How Much Is the Cost of Offshore Software Development?

How Much Is the Cost of Offshore Software Development?

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Offshore software development is the practice of outsourcing software development tasks to a team or company located overseas that offers relatively decreased labor and operational costs. This strategy is tightly rooted in many businesses’ models, becoming one of the best options for ordering cost-efficient services and choosing credible vendors from a global talent pool. 

The adoption of this partnership approach in the most reasonable and effective way is only achievable if you understand its cost dynamics. Offshoring has found its adoption for corporations of diverse scales. Startups and newly founded companies with narrow team compositions greatly benefit from this cooperation model, as it ensures qualitative services at a great value-for-money rate, ensuring high Return on Investment (ROI). Major market players, such as Google, Amazon, and BigCommerce, also showcase a successful relocation of IT efforts to foreign countries through offshoring.

This article provides a comprehensive overview of offshore software development costs, defining key forming factors, opportunities for savings, and strategies for optimizing the value-for-money rate. This will help you make informed decisions, maximize offshore partnerships, and effectively achieve your software development goals.

Why Companies Opt for Offshore Software Development

Businesses from small to large can get a lot of benefits from partnering with offshore software development vendors. What exactly are the reasons that motivate them to choose such a partnership option, and how does it affect the cost of offshore software development?

Cost Savings

The primary reason why you should consider offshore software development is cost savings. Offshore destinations often can offer you skilled professionals’ services at a fraction of the cost compared to hiring on-site. According to Destatis, lower labor costs can be faced in countries like Ukraine, Argentina, and India, which allow companies to stretch their budgets further while maintaining high-quality standards. You can significantly cut down operational expenses associated with maintaining in-house teams, such as payrolls, perks, office space, and infrastructure, by opting for outsourcing software development tasks to offshore teams instead.

Access to the Global Talent Pool

Offshore software development enables your business to extend the opportunities with new talents and any necessary specialization. The offshore destinations have a broader range of highly experienced software developers, engineers, and IT professionals ready to bring your product to the next level. The choice among offshore talent means accessing richer skill sets, more narrow specialization, and cutting-edge solutions that may not be available in your region. This access to a broader talent pool enhances the quality and efficiency of software development projects, allowing you to cope with complex challenges, adopt the newest technologies the first, and stay a sought-after market winner.

Flexibility and Scalability

An inherent benefit of offshore software development is flexibility and scalability, which allow you to adapt to changing business demands and project requirements faster and more efficiently. You are absolutely free to adjust your offshore development teams as needed, up or downscaling based on project demands, enabling you to cope with varying workloads seamlessly. Powerful scalability translates to meeting tight deadlines, accommodating sudden increases in project scope, and optimizing resource allocation with the remaining perfect project quality or timelines.

Focus on Core Business Functions

When the tech side of the project is taken over by experienced software development vendors offshore, you have more time and resources freed up to strategically develop your business and put more effort into more value-added tasks. Tasks that require tech-savviness and IT expertise are handled by specialized external partners, ensuring your internal labor can perform more efficiently and concentrate on integral business areas such as project elaboration, customer engagement, and new market reaching. Offshore development partners assume responsibility for the software development side, helping streamline operations, grow productivity, and drive business growth through a solid digital presence.

Let’s sum up all the benefits, comprising them in one table:

BenefitPractical value
Cost savingsOffshore developers can be up to 60% cheaper than hiring locally
Access to global talent poolVast pool of skilled developers globally, with roughly 74,000 experts in Ukrainian LinkedIn offering different specializations
Time zone differences24/7 development cycles possible by adopting time zone differences, accelerating project completion.
Faster time to marketProject completion 30-50% faster due to round-the-clock development and efficient resource allocation
ScalabilityScalable development teams, starting from 3 and extending to 20 or even more without the need for time-consuming recruitment
Diverse skill setsNarrow and domain-specific skill sets that may not be readily available locally, for example, Ukraine offers 40,000 Python professionals
Focus on core businessCompanies boost their efficiency from 20% to 40% by focusing on their core business activities when delegating software development to offshore teams
Flexibility in project managementOffshore development provides flexibility in project management, with Agile sprints adjusted dynamically, ensuring iterations ranging from 1 to 4 weeks
Mitigation of skill shortagesMitigation of skill shortages in the local market, like software development (28%,) cloud technologies (28%,) project management (25%,) and automation (21%)
Practical value of offshoring

Key Factors Influencing Offshore Software Development Costs

When opting for offshore software development services you are guaranteed to experience a diversity of benefits, allowing you to save your budget and implement sophisticated products with the assistance of your dedicated tech partners. In order to enjoy all the benefits of IT outstaffing, you must understand how the price of this kind of service is formed. With the cost-impacting factors in mind, you can optimize your offshore development strategies and budget even more effectively.

