Software outsourcingrates
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The document provides information on global software outsourcing rates in 2018. It discusses the differences between onshore, offshore and nearshore outsourcing and estimates that offshore and nearshore outsourcing can save US firms 40% compared to domestic costs. It also outlines factors that influence outsourcing rates such as location, technology stack, experience level, team size and contract terms. Standard hourly rates are provided for popular job roles in various regions including the US, Latin America, Eastern Europe and Asia.
Software outsourcingrates
- 1. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES
- 2. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES 1 TABLE OF CONTENTS Introduction.......................................................................................................................... The Real Difference between Onshore, Offshore, Nearshore................................... Nearshore and Offshore Savings.......................................................................................... Pro Tip: Don’t Select the Low Cost Provider........................................................................ Total Cost of Engagement (TCE)......................................................................................... How Software Outsourcing Rates are Quoted..................................................................... 2018 Global Software Outsourcing Rates............................................................................ Five Factors That Drive Outsourcing Rates........................................................................ 2 3 4 5 6 7 8 10
- 3. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES LABOR COSTS: THE #1 INHIBITOR TO TECHNOLOGY GROWTH 2 In late 2017, Accelerance reviewed available research on current software challenges, technology growth, and software development outsourcing from top tier players, publications, associations, including: Deloitte, CompTIA and IDG. The overarching theme we identified is that the top technology growth inhibitors are labor costs and the availability of skilled workers. The well-documented lack of tech talent in the United States and the high salaries engineers command are legitimate reasons to outsource software development. For many companies that struggle to hire software development resources, there’s not much choice but to seek talent outside the US. With domestic talent shortage as a driver, the deep global pool of engineering talent at lower costs make software development outsourcing very attractive. With the Accelerance 2018 Guide to Global Software Outsourcing Rates, we’re pleased to present our findings from more than 700 software development companies who reported blended hourly rates to us in 2017, combined with our own experience helping clients find partners with the right mix of skills, experience, location and cost. INTRODUCTION
- 4. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES 3 THE REAL DIFFERENCE BETWEEN ONSHORE, OFFSHORE, NEARSHORE Software development outsourcing can be described as being onshore, offshore, or nearshore -- but what’s the real difference? It’s all about the distance from the hiring company. For example, if your company is located in Western Europe, it would be considered “nearshore” to hire a developer team in Eastern Europe while a team in Asia, Latin America or the US would be “offshore”. If your company is located in the US, and you hire a developer team in the US, that’s considered “onshore”. *Note: Example of onshore, offshore and nearshore are all in relation to North America.
- 5. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES 4 NEARSHORE AND OFFSHORE SAVES 40% FOR US FIRMS When compared to US salaries, offshore and nearshore typically provide the best hourly rates which makes them the most cost efficient. By eliminating employee overhead costs, you’ll decrease your fully-burdened cost of employee benefits, taxes, paid time off, company perks, training and retention, and gain flexibility around growing (and shrinking) team. In-house Developer Offshore/Nearshore Developer Number of Developers 10 10 Man Hours Needed 20,000 20,000 Hourly Rate $60 $35 Employee Benefits Taxes Training, Retention Travel Estimated Cost $1.6 Million Minimum $700k + Travel Sample Cost Savings From Outsourcing
- 6. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES PRO TIP: DON’T SELECT THE LOW COST PROVIDER 5 Beware of treating outsourcing as a pure commodity (where all outsourcing options are equivalent). Low cost rates for outsourced software development must not force your company to forfeit an acceptable level of quality. Based on our experience and global outsourcing relationships with top development firms in more than 30 countries, Accelerance recommends that you tread cautiously with services offered below $25/hr. Regardless of country or region, we believe that less than $25/hr (blended average for a team) is a red flag that the provider may be (a) under-investing in his company or (b) will be cutting corners in technical quality and delivery requirements. Select a provider with reasonable and competitive rates for their region and you’ll be much more satisfied with process and deliverables - which will ultimately create cost savings in other areas.
- 7. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES 6 TOTAL COST OF ENGAGEMENT (TCE) Hourly rates are important to consider but the Total Cost of Engagement, or TCE, is important for your budgeting process. The TCE is a complex cost factor separate from compensation or hourly rate. When hiring your own developers in-house, for instance, TCE includes a base hourly rate, plus taxes, healthcare, retirement plans, vacation, etc. Comparatively, when you outsource, many of the in-house costs disappear, but it’s important to be mindful of other costs you may not consider right away. For instance, an offshore developer in a remote part of Southeast Asia might quote you an amazing rate, but management and travel costs should be added to the TCE. Most outsourcing experts suggest that the TCE can be as high as 30% on top of your budget, so it’s important to consider the costs when making an outsourcing decision.
