Guide on How to Outsource Software Development

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Businesses from all industries are now keen to outsource software development in a bid to reduce costs, increase efficiency and gain a competitive edge especially for non-technical leaders. If you're considering outsourcing software development, this guide will teach you everything you need to know about the process.

We'll discuss how to outsource software development projects including the steps involved in the process and provide tips on how to select the right developer. We'll also discuss the risks of outsourcing software development and how to mitigate them.

What is software development outsourcing?

Software development outsourcing is the process of hiring a third-party company or developer to handle part or all of your software development needs. It differs from offshoring in that offshoring refers to the relocation of an entire business operation, whereas outsourcing involves contracting with a specific supplier for specific outsourcing software development services.

Software development outsourcing has become a popular alternative to in-house development, as it offers businesses several benefits, such as access to a larger talent pool, lower costs, and faster turnaround times. However, before you can reap the benefits of utilizing software development outsourcing companies, you need to make sure you are doing it correctly. This guide will help you do just that.

Reasons to outsource software development

Outsourcing software development can have a ton of benefits for your business.

Here are some reasons why you might want to consider outsourcing:

  1. You need custom software that's not available off-the-shelf.
  2. You don't have the time or resources to develop software in-house.
  3. You want to cut down on software development costs.
  4. You need to speed up the software development process.
  5. You want access to expert software developers.

Further reading: Pros and cons of software development outsourcing

Steps to Successful Outsourcing of Software Development Projects

Successfully outsourcing a software development project requires careful planning and execution. These steps represent the very best procedure in the industry, taking into consideration what has worked and what has failed. By following these steps, you can be sure that your software project will be completed on time, within budget, and to your specifications.

Step 1: Define goals

The first step in finding a software development team is defining your goals. What are you looking to get out of the partnership

Consider these key items when defining goals;

What do you want to achieve

Before you can outsource anything, you need to know what you want to achieve. And we're not just talking about vague goals like «improve our business» or «become more productive.» You need to be specific when it comes to software development.

Ask yourself the following questions:

  • What business problems am I trying to solve with this outsourcing?
  • What features do I want the software to have?
  • What kind of timeline do I need to meet?
  • How much am I willing to spend?
  • What quality of work am I expecting?

Be as detailed as possible when answering these questions. The more specific you are, the easier it will be to find a development team that can help you achieve your goals.

Understand what you're willing to compromise

Make sure you understand what you're willing to sacrifice in order to achieve the key goals. If cost is your primary concern, for example, you may be willing to accept lower quality software. 

However, if you're looking for the best possible software, you may be willing to pay more. In either case, it's important to know your own priorities and what you're willing to compromise before setting any goals. 

Step 2: Define the specific tasks

Goals and tasks are often confused to mean the same thing, but there is a difference. Goals are the overall objectives that you want to achieve, while tasks are the specific actions that you need to take in order to achieve those goals.

Goals tend to be measured in terms of results (e.g., «I want to earn a million dollars»), whereas tasks are measured in terms of effort (e.g., «I want a feature that does ABC..).

Take these items into account when defining tasks;


When you're discussing scope in software development, you're talking about the bounds of the project — what features will be included, how much time and money will be spent, etc. It's important to have a clear understanding of scope, because it will help dictate the budget and timeline. You can divide up the scope into functional vs non-functional requirements. 

Functional requirements are things like „the system must be able to login users“ or „the system must be able to search for products.“ Non-functional requirements are qualities that a system must have, but which do not determine how the system works. Here are some examples of non-functional requirements in software development: the system must be able to handle a certain amount of traffic, the system must be able to process transactions in less than three seconds.

List and prioritize the tasks

Now that you have the scope, list out all of the tasks that need to be completed. This can include anything from designing the user interface to developing the database.

Once all of the tasks have been identified, you can then begin categorizing them by priority. The most important tasks should be placed at the top of the list, while the less critical tasks can be placed further down. This will help ensure that your development team is focusing on the most important aspects of the project first.


Your task deliverables should include a project overview, system requirements, design docs, testing plan, and a project schedule. 

The overview should give a high-level picture of the project, while the system requirements document will outline exactly what the system needs to do. The design docs will show how the software should look and function, while the testing plan will detail how testing will be conducted. The project schedule will outline when each task needs to be completed. 