Labor Costs

Labor costs vary significantly across different offshore regions, and software engineers of diverse seniority can require fluctuating ranges. 

Variations in Hourly Rates by Region

In countries like Ukraine, the Philippines, and India, you can experience lower hourly rates compared to Western countries like the United States and the United Kingdom. Conditions of local economics, currency exchange rates, and the cost of living facilitate such a disparity in labor costs. In practice, Ukrainian Python developers require about $20- $45 for their performance, while the rates of software engineers in the US are approximately $55.

Impact of Skill Level and Experience

Software developers’ seniority and experience also have a substantial impact on offshore development costs. Senior software engineers with specialized expertise and years of experience contributed to obtaining more knowledge and have higher hourly rates than junior developers, respectively. As an entrepreneur, you should choose and allocate resources based on your project requirements, balancing your expenses with the appropriate level of expertise and proficiency. Let’s put it into practice and take a look at the table of Ukrainian offshore hourly rates for software development.

Level of seniority/ technology/ Hourly rateMid-level ProgrammerSenior DeveloperSoftware Architect/CTO
Python$35 – $40$41- $55$55+
Java$35 – $45$45- $60$60+
JavaScript$20 – $35$35 – $50$50+
Ukrainian Developers’ Salary

Project Complexity

Another factor to keep in mind when determining offshore development costs is the complexity of your software development project. 

Simple vs. Complex Projects

Simple projects with clear requirements and well-defined scopes tend to be more cost-effective as they require fewer resources and less time to complete. Besides, they are more transparent in cost estimating, as they typically require fewer variations in workflow and thus ensure relatively more precise and stable figures. 

In contrast, complex projects, like Enterprise Resource Planning (ERP) systems, Customer Relationship Management (CRM) Systems, or Healthcare Information Systems (HIS), traditionally incorporate sophisticated features, advanced functionalities, and integration with multiple systems. Such features may incorporate advanced reporting and analytics, Machine Learning and Artificial Intelligence integration, Internet of Things connectivity, multi-platform support, various industry-based compliances, and more. Thus, the use of several technologies, bigger teams, and a higher level of expertise increase development costs.

Customization and Special Requirements

Tailored development and bespoke requirements also increase offshore development costs. Customizing software solutions aimed at meeting specific business or industry needs often implies extra development efforts, from scratch creation and testing. In addition, projects that require integration with legacy systems, compliance with domain regulations, or implementation of cutting-edge technologies facilitate higher expenses due to the complexity, number of technicians, and competence required.

Technology Stack

The technology stack is critical to both the final product quality and the number of investments. 

Popular Technologies and Their Associated Costs

The availability of skilled developers proficient in popular programming languages, frameworks, and development tools straightforwardly impacts the delivery speed of project milestones and costs invested by your company. Thus, technologies with a solid developer community and extensive documentation may ensure stability and lower development costs due to easier resource availability, as well as accelerated development flow. 

In these terms, Python is an optimal choice for harmonizing budget constraints with high-quality product development. It offers a robust and versatile ecosystem with a rich choice of frameworks and libraries, catering to projects of any size and industry. Python is open-source, meaning that licensing costs are eliminated, while its extensive toolkit streamlines development and reduces time-to-market, decreasing overall project costs. And even with such solid cost-efficiency, you can be sure that your Python-based software solution is guaranteed to have flawless performance and quality. In the right hands of a professional offshore Python development team, this programming language will show its strengths to the best of its ability, taking your project to whole new heights. 

Licensing Fees for Proprietary Software

Licensing fees and third-party tools are related to acquiring the legal rights to use and access proprietary software, basically requiring recurring charges or one-time purchases. In case you employ commercial software solutions or licensed tools, it’s essential to factor this expense into licensing fees when budgeting for offshore development projects. Open-source alternatives may ensure you more cost-saving opportunities, as they eliminate or partly decrease licensing costs, although we suggest you consider the trade-offs in terms of support, security, and maintenance.

Time Zone and Communication

Well-organized coordination and collaboration within different time zones in offshore software development require the adoption of appropriate tools that my impact the offshore software development cost.

Coordination and Collaboration Challenges

Synchronous communication, such as meetings and discussions, may require scheduling adjustments to accommodate multiple time zones, making this aspect of collaboration a benefit, not a challenge. You should negotiate integrating handy project management software and issue tracking systems (e.g., Jira/Trello,) version control systems (e.g., Git,) and communication platforms (such as Slack/Microsoft Teams) to help mitigate communication barriers and facilitate effective teamwork across distributed teams. This way, you can not only avoid collaboration obstacles but ensure 24/7 product development and support with the time difference. 

