The Ultimate Guide for Outsourcing Software Development: Part I

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Outsourcing software development involves bringing in an external outsourcing company to oversee and manage the comprehensive development of a software solution, encompassing various tasks such as design, engineering, project management, testing, and more.

This strategic approach, while typically manageable by an in-house team, is frequently adopted to optimize resource allocation and acquire the expertise necessary for the project’s successful realization.

The trend of outsourcing has gained momentum as more businesses opt for tailored software development solutions, and it’s projected that IT outsourcing will surpass $1 billion in 2024.

Given your presence here, we assume a few things about you:

Now, it’s time to transition from theory to action to harness the benefits that outsourcing software development can bring.

So, how do you go about it? In this article, we’ll provide you with insights into the initial stages of software outsourcing – from identifying your business needs and goals to finding a reliable outsourcing company online.

Step #1: Identify Your Development Needs and Goals

Before you engage with an outsourcing company, it’s imperative to have a crystal-clear understanding of your project’s requirements and goals, and establish a precise development objective.

Under the project-based software development model, you generally enlist a team of developers to manage the entire project. 

On the other hand, specialist-based outsourcing entails an outsourcing firm or its specialists taking charge of specific tasks or functions for your business.

But how does it differ from outstaffing then? In contrast to outstaffing, specialist-based outsourcing does not involve direct work under the client’s supervision and integration into their team. 

Once you’ve mapped out your project’s needs and objectives, the next step is to identify which development tasks you intend to outsource. This initial phase in outsourcing software development is pivotal because: a) you’re establishing the foundation for your development process strategy, b) you’ll need to communicate your goals and expectations clearly to the outsourced team since they will be delivering the project, and c) you’ll need to assess the quality of work produced by the outsourced team and whether they’ve met the expected deliverables.

Step #2: Plan Your Budget

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Establishing your budget beforehand is critical, as many aspects of your software development process depend on the availability of funds. When budgeting, consider these important factors:

  1. Outsourcing Model: Will you outsource the entire project or specific tasks? Alternatively, will you combine an onshore team with an offshore development team? Keep in mind that a hybrid model can be more costly due to having both an in-house team and an outsourcing software development team.
  2. Scope of Work: The complexity of your project directly impacts its budget. The more tasks you outsource, the more specialists are required, leading to higher costs.
  3. Project Duration: Remember to estimate your project’s duration. Generally, longer projects require more allocated financial resources.
  4. Geographical Location of the Outsourced Team: As discussed in our article about 5 stereotypes about outsourcing software development, outsourcing developers from countries with lower costs of living tends to be cheaper than those from countries with higher living standards, such as the US, UK, or Western Europe.
  5. Number of Specialists to Outsource: One advantage of outsourcing software development is the ability to adjust your team size based on your project’s needs and growth. However, whether you need a few developers or an entire team will impact the outsourcing price.
  6. Skillset of the Outsourced Team: It’s worth noting that specialists with expertise in rare technologies generally command higher rates. The same applies to their professional experience – more experienced developers typically come with a higher budget requirement.
  7. Tools You Intend to Use: Take into account that any software tools you plan to use – whether for management or communication with your remote team – will require additional budget allocation.
  8. Legal Aspects: This includes costs for legal consulting before finalizing an agreement with an outsourcing company, as well as legal fees and contract negotiation when establishing an outsourcing agreement.
  9. Hidden Costs: Potentially, there might be hidden costs such as taxes, licensing fees, costs for training the outsourced team, and others that you will need to cover. Therefore, it’s recommended to negotiate these aspects before partnering with an outsourcing company and allocate a budget for these expenses.

Step #3. Choose the Right Country for Outsourcing

When faced with the decision of selecting the most suitable country for outsourcing that aligns seamlessly with your project’s requirements, it’s important to consider these critical factors:

  • Tech Stack of the Outsourced Team
    If you google the top countries for outsourcing software development, you’ll come across Eastern Europe, India, and Asia, which are often spotlighted due to their developer rates that are easy on the budget. However, determining the optimal outsourcing destination transcends the sole focus on economical pricing. The primary element to evaluate when deliberating on an outsourcing country is whether it boasts the necessary pool of specialized experts that you require.
  • Hourly Rates
    Now that you have a precise understanding of the specific developers you need, it’s time to embark on market research to compare the price rates of these outsourced developers.
    As previously mentioned, the cost of living within a country significantly influences its pricing structure. Hence, if you’ve stumbled upon a country offering relatively lower prices, do not jump to the conclusion that the quality of work delivered will be subpar. Countries such as Ukraine, Poland, Romania, Bulgaria, and the Czech Republic, for instance, strike a balance by offering both reasonable hourly rates and exceptional quality development work (read more in our latest article, under  “Stereotype #5: Low Price Rates = Poor  Work Quality”).
  • Time Zone
    Given that the team you’ll be collaborating with is situated offshore, it’s highly likely that varying time zones will come into play. Consider the time offset that aligns best with your needs. Despite the outsourced company overseeing project management, you’ll still need to synchronize with the external team for communication, updates, and staying informed about project developments.
  • Cultural Aspects

    This aspect is likely one of the most overlooked factors when it comes to outsourcing developers. The communication process matters. Even if everyone is proficient in English, there’s an intrinsic aspect that cannot be brushed aside when nurturing connections with your outsourced team: cultural differences. If your offshore team and your company uphold distinct values or possess significantly varying mindsets, this will undoubtedly impact not only how information is communicated and understood but also, ultimately, the efficiency of the outsourced developers’ work.

Step #4. Find Your Outsourcing Partner

When it comes to discovering a trustworthy outsourcing partner, one of the tried-and-true methods is to tap into personal references. However, what if you lack such references? 

While personal referrals might be the cornerstone, online specialized resources stand ready to offer a helping hand. These platforms provide a wellspring of options that can help guide your search for the ideal outsourcing company:

  1. B2B platforms
    B2B platforms, such as Clutch, serve as valuable sources containing numerous reputable software development firms. Here, you can also discover companies offering outsourcing services, accompanied by client reviews that affirm their level of expertise.
  2. Freelance platforms
    An alternative method to directly access a global roster of outsourcing companies involves websites like Upwork, Toptal, or YouTeam, all of which are acknowledged as premier freelance platforms within the IT industry.
  3. LinkedIn
    LinkedIn has evolved into more than just an effective headhunting tool for HR managers; it has become a global meeting point of software companies, developers, and outsourcing agencies. You can attempt to research outsourcing companies by utilizing specific keywords, tapping into your network of fellow software enterprises, or upgrading your account to a premium level, thereby unlocking advanced tools for superior lead generation.
  4. IT communities
    In case you haven’t had any luck so far (which we doubt greatly), consider exploring the tried-and-true forums and social media platforms in the industry, such as Quora or Discord. These are excellent avenues to connect with the outsourcing providers you’re looking for. Why not let the ecosystem take care of all the research for you? 😉


Now that you’ve identified an ideal outsourcing candidate, you’re halfway to fully realizing the benefits of outsourcing software development for your software development company.

In the upcoming article, we will delve into the final stages of software outsourcing. We’ll take a deep dive into the proper evaluation of an outsourcing company, the art of signing an agreement, the pitfalls to avoid, and much more.

To be continued.

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