The article was updated on November 25, 2020.
Depending on where you reside, the local rates for software development can be exorbitant or simply unfit for your business. In that case, IT outsourcing presents a great way for matching your idea to the best development prices.
The global revenue of outsourcing services in the previous year reached a staggering 135.5 billion dollars. Coupled with the pandemic crisis of 2020, the trend to expand your pool of candidates for development beyond your home country is likely to carry on into 2021 and the years to follow. Considering about 80% of businesses who decide to outsource an IT project report a positive experience and beneficial results, the industry will continue getting more appealing and reliable.
For startups, working with companies or freelancers from abroad can help kick their businesses off with a minimum budget. In fact, outsourcing your projects to a quality offshore development destination can help cut expenses by as much as 20-25% on average.
Although the strategy is overall beneficial, simply finding the lowest price on the market and giving it a go is likely to fall short of providing the product you’re hoping to obtain. Not all outsourcing destinations are equally cost-efficient in terms of development quality.
Which is why we have prepared a comparative overview of the software development prices across some of the most popular outsourcing destinations.
Before we dive into the numbers, it’s worth mentioning that software developer rates might vary significantly even within one country. Namely, there are several aspects influencing the cost of software development:
- Level of seniority. This one is pretty obvious. More experienced developers have higher rates than newbies, and there is a good reason for that.
- Tech stack. The programming languages or specific tech solutions used by a software developer might also have an impact on the rate. For example, iOS developers often charge slightly more than Android developers. In addition, less mainstream technologies including Clojure, Rust, Elixir, or, vice versa, tech stacks that are currently in-demand such as Go or Swift, are typically priced higher.
- Freelancer vs. a company. Freelance software development rates are lower than the ones a company can offer. However, with a slightly higher cost you get the guarantees and safety which freelancers simply cannot provide.
- Long-term vs. short-term. Long-term commitment can be priced lower than a one-time project. Some developers (and most companies) prefer an inflow of steady tasks instead of short-term projects. Thus, a long-term cooperation plan can help you secure a lower hourly rate.
That is why we will talk about the average low and the average high values instead of trying to put a single price tag on every developer in the country. While the gap between these two values might be insignificant, the difference is often distinct, especially in terms of software quality.
Therefore, in order to make the right investment decision when hiring a software developer or an outsourcing company, it is important to understand the spectrum of hourly rates that you may come across.
What is the average cost of software development? A comparative analysis of the top outsourcing locations
The provided research aims at one of the most burning issues of our rapidly digitizing world, namely the prices of IT services.
To provide reliable data on the topic, we have gathered all the available information and combined it with our own knowledge of the IT outsourcing industry.
For your convenience, the comparative analysis focuses on the major IT outsourcing options, such as hiring locally, nearshoring, and offshoring development. Thus, our research covers the most popular outsourcing destinations, as well as the less known locations.
On-shore outsourcing: Hiring developers locally
This type of outsourcing typically implies that a company will hire developers within the country it is based in. Thus, when saying on-shore, we usually mean the USA and Western European countries, including the UK, Germany, France, and the Nordics.
The average hourly rate for a software developer here is rather high, due to the overall higher standard of living and average wages in the country. Thus, the cost can vary from $50 to $200 per hour (some companies might charge even more, depending on a number of aspects).
If you are looking for good quality service, a reasonable price for IT services here would be closer to $100 per hour. This is one of the most significant drawbacks of on-shore outsourcing. Among the other pitfalls worth mentioning is the limited talent pool resulting from growing the talent shortage in some developed countries (take for example Israel or UK).
However, the benefits of such an option is indisputable: the absence of language and cultural barriers, the same (or close) time zones, convenience of travel, and thus efficient communication and better reliability.
Please note: If you decide to look for a software development team locally, you still need to take the location into account. The rates might vary greatly from state to state or from city to city. For example, the average wages in California and Nebraska might differ drastically.
Offshore developers: Looking for talent halfway around the world
Asian countries, namely India, China, Pakistan, and the Philippines, represent another popular outsourcing destination. India is often considered to be the most popular outsourcing destination. At the same time, within the IT services sector, the country is often criticized not only for producing extremely poor quality software (more on that later), but for communication issues.
One more, less known, outsourcing destination is Africa: South Africa, Nigeria, and Kenya have just joined the list of IT service providers, and represent a less competitive, emerging market. However, there is still not enough evidence to consider this market as a promising outsourcing location.
Unlike local US and European rates, offshore rates for software development might be rather low. The price usually varies from $15 to $30, with the average rate of $25 per hour.
Please note: While you can certainly find cheaper offerings (starting as low as $5 per hour), at such a cost, you shouldn’t expect to receive services which can be even considered as average quality. However, even a rate of more than $30/hour doesn’t necessarily guarantee 100% quality.
Poor quality is probably the main drawback of cheaper offshore development. Combined with the lack of understanding and communication, cultural barriers and distance; serious damage can be inflicted on your business.
On the other hand, many large companies hire offshore developers and set up dedicated development centers to outsource minor software tasks.
With special training and strong business processes in place, it is possible to nurture the right talent for your company. However, this approach is not suitable for growing businesses and startups.