Costs of Managing Different Time Zones

Managing teams across different time zones can be much more efficient when having the appropriate expertise on hand. That’s why you may need additional coordination, scheduling, and resource allocation costs. The main reason to invest in dedicated project managers or coordinators lies in the fact that you will be able to make the entire team’s workflow more productive, thus accelerating implementation and recouping development costs with responsive coordination. As a result, you can be sure that you receive professionally planned offshore development and alignment with business objectives and timelines.

Infrastructure and Tools

The hardware, development tools, and platforms directly impact the project’s output and costs in parallel.

Hardware and Software Requirements

Infrastructure and hardware expenses are an integral part of the cost for offshore developers as your team requires all the essential resources to fulfill the development, testing, and deployment properly. We can also suggest adopting cloud-based infrastructure solutions to ensure high scalability and flexibility while minimizing upfront investment in hardware and infrastructure setup, according to the pay-as-you-go (PAYG) model.

Costs of Development Tools and Platforms

Your product may require investments in licensed software development environments, integrated development environments (IDEs), version control systems, and testing frameworks. Subscription-based fees and PAYG options offer software purchasing flexibility and reasonable handling of initial expenses.

Considering all the expenditures, let’s divide the offshore software development cost by the project complexity level.

Simple ProjectsMedium Complexity ProjectsComplex Projects
Average cost range$5,000 – $50,000$50,000 – $200,000$200,000 – $1,000,000+
Team composition1-3 developers, 1 Project Manager3-5 developers, 1-2 QA engineers5-15 developers, 2-3 QA engineers
TechnologiesBasic back-end and front-end or low-code/no-codeBack-end (Python, Ruby, Javascript) and Front-end (React, Angular, Vue.js)Advanced back-end and front-end or full-stack + Data Science (AI, ML)
Infrastructure costsLow (Cloud server) $50 – $200/monthModerate (Cloud server) $100 – $500/monthHigh (Dedicated servers) $500 – $5000+/month
Third-party integrationMinimalModerateExtensive
Software licensesOpen-source/ freePaidPaid
Customization$500 – $5,000$5,000 – $20,000$20,000 – $200,000+
Other expensesDomain ($10 – $20/year), basic tools, testing, documentation, continuous updatingDatabase hosting, API usage, continuous updatingDevOps, Security, continuous updating
Project level-based expenses

Offshore Software Development Cost by Region

When accessing a global talent pool and leveraging the cost-effective resources of offshore IT vendors, you can face complexity in making the right choice among the rich diversity of regions, each offering services of various expenses. The cost of offshore development fluctuates significantly by region, as each country has its own labor market dynamics, skill degrees, and economic conditions. 

To establish a partnership with a credible tech vendor at a beneficial offshore software development cost, you should make an in-depth comparison of the average rates for such services across the most popular destinations: Eastern Europe, Asia, Latin America, Africa, North America, and Western Europe. Let’s build our research with a focus on cutting-edge technologies like Python to ease your choice of a reliable IT provider.

Eastern Europe

Eastern Europe is a leading destination for outsourcing your project to its highly qualified software development experts and competitive rates. As evidence, the outsourcing market of this region is projected to grow to $5.95bn in 2024. Countries like Ukraine and Poland are popular destinations for offshore software development due to their solid accessibility, strong knowledge of the newest technologies, strong educational systems, and supportive government policies promoting technological innovation and international cooperation. That’s why, according to Statista, in 2024, the IT services market is projected to reach a revenue of $3.70 billion, with IT outsourcing taking the lead with a projected market volume of $1.35 billion; this sector is forecasted to demonstrate a steady annual growth rate (CAGR 2024-2028) of 14.50%, taking the market volume from $1.35 billion in 2024 to $2.32 billion in 2028. Moreover, to hire and manage an employee, companies spend $196.80 by 2024, and the figures are $72.05 for outsourcing in 2028. 

Eastern Europe is one of the most beneficial regions for offshoring, especially when it comes to Python.  It is one of the most widely used programming languages, serving a diverse range of purposes. As of 2022, it is primarily used for web development, accounting for 46%, and data analysis, which makes up 54% of its usage, as Statista claims. The average hourly rate of experts working with Python in Eastern Europe ranges from $25 to $60 per hour. Furthermore, factors such as developer experience, project complexity, and specific technology requirements impact the cost for offshore developers. Technologies like Ruby, Java, JavaScript, and C# vary from $20 and $25 up to $50- $60 hourly. This rate is pretty cost-efficient and allows you to cut down costs while your project is being taken over by outstanding tech-savvy experts. Aside from that, Ukraine and other Eastern European countries have great English Proficiency Index (EPI,) meaning that there are no communication and cultural barriers.