Step 3: Budgeting

Now that you know what you need, the next step is to budget. When it comes to budgeting for software development outsourcing, there are a few things to consider.

First and foremost, you need to figure out how much the project will cost. This can be difficult, as it’s not always easy to estimate how much time and resources a project will require.

You also need to budget for potential delays and overruns. Unfortunately, these are an unavoidable part of any software development project.

Beware and budget for hidden costs

There are a number of additional expenses that can add up quickly. Here are a few of the most common hidden software outsourcing development costs:

  • Language translation
  • Interpretation
  • Cultural training for your team
  • Communication and management costs

It's important to remember that you get what you pay for, so don't try to skimp on your budget. If you want a high-quality, successful project, you need to be willing to invest in it.

Step 4: Decide the outsourcing model

There are a few different types of software development outsourcing models, and each has its own advantages and disadvantages. Here are the common models:

Fixed price model

Under the fixed price model, the outsourcer commits to a predefined price for the entire project. This model is often used when the requirements are well-defined and the scope of work can be estimated accurately.

The client pays the provider a lump sum fee for the completion of the project. The provider then assumes all of the risks associated with the project, including cost overruns and schedule delays. While this type of arrangement can provide some certainty for the client, it can also put the provider in a difficult position if the project encounters unexpected problems.

Dedicated team model

The supplier will create a team of developers who will be exclusively working on your project. This can be quite limiting as you're tied to the team that the supplier creates and you can't easily change or add developers should the need arise.

However, this model does have some benefits. First, you have complete control over the team and how they work. Second, you're able to communicate with them directly and establish a personal relationship. And third, since the team is dedicated to your project only, they will be very knowledgeable about your business and requirements.

Time and materials model

The supplier is paid for the time they spend on the project, as well as the materials used. T&M is often used for smaller projects, or when you want more flexibility and don't want to be tied down to a fixed price. It can also be used when the project is still in its early stages and you are not sure of all the requirements yet.

This model gives greater control over costs. However, it can also lead to cost overruns if the project takes longer than expected. In addition, the time and materials model can incentivize the vendor to pad their hours or use less experienced resources in order to reduce costs.

Pay per deliverable model

You will only be charged for the features or modules that are delivered. This can be a good option for companies that are unsure of what they need or companies that have changing or evolving needs. It can also be a good option for projects that are time-sensitive.

This model tends to be more expensive in the long run. It can also be difficult to estimate the total cost of the project upfront.

Staff augmentation model

In the staff augmentation model of software development outsourcing, businesses outsource to supplement their in-house team. This can be helpful when companies lack the internal expertise or capacity to complete a project, but still want to retain control over the direction and execution of the work. One advantage of this model is that it can be more flexible than other outsourcing arrangements, since businesses only contract for the specific skills and resources they need. 

There is typically less risk involved in this type of arrangement, as businesses are not relying on the outsourced team to manage or deliver the project. However, one potential downside is that this model can be more expensive than other options, as you are effectively paying for two teams to work on the same project.

Step 5: Shortlist companies

This is a critical step, because the company you choose will ultimately determine the direction your project will take.

Keep these factors in mind when shortlisting potential outsourcing partners and make the best decision for your business.

Consider the company's core values

It is important to select a software development company that aligns with your core values. Do they emphasize quality? Are they environmentally conscious? 

When you partner with a company, you are partnering with their team and their culture. You want to be sure that their values align with your own.

Look at the company's development process

Look for a company that has a well-defined development process in place and knows how to effectively manage projects..

A good development process should include;

  • Requirement gathering
  • Design
  • Development
  • Testing
  • Deployment. 

The company you choose should have experience with all of these steps and be able to provide a detailed project plan outlining how they will execute your project.

Check the company's portfolio

It's important to check the company's portfolio to get an idea of their past work and the quality of their coding.

You should also ask for references from previous clients to get an idea of the company's project management skills and how well they work with clients. This will help you determine if they're a good fit for your project.

Evaluate the company's communication style

You'll want to work with a team that is communicative, responsive, and easy to work with. The best way to evaluate this is to ask the company a few questions about their process and how they would handle certain situations. 

See how they respond and if they seem like they understand your needs. Communication is key in any business relationship, so it's vital that you find a team that can communicate effectively.