Nearshore outsourcing: The happy medium
The concept of nearshore outsourcing might have a different meaning depending on the country your business is located in. For companies in the US, the nearest possible IT service markets are South America, Mexico, and Canada. For Western European clients, there is a more convenient option, Eastern European and Post-Soviet countries.
Please note: Despite the significant distance, there are hundreds of US startups and companies choosing to hire dedicated development teams and set up R&D centers in Eastern European countries including Ukraine, Belarus, and Poland. The reason for that is pretty straightforward: unparalleled quality of service at a reasonable cost.
A software engineer’s hourly rate in this region usually ranges from $20 to $50/hour with the average rate being close to $35/hour. However, the rates can vary greatly depending on the country. For example, Poland is a more expensive location for offshoring development than any of the other Post-Soviet countries.
Ukraine is an offshore development country that offers one of the best price/quality ratios on the market. Although the tech industry in Ukraine is still relatively young, local specialists receive an outstanding education and boast a solid scientific background. The talent pool of software developers in Ukraine is also the second-largest in all Eastern Europe.
Let’s look at several key benefits that you can enjoy if you decide to work with offshore developers in Ukraine.
- Affordable prices
Compared to the average cost of labor in Europe and the world, Ukraine sits on a fairly low end of the spectrum. The growing competition in the IT field also contributes to companies and freelancers instilling lower prices to break into the market.
The average outsourcing rates for software development in Ukraine fluctuate from $25 to $50 per hour. This is cheaper than Poland, with the typical starting prices of $50 that can reach $100 for one development hour. Overall, Ukraine falls in the middle of the Eastern European price range while offering much higher quality than many of the neighboring countries.
- Impeccable quality and strong theoretical foundation
Product quality is the second significant reason you should consider outsourcing to Ukraine. Unlike many offshore destinations with relatively cheap software developer services, Ukraine’s main benefit is not simply the cost of the development but the skill and dedication that goes into every project. According to TopCoder’s ranking, Ukrainian programmers hold 6th place among the top developers in the world.
One of the reasons for it is the solid technical foundation that local universities offer. Annually, Ukrainian educational institutions produce over 35 thousand graduates with STEM degrees, and the majority of them also speak English at an Upper-Intermediate level.
- Large talent pool
Ukrainian IT specialists constitute a rapidly growing category on the labor market. As the tech-related positions gain popularity, more and more Ukrainians are taking advantage of the extensive educational opportunities and are diving into this field. Consequently, Ukraine presents one of the largest tech talent pools, not only in Europe but globally.
- Expertise in IT outsourcing
Ukrainian software developers work in numerous outsourcing firms as well as local offices of big-name companies. Clutch displays 1,332 Ukrainian enterprises in web development alone.
Ukrainian specialists work at such companies as Oracle, Boeing, Samsung Electronics, Huawei, Apple, Microsoft, Skype, IBM, and Magento, to only name a few. Also, such successful startups as Grammarly, PetCube, Readdle, and Mobalytics had originated in Ukraine before moving to the global arena.
Combined with excellent technical skills, the experience of Ukrainian developers offers a strong case for picking this country as your European outsourcing destination.
- Good geographical location
Ukraine offers good access to the majority of Western Europe, as well as 1-2 hours of difference with most European countries. For the U.S., the time difference can vary from 6 to 8 hours. Logistically, Ukraine is in one of the best spots to conduct offline meetings, and you will likely be able to seamlessly align the online schedules with only a minor difference in time zones.
Read also: Outsourcing to Ukraine
Choosing a fitting offshore software development country can be tough, but it’s more achievable if you consider several key aspects before making the decision.
Average hourly rates
Software development rates constitute the first thing you can use to narrow down the search. Determine your desired budget for the project and look for countries and companies with corresponding hourly rates. You can also contact several of your top choice developers to request personalized estimates based on your project idea.
The maturity of the tech industry
Focusing solely on offshore software development rates can cost more than you’re expecting if the quality turns out to be unsatisfying. When scouting for a company abroad, consider the skill level of software specialists and the overall maturity of the IT industry at your destination.
Another vital point to consider when choosing a software development outsourcing destination is the time difference. Working with a team on the other side of the globe may not be sustainable, even if it’s attractively cheap.
Sometimes, you may encounter truly tempting offshore developer rates in countries or companies that don’t share your business’s mentality. Although for smaller projects, the compatibility might be overlooked, it’s always best to ensure your chosen developers will fit well within your company. Considering the cultural aspect can help avoid clashes during the development process and build a well-oiled machine for future collaboration.
While cost reduction remains the leading driving force of outsourcing, such aspects as increasing business core focus and solving capability issues are catching up, according to the research by Deloitte. Thus, more businesses would rather choose good quality and efficient communication over cheap software developer rates.
After all, it’s conventional wisdom: Buy cheaply and you will pay dearly.
To find the best outsourcing partner, consider the benefits and the real business value a company can offer. This can translate into innovative solutions, specific technology or domain experience, efficient business processes and streamlined communication, as well as rare expertise and deep business understanding. If the price is the only selling point in the offering, better keep looking.
We at Eastern Peak combine solid business expertise, professional project management, efficient communication and collaboration practices, and cutting-edge tech skills to help our clients build world-class software solutions.
Contact us now to schedule a 15-minute call with one of our project managers and find out how we can help your business grow.