Asia

Asia is a popular hub for offshore software development, where you can find a lot of enthusiastic professionals. Countries like India, the Philippines, and Vietnam can boast their large pool of developers and the lowest rates. Nonetheless, this region has some obstacles with proper facilities for efficient communication and performance. Due to the decreased level of education, developers there don’t have sufficient experience to handle all project challenges, resulting in bugs and poor final product performance.

As for Python development, the average hourly rates in Asia range from $20 to $50 per hour, making it an attractive option for newly-come market players striving to minimize development costs. For projects requiring a tech stack that covers Java, PHP, or C#, the rate also remains pretty low as well, starting at $15 per hour.

Latin America

Another preferred place for offshore software development is Latin America. This is a particularly relevant choice for companies from North America seeking timezone proximity and talent pool availability. Mexico, Brazil, and Argentina ensure a combination of profound expertise and time zone compatibility, yet IT services there are relatively more costly. However, the principle “the higher the price, the better the quality” is not always relevant in this region. 

Undoubtedly, developers for the solid cost of offshore software development meet high-quality standards, but the same top-class IT services can be ordered in other regions for a more reasonable rate. In fact, the approximate hourly rates for Python development in Latin America range from $30 to $70 per hour, which may not fit the budget of startups or SMEs. The rate has slight variations for various technologies, for example, $25- $60 for JavaScript.

Africa

Africa is a relevant choice for offshoring because of its youthful population, enhanced infrastructure, and support of IT education. You can look for great IT providers in countries like South Africa, Egypt, and Kenya. The software development sector is elaborating there, still, services remain cost-effective, which can be a perfect opportunity for smaller businesses.

Considering Python developers, Africa’s experts charge between $20 and $50 per hour, with the potential for cost savings compared to other regions. The same rates remain for Java, PHP, and Ruby development.

Western Europe

You are guaranteed to get high-quality software development services in Western Europe, offering perfect markets for offshoring yet requiring solid investments. The benefits of huge IT hubs like the United Kingdom and Germany are perfect cultural compatibility, native English, and an excellent knowledge base. Still, these regions have the highest rates of all we’ve mentioned.

For Python development, the average hourly rate in Western Europe ranges from $50 to $150 per hour, and JavaScript development requires from $40 to $120.

These figures indicate offshore software development rates by country and technology for better orientation and decision-making.

RegionPythonJavaScriptJavaRubyPHPC#
Eastern Europe$25-$60$20-$50$25-$60$25-$60$25-$60$25-$60
Asia$20-$50$15-$40$20-$50$15-$50$20-$50$20-$50
Latin America$30-$70$25-$60$30-$70$30-$70$30-$70$30-$70
Africa$20-$50$15-$40$20-$50$20-$50$20-$50$20-$50
Western Europe$50-$150$40-$120$50-$150$50-$150$50-$150$50-$150
Offshore software dev rates

Hidden and Additional Costs to Consider

Costs that, at first glance, can not spring to mind may make your project estimate complicated. The primary and straightforward development costs are easy to calculate, but the hidden and additional expenses are more intricate. These may arise throughout the project lifecycle, impacting the overall budget and project timelines, so let’s get familiar with these expenses as well. 

Travel and On-Site Visits

While offshore development allows businesses to partner with their IT vendor remotely, there are cases where travel and on-site visits may be essential. You may need extra travel expenses to cover airfare, accommodation, transportation, and per diems, especially when discussing long-term or frequent visits. You should also be ready to budget for team meetings, project kick-offs, training sessions, and client visits. Besides, it may be beneficial to apply effective coordination and scheduling to minimize travel costs while maximizing the value of on-site engagements.

Training and Onboarding

Onboarding offshore development teams requires investment in training and orientation to ensure alignment with project objectives, processes, and standards. Training expenses ordinarily include documentation, online courses, workshops, and mentorship programs to familiarize your new teammates with your company’s culture, technology stack, and project requirements. In case you would also like to order ongoing support and mentoring, these expenses are critical to facilitating seamless integration, collaboration, and productivity, reducing errors, and accelerating project delivery between onshore and offshore professionals.

Quality Assurance and Testing

Quality assurance (QA) and testing are important phases of the software development lifecycle that require dedicated resources and expertise to guarantee your product meets the highest standards of quality and has no performance faults or errors. Offshore QA and testing teams can guarantee software products’ reliability, functionality, and performance. Additional offshore software development costs for QA and testing activities relate to the use of test automation tools, test environments, defect tracking systems, and QA specialists. 

