Do The Savings of Offshore Development Outweigh the Costs?




Organizations today have larger business expenses than ever before.

Security, data, tools, hardware, and development costs have all ballooned due to consumer preferences, regulations, and external risks.

It’s not hard to understand why a business would cut some of these costs by outsourcing development to an offshore company.

However, there are unseen risks associated with offshore companies that have their own set of expenses, so there are many things to consider.

Now a disclaimer: We are an onshore software development company, so naturally, we believe that onshore development almost always gives you a better product.

That being said, for some companies, it absolutely makes sense to hire an offshore development company. If that’s you, we understand (we have even been known to recommend offshore development when it makes sense). But it’s important to know what kind of tradeoffs you’ll be making in your offshore partnership.

Onshore vs Offshore Cost Comparison

US-based development companies can range quite a bit in their hourly rate. For example, putting a few junior developers on a job in a Midwestern city will be much cheaper than a team of senior developers on the coasts.

Despite this, US rates typically fall between $100-200 per hour. However, there are always outliers.

It’s also important to take into consideration the time spent. A senior developer might cost more, but can complete the work quicker, resulting in net cheaper expense.

Across the globe, offshoring companies are considerably less than US-based companies, usually falling in the $20-40 per hour range. Note that US-based supporting roles would still be billed at US rates, so it’s not low across the board. Your designer, project manager, tech leads, and CEO all need to be paid too.

Therefore, if your application is quoted by a US development company for $150,000, you might be able to offshore the project for half of that, or $75,000.

That’s a big cost saving. Your CFO might pressure you to take the cheap route. But before you do, make sure you understand some of the risks and other expenses that come with that 75K price tag.

The Cost of Offshore Software Development

If you’re going the offshore route, here are the costs you should plan for.

Manager/Tech Lead – Hiring a remote technical team without inhouse technical experience is a recipe for disaster.

It’s essential to have a technology leader who can monitor and manage the development team across seas.  If there isn’t someone already dedicated to this, you’ll need to hire someone locally. You also may also need to have this individual work in the evenings so that they can communicate during overlapping work hours.

Your company may have project management options, which can absolutely work. But those project management hours will be billed as US rates.

Upfront Planning – When developing a piece of software, context is king. Your development team needs to understand your customer’s problem, the industry, and possibly the scenario they’re experiencing it in. When they arrive at a coding roadblock, they understand the core needs and build accordingly.

This means you’ll need to spend additional time on the problem statement, requirements, supporting information, and communication. Otherwise, you might end up with “what you asked for, but not what you need,” erasing all cost savings you thought you achieved.

Expiration Date – When the primary focus is cutting costs, your team will focus on cutting costs. They may take shortcuts, use pre-built code that isn’t a perfect match, skip automated tests, or generally take more time on technical debt. This may result in an application that only lasts a year or two before needing to be refactored or completely rebuilt.

Travel Expenses – Of course, most of the time you won’t be flying around the world to meet with your team, but for larger projects or on-going work, you might. If that’s possible, consider those expenses when budgeting.

Things to Think About

When deciding something like offshore vs onshore, it comes down to when and where you need quality and longevity. If you need to prove out an MVP before investment, maybe offshoring is the right solution. If you need to build a reliable and complex application, you’ll want to execute it onshore.

What’s most important is that you think through the pros and cons of offshore development and understand the inherent risks and associated costs that come with it.

Once you understand some of the tradeoffs, you’ll be able to proactively strategize and create a solution that addresses your business needs.