Cost of outsourcing IT services: How much should I pay for high-quality code? (Update)

It’s hard to deny that IT outsourcing has a lot of bad rap. I’m sure you’ve heard some chilling stories about startup founders deciding to hire a digital team from a distant country and ending up with a bug-filled product or every-day communication straight from hell. Don’t believe me? Just type "outsourcing" in Google search and you'll find out that there are as many (if not even more) alarming as there are positive accounts of hiring a software agency instead of an in-house team.

There is one main reason for so many IT outsourcing horror stories taking place: people who want a snazzy, high-quality piece of code for a song and their "the cheaper the better" attitude. Making price top priority results in their disappointment with the poor quality of software service and the subsequent giving up on offshoring.

I don't want to lump all devs together but the truth is, usually the cheapest developers are also the weakest ones. Knowing that it’s worth learning how much you should pay for software outsourcing to still get a splendid, high-quality code?

Varying cost of outsourcing IT services: offshoring vs nearshoring

What's the point in offshoring and nearshoring of IT services? Labor and living costs are the answer. If you're a startup founder working in an expensive country, such as Switzerland, Norway, or Iceland, you’ve probably learned how costly domestic outsourcing can be the hard way. It shouldn't come as a surprise, though – after all, homegrown software houses need to bear the same costs you would do if you decided to hire your own, in-house team (including operational, marketing, and management costs). On top of that, every company simply has to earn money and make a profit!

Bearing in mind the 2019 average software developer salaries as named by PayScale, you can expect to spend the following amount of money on hiring a European engineer to work on your product:

Country Salary ($) Switzerland 96 926 Norway 59 326 Denmark 65 307 Sweden 44 472 Germany 54 347

Source: PayScale

This data brings us back to offshoring and, if you’re hesitant to trust your startup’s success to a distant business partner, nearshoring. Now, the question is: where should I look for an experienced yet not budget-draining IT whiz?

To find the answer, let’s focus on Europe and the hourly cost of IT services.

The average hourly cost of IT services in different European regions

As you may have already guessed Western Europe (Austria, Belgium, France, Germany, Netherlands, Switzerland), Scandinavia (Denmark, Finland, Norway, Sweden), and the UK are the most expensive software development service providers. The cheapest regions are the Balkans and post-Soviet countries.

If you’re looking for the best price-quality ratio, you might be interested to learn that your prospective IT service provider can be found in the middle: in Eastern Europe. These are not just empty promises. If you take a closer look at the Eastern European IT market is characterized not only by lower rates but also by a greater emphasis on developers’ skills, data protection (especially if we take into consideration GDPR), and fast economic growth.

Of course, you don’t have to take my word for it. Just take a quick look at the HackerRank’s list of world’s best developers:

Four Eastern European countries can be found in the top 10: Russia, Poland, Hungary, and the Czech Republic. See, I wasn’t lying when I told you that this part of Europe is your prospective high-quality code provider.

How much should you pay to achieve satisfying quality with offshore software development outsourcing?

If your priority is keeping the cost of outsourcing IT services low, you can find some software houses and freelancers in some low living cost countries. One of them is India which, on the one hand, offers cheap labor but on the other, hires many developers who lack a deeper understanding of cutting-edge technology. On top of that, working with Indian IT specialists, you’re bound to crash into cultural and time zone differences. What does it mean in practice? More time and money spent on creating a high-quality code for your product.

But fear not, there is an alternative! You just have to give up on "the cheaper, the better" attitude. Try to look for an IT outsourcing provider in a low living cost country but don't go overboard. Check out Central or Eastern European countries such as Poland, where the hourly cost can be as low as $35-$45. The project cost depends of course on many different factors, including tech stack, team size, duration, etc. but you can get the rough idea of the needed budget’s size e.g. by visiting software houses’ Clutch profiles. One of the required data in every review is a project size expressed in the project’s budget. 

Software development outsourcing has many benefits. You gain access to talented world-class developers, save money and don't have to hire an in-house team (what takes time and money). But if you want to be delivered with a snazzy, high-quality digital product, you need to take into consideration more factors than just the cost of IT outsourcing services. With the right attitude, you can hire the best remote team, get a masterpiece of software development and still save money.

Want to know if we can provide you with the quality and prices you need? Check why you should choose Merix and let’s talk about your project!