A significant 70% of companies opt for outsourcing to cut costs, as revealed by Deloitte. However, this cost-saving advantage is attainable only if you collaborate with an experienced IT outsourcing partner. Choosing the wrong vendor can lead to unnecessary expenses. Your priority should be a meticulous vendor selection process, and we aim to guide you in finding the perfect IT outsourcing match.
Understand Vendor Types Before Diving In
Initiating your search for an IT outsourcing provider should go beyond mere reliance on reviews. First, grasp the working mechanisms of different types of outsourcing vendors to make an informed choice for your project. This article will delineate how outsourcing companies differ by location and pricing and the pros and cons of vendors of varying sizes. But before we delve into those specifics, let’s address a fundamental question.
Why Outsource Software Development?
Employing a dedicated in-house development team aligned with your company’s values is beneficial. However, such teams come with constraints that can impede your progress. Outsourcing can effectively address many of these limitations, and yes, dedicated outsourcing teams can be just as committed. Here’s why outsourcing has distinct advantages over in-house development teams.
Cost Implications
Maintaining in-house employees is costly. Typically, about 30% of an employee’s salary goes towards benefits such as taxes, vacations, and leaves. For instance, if a developer earns an average salary of $107,000, an additional $32,000 is spent on benefits. Outsourcing can significantly reduce these costs, depending on the vendor’s location and the services offered. You only pay for the actual services or work hours at an affordable rate while the vendor handles employment taxes, benefits, sick leaves, and more.
Variable Workloads
In-house teams require consistent workloads to justify their salaries. You pay them a fixed salary regardless of the amount of work they perform. To maximize productivity, you need to provide enough tasks without overwhelming them, which could degrade work quality and increase turnover. Outsourcing is more practical if your workload fluctuates. For example, startups developing an MVP might find it more efficient to outsource rather than incur high recruitment costs for an in-house team.
Expanding Service Offerings
Besides custom software development, you can outsource various additional services, including:
- Quality assurance
- UI/UX design
- Cloud infrastructure setup and maintenance
- Software modernization
- Big data management
- Technical documentation writing
The key is identifying a vendor capable of meeting your specific needs.
Talent Scarcity
Finding and retaining skilled in-house employees can be challenging. In 2022, Manpower Group reported a 76% talent shortage in IT. Outsourcing opens up a global talent pool, enabling you to find professionals with specific or rare skills. You can hire freelance engineers from anywhere in the world or let an outsourcing company handle the recruitment, eliminating prolonged recruitment processes and associated hassles.
Freelancers vs. Professional Outsourcing Companies
While freelancing and outsourcing share the remote work aspect, their similarities end there. Hiring freelancers might seem easier through freelance platforms where specialists with a narrow focus are readily available. Freelancers typically charge lower fees, with an average hourly rate of $21, compared to $30-55 for outsourcing firms.
However, managing freelancers can be challenging. They often work independently and may require micromanagement or an in-house manager. Freelancers can also disappear without notice, leading to potential project delays and security risks. Conversely, professional outsourcing companies manage recruitment and project oversight, ensuring reliability and allowing you to focus on core activities.
Types of Outsourcing Vendors
Outsourcing vendors can be categorized based on pricing models, location, and company size.
Pricing Models
Projects vary in scope, complexity, time frame, and resources, requiring vendors to offer different pricing models. These include:
- Fixed-price: A set price for a defined scope.
- Time & material: Payment based on hours worked.
- Milestone-based: Payment after achieving specific milestones.
- Dedicated team: Covering team members' salaries plus a monthly company fee for exclusive project focus.
- Service subscription: Subscription-based access to services or products.
Location-Based Vendor Types
Depending on your location, vendors can be:
- Onsite: Outsourced employees work from your office, ideal for filling specific roles.
- Onshore: Vendors from your country working remotely, sharing culture, values, and communication methods.
- Nearshore: Vendors from neighboring regions, offering similar values and lower rates with minimal time zone differences.
- Offshore: Vendors from distant regions, providing high quality at reasonable rates despite significant time zone differences.
Size-Based Vendor Types
Vendors are also distinguished by size:
- Large International Players: Typically well-known with 500+ employees, offering a wide range of specialists, extensive expertise, significant resources, and recognized brands. However, they are costly and bureaucratic.
- Small Companies: Up to 60 employees, offering flexibility, low costs, and enthusiasm. They may have limited specialization, fewer resources, and less brand recognition.
- Medium-Sized Companies: Up to 500 employees, offering high flexibility, affordable prices, and extensive portfolios. While they may not attract top talent like larger firms, they are successful in recruitment.
Levisoft: Your Ideal Mid-Level Partner
Levisoft exemplifies a mid-level company with proven success in Logistics, fintech, automotive, retail, construction, and more. Our flexible pricing model includes development, consulting, and risk management services. With a great track record, Levisoft ensures your project is in capable hands.
Conclusion
Outsourcing is a strategic solution for achieving business goals when in-house hiring is impractical. It frees up resources, reduces various costs, and provides access to skilled professionals. Understanding the different types of outsourcing companies and their characteristics is crucial for selecting the right vendor. Mid-sized firms often offer the best balance of flexibility, cost, and expertise.
Contact Levisoft to explore the benefits of working with a mid-level company. We are here to answer your questions about our services, prices, and processes. Reach out to us today.
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