according to various industry reports.
How Else to Optimize the Costs via Outsourcing?
Outsourcing software development offers many additional cost benefits besides direct savings from salaries and infrastructure. We consider these to be strategic advantages because they lead to long-term financial value that goes well beyond the payback period usually associated with outsourcing decisions.
#1 Rapid Time-to-Market
When you outsource, you can expect your product to reach the market 30-50% faster than if you had developed it in-house. That’s because specialized teams of developers work faster and more efficiently with already established workflows and dedicated focus on your project. Immediate revenue opportunities that offset development costs come from rapid entry into the market. Early market positioning, which affords many gains, gives several competitive advantages, including one that can net a company millions in market share.
#2 Greater Scalability
Using an outsourcing model provides a way to rapidly scale your development efforts without full-time hiring commitments. Growing does not require any additional overhead costs, such as office space or equipment purchases. Your outsourcing partner takes on these costs while offering development teams fully equipped to think and work like any in-house team. This allows you to respond swiftly to market demands without making investment decisions that are tied to a slow growth forecast. And that's not counting the additional necessary investments in time and money to get the new hires up to speed.
#3 Minimize Expensive Risks
Often it’s best to leave complex IT needs to the experts. Hiring a specialized partner will ensure you don’t expose your company to costly risks, such as:
Data breaches
Cybersecurity attacks
IP theft
Scope creep
#4 Higher Quality Code and UX
User experience design with increases in customer retention of 25 to 30 percent reduces support costs. That's a good thing. So, who is doing this work? Well, not us. We are not professional user experience designers. We are not even designing for user experience. We are doing research on the user experience.
As far as professional user experience teams go, they are conducting research. They are conducting tests. They are doing what most in-house teams do not have the resources to do. They are experts in this field. They are creating products and spaces that necessitate fewer updates and generate higher levels of customer satisfaction.Code that is of good quality reduces the accumulation of technical debt (that usually 23% of a development budget dedicated to maintenance and refactoring). This is, thus, a way for us to ensure that technical debts are not piling up.
Cut Your Software Development Costs With Netcorp
Outsourcing your software development can significantly reduce your budget and add business value. As our example cost comparison shows, you can save up to 60% with outsourcing!
To reap the benefits of outsourcing, you’ll need the right partner by your side. At Netcorp, we’re ready to provide high-caliber software that aligns with your vision. Whether you're looking for Backend solutions like Java, .NET, or Python, Frontend expertise in React JS or Angular, or Mobile development in Flutter or React Native, we’ve got you covered. We also specialize in AI&ML and offer robust solutions in Cloud and DevOps, including AWS, Azure, and Google Cloud. Reach out to our team to learn about our software development outsourcing prices. We also offer consultations, so you can identify the ideal IT service for your business.
Frequently Asked Questions
Software development outsourcing costs range from $25-$49+ per hour globally, depending on the region and expertise level. The IT outsourcing market is projected to reach $812.70 billion by 2029, showing consistent growth in this sector.
The total project cost varies significantly based on scope:
Small projects: $10,000-$50,000 (basic websites, limited functionality, 1-3 months)
Medium projects: $50,000-$200,000 (MVP applications, user authentication, 3-6 months)
Large projects: $200,000+ (multi-layered systems, cross-platform features, 12+ months)
App development outsourcing costs depend on complexity and platform. According to Clutch, app development companies charge between $25-$49/hour for their work, though rates may differ depending on the region or industry.
By Project Size:
Simple apps: $10,000-$50,000 (basic functionality, single platform)
Medium complexity apps: $50,000-$200,000 (MVP features, user authentication, basic integrations)
iOS development: Typically costs 15-20% more 15-20% more than Android due to Apple's stricter review process and specialized testing requirements
Cross-platform development: Can reduce costs by 20-30% compared to developing separate native apps
Team Composition Costs:
Small app team (3-5 professionals): $4,800-$25,600/month
Medium app team (5-8 developers): $14,400-$64,000/month
Large app team (10+ specialists): $64,000+/month
The mobile app market is predicted to produce over $935 billion in revenue by the end of 2024, indicating strong demand for app development services.
The average cost to hire a software development company ranges from $25-$49/hour, based on data gathered by Clutch from verified client reviews. The cost varies by engagement model and company reputation:
Engagement Models:
Fixed-price contracts: 15-25% more than time-and-materials but eliminate budget uncertainty
Time-and-materials: Most flexible, typically 10-20% lower costs for projects requiring frequent modifications
Dedicated teams: 25-40% savings compared to equivalent in-house developers
Hybrid models: Can reduce costs by 15-30% through optimized resource allocation
Yes, outsourcing software development can be highly beneficial when executed properly. 64% of IT leaders worldwide outsource their software development, demonstrating the widespread adoption of this strategy.
Financial Benefits:
40-60% cost savings compared to in-house development
In-house development costs 2.7x a developer's base salary when including benefits and overhead
30-50% faster time-to-market due to specialized teams and established workflows
Up to 50% acceleration in time-to-market by tapping into a global talent pool of over 500,000 specialized developers
Enhanced scalability without additional overhead costs like office space or equipment
Risk mitigation for complex IT needs (data security, cybersecurity, IP protection)
Quality Improvements:
25-30% increase in customer retention through professional UX design
23% reduction in technical debt through higher quality code
Access to dedicated QA teams and testing frameworks
Market Growth Indicators:
92% of the world's largest 2000 companies use IT outsourcing services
37% of IT operations are now managed by software outsourcing partners
The IT outsourcing market reached $541.4 billion in 2024 and continues growing
The cheapest developers in the world are located in the Indian region, which offers the highest cost savings at 60-70% compared to US baseline rates.
Here's the cost-effectiveness ranking by region:
Asia (general): $25-$60/hour (50-60% savings)
Eastern Europe: $30-$75/hour (40-50% savings)
Latin America: $40-$80/hour (30-40% savings)
Western Europe: $80-$150/hour (20-30% savings)
North America: $100-$200/hour (baseline)
Outsourcing expenses hinge on several principal factors: complexity and size of the project, the locational and expertise level of the team, requisites of the technology stack, and the timeline of development, plus what kind of software is involved. When you get down to specifics, and up to the present day, custom development generally costs more than building software for modernization projects. And where you do your building makes all the difference: North America's rates run $100-150+ per hour.
Essential strategies and insights to set your organization up for software outsourcing success
Paavo Pauklin
Executive Board Member
Paavo Pauklin is a renowned consultant and thought leader in software development outsourcing with a decade of experience. Authoring dozens of insightful blog posts and the guidebook "How to Succeed with Software Development Outsourcing," he is a frequent speaker at industry conferences. Paavo hosts two influential video podcasts: “Everybody needs developers” and “Tech explained to managers in 3 minutes.” Through his extensive training sessions with organizations such as the Finnish Association of Software Companies and Estonian IT Companies Association, he's helped numerous businesses strategize, train internal teams, and find dependable outsourcing partners. His expertise offers a reliable compass for anyone navigating the world of software outsourcing.
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