Hidden costsEstimated expenses
Taxes, tariffs, and legal feesVaries based on location and agreements
Travel and on-site visits$5,000 – $20,000 per trip
Training and onboarding10-30% of employee salary
Quality Assurance and testing15-25% of project budget
Hidden costs in offshoring

Strategies to Manage and Optimize Offshore Development Costs

Effective management of offshore development costs is the main practice for ensuring project success and maximizing return on investment (ROI). Let’s examine some key strategies for managing and streamlining your budget.

Clear Communication and Project Documentation

Establish open and handy channels of communication, regular meetings, and clear reporting mechanisms for both your team and offshoring vendor. This facilitates alignment between professionals, ensuring a shared comprehension of project objectives, requirements, and expectations. Detailed project documentation, such as specifications, user stories, and acceptance criteria, is also a must to provide a plan for development efforts, minimizing misunderstandings and rework.

Agile Methodologies and Iterative Development

Agile methodologies and iterative development approaches can help manage offshore development costs as they focus on high flexibility, adaptability, and responsiveness to dynamic requirements. Agile frameworks, such as Scrum or Kanban, emphasize iterative cycles, frequent deliveries, and continuous feedback, helping your teams to prioritize tasks, eliminate risks, and deliver value incrementally. This helps break down complex projects into manageable tasks, minimize development costs, accelerate time-to-market, and prioritize high-impact features. 

Vendor Selection and Negotiation

The question of how to hire offshore software developers plays a crucial role in managing offshore development costs. To succeed in this process, carry out thorough due diligence, evaluate vendor capabilities, and assess past performance, identifying reputable partners with the appropriate expertise and resources for the project. Transparent and constructive discussions can help you establish favorable pricing models, service-level agreements (SLAs), and contractual terms that align with budgetary constraints and project requirements.

Regular Monitoring and Reporting

Prior to cooperating with offshore vendors, you should set your key performance indicators (KPIs), milestones, and metrics to measure performance, monitor budgetary adherence, and identify areas for improvement. Real-time dashboards, progress reports, and financial forecasts may come in handy to provide you with visibility into project status, resource usage, and expenditure trends. Ongoing monitoring and reporting on project metrics are useful to identify inefficiencies, implement corrective actions, and optimizing offshore development costs.

Balancing Cost and Quality

The right balance between cost and quality is crucial for achieving successful outcomes with your offshore software development vendor and maximizing value for your businesses. While cost is a core consideration, it should not be the determinant aspect. This also requires understanding the relationship between these factors and recognizing the risks associated with prioritizing one over the other.

The Relationship between Cost, Quality, and Value

Reducing costs is often a primary aim for businesses, but it should not come at the expense of quality or value. High-quality software solutions deliver tangible benefits, such as improved performance, reliability, and user satisfaction, which contribute to long-term value creation for businesses, quickly recouping costs and establishing stable value streams. 

Conversely, cutting corners on quality to reduce costs can lead to increased maintenance expenses, technical debt, and reputational damage over time. Therefore, achieving the right balance between cost, quality, and value requires your attention and approach to consider both short-term financial and long-term strategic goals.

Risks of Choosing Solely Based on Cost

Low-cost providers may offer initial savings but lack the expertise, resources, and standards to deliver high-quality solutions consistently. Poor-quality products can result in project delays, defects, and usage challenges, resulting in increased rework, customer loss, and potential revenue reduction. In addition, offshore vendors with unsustainable pricing models may compromise on quality or resort to unethical practices to meet cost targets, putting projects at risk of failure and legal repercussions. Due to these reasons, it’s essential for you to research the background of each vendor based on a combination of cost, quality, experience, and reputation and prioritize ongoing value over short-term cost savings.

Conclusion

Offshore software development costs are affordable when selecting vendors from relevant countries. Thus, businesses can get excellent services at a great value-for-money rate. The final investment is based on the following aspects:

  • Region rates and factors such as labor rates, project complexity, and technology stack.
  • Hidden and additional costs, like travel, training, and quality assurance

When adopting the relevant techniques, you can minimize development expenses and obtain a product that exceeds your expectations. Your approach to cost assessment should consider both financial aspects and long-term strategic objectives to ensure your budget can cover all the arising expenses. To do so, it’s integral to follow such techniques as cost management, risk migration, and resource optimization, recouping costs and achieving successful outcomes in offshore development cooperation. Contact PLANEKS for an accurate and individually calculated project estimate based on your goals and requirements. Our professionals will be pleased to assist you in bringing your idea to reality.

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