Check reputation 

You want to be sure that you're working with a company that has a solid reputation, as this will ensure that you're getting high-quality work.

You can do your research online by reading reviews and testimonials from past clients. This will give you a good idea of what to expect and whether or not the company is worth working with.

Another way to gauge a company's reputation is by looking at their awards and accolades. If they have any, this is a good indication that they're respected in the industry and produce high-quality work.

Step 6: Request a free consultation

A free consultation is a meeting or call with the software outsourcing companies you have shortlisted to discuss your project and get answers to any questions you may have. It's an opportunity for you to learn more about the partner, their team, and their process, and for them to learn more about your project and requirements.

Benefits of free consultation

Some key benefits of requesting a free consultation are that you can:

  • Get a better understanding of the partner's process, capabilities, and team
  • Clarify your project requirements and get feedback on feasibility
  • Get answers to any questions you have about working with a software development partner
  • Gage whether there is a potential fit for working together
  • It allows you to get a feel for the team's working style and culture.

What questions to ask during your free consultation

Some questions you may want to ask include:

  • What is your process for software development?
  • How do you work with clients?
  • Can you provide me with references?
  • What are your rates?
  • What is your delivery time?
  • What is your quality assurance process?
  • How do you handle revisions and updates?
  • Do you have experience in my industry/niche?

Step 7: Select the right company

Once you've performed a comprehensive comparison of all the companies in your shortlist based on steps 5 and 6, the next step is to identify the best overall. 

Inform the chosen company that you have decided to nominate them for your project. Once again have a detailed discussion about your project goals, timeline, and budget. This will avoid misunderstandings later on. 

Step 8: Contractual 

A software outsourcing contract is a legal agreement between two or more parties that outlines the work that will be done, the deliverables, payment, and other important details.

A well-crafted contract is key to a successful software development project. But all too often, companies rush into agreements without taking the time to properly understand the implications.

How to negotiate the best terms

It can be challenging to negotiate a software outsourcing contract that's favorable for your business. However, with the right approach, it's definitely doable. Here are a few tips to guide you:

  1. Come in prepared. Make sure you have a clear idea of what you want and what you're willing to give up. This will help make the negotiation process smoother and faster.
  2. Do your research. Get to know your potential development partners and what they're capable of. This will give you a better understanding of their value and help you make smarter decisions during the negotiation process.
  3. Know when to walk away. If the negotiation process isn't going your way, don't be afraid to end it and walk away empty-handed. There are plenty of other development partners out there who would be happy to work with you.

Best practices when signing a software outsourcing contract

  • Always insist on a written contract. This document will outline the expectations and responsibilities of both parties, and will help to avoid any misunderstandings down the road.
  • Make sure that the contract is as detailed as possible. In particular, it should include a description of the software's features and specifications, as well as timelines for delivery and payment milestones.
  • Make sure your contractor is licensed and has liability insurance in case something goes wrong on their end.
  • Ensure the contract has a termination clause: This protects you in case the project goes south and you need to end the contract.
  • Be sure to have a lawyer review the contract before signing it. This is especially important if you're not familiar with the legalese involved in software contracts.

You might be also interested in: MSP Contracts Explained

Risks of outsourcing software development

There are some risks associated with outsourcing software development that you need to be aware of. Here are the top 5 risks.

Security risks

When you outsource development, you're handing over access to your most sensitive data and applications to a third party.

You're also trusting that this party will keep your data safe and secure — a risk that can easily backfire. This risk is especially heightened if you happen to be contracting with an inexperienced or unprofessional development team. You're opening yourself up to a host of security risks, from data theft to malware infiltration.

Linguistic barriers

When you outsource your software development, you're entrusting your project to a team of developers who may not be native speakers of your language.

These linguistic barriers can often lead to missed deadlines, budget overruns, and even botched projects. It's therefore important to do your research before selecting a development team, and to make sure that you have a good communication plan in place.

Geographical distance

When there is a large geographical distance between the client and provider, it can be difficult to schedule regular video conferences or phone calls. This can lead to misunderstandings about the project requirements and scope, which can cause delays and increase costs. 

Despite these risks, geographical distance does not have to be a hindrance to successful software development outsourcing. By carefully selecting a qualified provider and establishing clear communication channels, these risks can be minimized. 