- 8. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES 7 HOW SOFTWARE OUTSOURCING RATES ARE QUOTED When comparing one market or provider to another, buyers tend to compare a blended hourly rate of 6 - 8 person scrum team and assume full time employment (FTE) of that team for 12 months or more. Naturally, actual rates will vary by skill level, technical specialty and both the term and commitment of the engagement. Option 1: Dedicated Team A dedicated team is a relationship where the partner commits individuals to you full time and you pay for them on a per month basis. The assumption is that the developers are part of your team, will sit together and will integrate with your development activities. You build maximum rapport with your team and, importantly, they will feel like they are part of something bigger. Option 2: Staff Augmentation Staff augmentation is a relationship where you hire engineers to augment activities domestically and pay them hourly. Staff augmentation can be valuable when you need resources temporarily, but you’ll need to track and approve hours carefully and will have to work harder to keep the engineers engaged and on task, as they will not feel the connection to your team. Option 3: Fixed Bid A fixed bid relationship occurs when you deliver the partner a detailed project spec and they commit to complete it for a fixed price. This setup can work with smaller, highly specified projects (e.g. developing a mobile app or MVP) but is not well suited to agile development processes since larger projects tend to be defined as they progress. Actual engagements can be structured one of three ways, ordered from most desirable to least.
- 9. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES 2018 GLOBAL SOFTWARE OUTSOURCING RATES Title of Full Time Employee (FTE) United States Latin America Eastern Europe Asia Business Analyst $110-$205 $45-$55 $40-$63 $30-$42 Architect $198-$292 $60-$72 $50-$77 $35-$48 Project Manager $133-$233 $55-$66 $45-$70 $35-$48 Jr. Developer $105-$111 $35-$44 $25-$42 $18-$24 Mid-level Developer $132-$140 $30-$52 $35-$56 $24-$35 Lead Developer $176-$187 $50-$61 $45-$70 $30-$42 Sr. Developer $154-$163 $45-$55 $45-$70 $30-$42 Junior QA $77-$81 $30-$39 $25-$42 $15-$24 Mid-Level QA $99-$105 $35-$44 $30-$49 $20-$30 Senior QA $143-$169 $40-$50 $40-$63 $25-$36 Graphic Designer $79-$163 $40-$50 $35-$56 $25-$36 Rates as reported by highly-qualified software outsourcing companies working with Accelerance. Note: Latin America includes: Mexico and Central and South America Eastern Europe includes: Armenia, Belarus, Czech Republic, Poland, Romania, Russia and the Ukraine Asia includes: Pakistan, Sri Lanka, India, Bangladesh, Vietnam and the Philippines 8
- 10. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES We’ve Searched the World So You Don’t Have To. Accelerance has investigated more than 7,000 software companies around the world to ensure our clients work with the most qualified, reputable and trustworthy global teams. Only the top 3% are qualified to join the Accelerance Global Network. Our outsourcing professionals monitor global conditions and watch for economic, technical and political conditions that mean increasing or decreasing risk or value. Our partner team travels extensively to investigate top providers and perform due diligence analysis across more than 200 data points. Talk to us
- 11. THE 2018 GUIDE TO GLOBAL SOFTWARE OUTSOURCING RATES 10 FIVE FACTORS THAT DRIVE OUTSOURCING RATES There are five main factors that drive outsourcing rates. Location Labor tends to be illiquid - it’s difficult, even for digital nomads to up and move from one region country to another in any number - so labor rates for software development teams are highly localized. Generally, the more developed a local economy is and the closer to America or Western Europe, the higher the hourly rates you’ll pay for a team of engineers. Because of this development dependence rates within a region can vary widely: Rates in Argentina and Uruguay - both well developed economies are significantly higher than those in Bolivia, a less developed economy. Tech Stack Like the market for engineering talent in America and Western Europe, you’ll pay up for newer or more unusual technologies or for skills that are in demand. Data scientists tend to be expensive everywhere, as are engineers fluent in microservices. On the other hand, mobile app development and front end work is common in just about every market, so is less expensive Seniority / Work Experience Pretty simple really: senior developers with solid current experience will cost more than junior developers. The only exception to this is where you need an old school technology that isn’t in demand (e.g. COBOL); sometimes very senior engineers are all that’s available and economical because they’re not in demand Team Size Generally, the bigger the team, the lower the average rate will be. However, if you’re looking for a large team for a short term assignment - say less than a year - you may actually pay a premium. Length of Engagement If you’re willing to commit to a longer term engagement (e.g. more than a year), you should be able to drive down rates. Most folks though, want the flexibility to terminate a relationship, so this isn’t always an option.
- 12. The best teams have a great coach. Do you? Sure, you want all the cost-saving benefits of offshore or nearshore software development. But building a global team is more than a procurement activity. And most companies don’t have the expertise they need to avoid risks and create global partnerships that work. That’s why you need Accelerance. Mitigate risks and outsource with confidence. Ask us about Accelerance Coach and our 15 Risk Indicators you can use to guide successful global partnerships. Talk to us