“Thanks, but no thanks”. This should be your answer every time you ask for a software development outsourcing rate and you listen “we can do this below 25€”.

Behind these words, with some exceptions, of course, you’re likely to find big problems for you and your project. As a car or a cell phone, if you are looking for quality to increase your business, you need to pay a fair rate for the service, as you might understand.

The software market is currently an unstoppable train that grows with each passing day. If we want to be more specific, software development is nowadays divided before two options: the development ‘in-house’ and the outsourcing solution. If the first may in some cases be safer because you have total control and management of your project, the second option is one of the trending topics for the next few years in this market, due to the lack of resources. They are many advantages if you are searching for the better price to boost your project, meanwhile is important to give a double check in the “cheap outsourcing”.

But what is “cheap outsourcing”? First of all, it’s important to explain that if you are looking for the best deal, sometimes the low hourly rate could be an attraction, but beware, because that low-rate option may have poor characteristics which will not get you the solution that you want, on the timetable you need it delivered, and may ultimately become more expensive than other options.

So, after this, you’re most probably wondering: what is the minimum rate in outsourcing? According to some specialists and industry critics like Accelerance, 25€ is the minimum from which you should start negotiating an outsourcing solution for software development. Below this rate, and according to the organization, it’s a clear ‘red flag’ and you should avoid this because you can have problems with this “low cost” solution and everyone wants to get a good deal for the money they spend.

Outsourcing software development is a proven way to reduce your costs of developing and deploying applications and you could have more to win than to lose. There are some good deals in every corner of the world and Portugal, in the past few years, has won the authority to discuss with the biggest central Europe markets for a position as important outsourcing location.

What determines an outsourcing rate?

The answer is not difficult to understand because cost ultimately determines the rate. In every part of the globe, there are some factors that determine the outsourcing rate and common elements which will affect the cost of a developer. First of all, wages, because all software developers are paid a wage that is in-line with the place where they live. Second, employee benefits such as a programmer’s total compensation, which will have elements that include vacation, sick time, insurance, payroll tax, retirement contributions, etc. So, if you combine the cost of wages and benefits, you will get the most important part of the rate.

In a different but also important step, you need to consider the expense to supervise employees, because a software development team has to be managed in order to control work priorities, as well as coached and guided regularly; they also need tools such as computers, software development tools and testing tools and, last but not least, the office space (furniture, phone, internet, coffee and other bonds) to work and develop your project in the best conditions.

So, behind the outsourcing rates, you will find several factors that give you a “fair price”. When you pay under 25€ and you need to include all of this, the alarms should ring in your mind and avoid this kind of “cheap rates”, because it is possible that you aren’t getting the fullest value for the hourly rate you pay. Outsourcing is nowadays a great solution for your company and projects, but you need to find the best partner to give the boost that you need. Why?

In the foundation of an outsourced software development, there must be confidence between two companies to give you the best delivery, the best talent and the best operation to achieve your main goals. Portugal is actually one of the best countries to build outsourcing teams for many reasons: highly talented developers, low time-zone difference towards other European countries, culture, and the capacity to adapt and cover the most important languages of this specific market. Have we cheapest rates in the market? It’s a clear no, but we are very competitive when compared to central and northern Europe, including countries such as France, UK, Germany, and Scandinavia.

On the other side, locations such as India, North Africa, and Eastern Europe can provide you “cheap rates”, but for all the reasons above, you may not be very well served and in recent years references to negative experiences have been increasing. High turnover in the companies, insufficient tools, poor process, limited talent, language and time-zone barriers are the major problems of outsourcing to countries that provide you “cheap rates”.

Portugal in the past few years has assumed an important role in the outsourcing market. With competitive rates, the country produces great IT talent, recognized among their peers. With a great culture of work and close to important time-zones in Europe, Portugal is nowadays one of the most important countries if you are looking for quality outsourcing, with good delivery and best practices in the market.

In conclusion, that key-sentence that you need to retain: you get what you pay for. Outsourced software development can be cost-effective, and you can have a great experience with the right partner. However, “cheap outsourcing” means you are not getting full value for what you pay and you can probably have problems, like delays, turnover and poor scope delivery.


Written by Tomás Santos |  Business Development Manager at Cleverti