Further reading: Most common risks of outsourcing

How much does it cost to outsource software development

The cost of outsourcing software development ranges from $10,000 to $150,000 or more. The average cost is around $50,000.

In terms of hourly costing, you can expect to pay between $25 and $100 and above per hour for software development outsourcing. 

However, these custom software development costs can vary depending on these cost drivers:

  • Size and complexity of the project
  • The skill level and experience of the software developer
  • The location of the developer
  • The type of project

How to save on software development outsourcing costs

Outsourcing software development is already a step in the right direction, but you can still save more with these tips:

  1. Request a quote from multiple companies. By getting quotes from multiple companies, you'll be able to compare prices and find the best deal.
  2. Choose a location with lower costs. Many developing countries have lower costs of living which can translate into lower development rates.
  3. Negotiate a lower rate. Don't be afraid to negotiate a lower rate with the software outsourcing company of your choice. Remember, you have nothing to lose!
  4. Use existing software methodologies. These frameworks are already developed and tested, so you don't have to spend time and money on creating them from scratch. Good examples include the agile methodologies.

Best practices for software development outsourcing

Outsourcing your software development can be a great way to save time and money on your project. But if you're not careful, you could end up with a mess on your hands. Here are the best practices for outsourcing software development so you can make sure your project goes smoothly.

Define the governance model

This is essentially the system you put in place to ensure that both parties are happy with the work being done, and that everyone understands their roles and responsibilities.

There are three types of governance models: loose, tight, and hybrid.

  1. Loose: The client has very little involvement in the day-to-day operations of the project and is mostly limited to providing feedback at specific stages.
  2. Tight:A tight governance model gives the client a lot more control over the project and requires them to be more involved in day-to-day operations.
  3. Hybrid: A hybrid model falls somewhere in between the loose and tight models. You still maintain control over the project schedule and budget, but the development team is given more freedom to determine how best to complete their work. 

Manage expectations

All too often, companies who outsource their software development underestimate the time and effort required to complete the project. As a result, they are often disappointed with the final product. By managing expectations from the outset, you can avoid this problem. Make sure to set realistic timelines and budgets for the project, and keep communication open throughout the process. This way, you'll be able to avoid any surprises and ensure that everyone is on the same page. 

It's important to be upfront about what you expect from your development team and to have a clear understanding of their capabilities. Likewise, your development team should be clear about what they're able to deliver and what their turnaround time will be.

If something goes wrong, don't panic. Try to stay calm and think about how you can fix the issue. 

Monitor and measure progress

Make sure that you constantly monitor and measure progress. This will help ensure that your project is on track and that you're getting the most value for your money.

There are a few key metrics you should keep an eye on:

  • Time: Make sure that your team is staying on track and that they're meeting deadlines.
  • Quality assurance: Check in regularly to make sure the quality of the work is up to standards.
  • Progress reports: Keep tabs on how much work has been completed and what still needs to be done.

Have technical expertise on your team

It's important to have someone on your team who can act as a technical liaison and help manage the project. They'll be able to communicate with the programmers in a manner they understand, relay your requirements, and make sure that everything is on track.

They don't need to be a developer, but it's helpful if they have some technical knowledge so that they can better understand the project and communicate with the team. This will help avoid any miscommunication or misunderstandings.

Learn the culture of the country you are outsourcing to

You'll want to be sure that your in-house team is culturally aware and respectful when working with the outsourced software development teams. 

Doing so helps to build trust, ensure quality control and avoid misunderstandings. It also shows respect for the workers and can help to create a more positive working environment. When cultural differences are respected and valued, it can lead to greater creativity and innovation. And when software developers feel valued and appreciated, they are more likely to go the extra mile to deliver high-quality work. 

Assimilate the contractors into your teams

One of the best ways to make sure your contractors are as effective as possible is to assimilate them into your team. This means getting them involved in team meetings, sharing project updates, and generally making them feel like a part of the team.

Make sure that the contractors have all the necessary resources and access to information. They should be able to easily communicate with the rest of the team, and have all the project management tools and data they need to do their job.


Outsourcing software development may seem daunting at first, but if you take the time to carefully plan your project and find the right team of developers, it can be a smooth process.

Follow the steps in this guide and you'll be on your way to finding an amazing development team that will help you create a successful product.

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