Nearshore software development rates: 6 key cost factors explained

Nearshore software development can save you a lot of money – that’s a given.

But, the truth is, nearshore development rates vary widely.

Location, expertise, engagement model, and even the size of the company you hire all play a role.

And if you don’t understand these cost factors, you could end up overpaying or sacrificing quality to cut costs.

In this article, we’ll break down the 6 biggest cost factors in nearshore software development and discuss how they affect the rates you end up paying.

Let’s dive in!

What is nearshore software development?

Nearshore software development is when you outsource development to a company or team in a nearby country.

Usually, this means a time zone difference of 3 hours and less between you and your development team.

For example, if you’re based in Germany and hire a dedicated team from Croatia, that’s nearshoring.

Some of the most popular nearshore destinations are:

• For US-based companies – Latin America (Mexico, Colombia, Brazil)
• For Australian companies – Southeast Asia (Vietnam, Philippines, Malaysia)
• For Western European companies – Central (Poland, Croatia, Czech Republic) and Eastern Europe (Ukraine, Romania, Bulgaria)

But, why exactly is nearshore development so popular?

Here’s a few reasons why:

• Cost savings without sacrificing quality – Hiring top-notch engineers in-house is expensive. If you hire a high-caliber nearshore company, you’ll get top talent without the massive overhead costs. And that translates to significant cost savings.
• Easier collaboration and communication – You don’t have to deal with huge time zone differences and can collaborate with your team in real time.
• Access to a bigger talent pool – You’re not limited to just local hires. You get access to highly skilled engineers in top tech hubs, so you’re more likely to find the right fit.
• Cultural compatibility – Nearshore teams are more likely to be culturally compatible with you than offshore teams. And cultural similarities lead to better collaboration.

While it’s usually a bit more expensive than offshore development, it’s still a cost-effective way to scale your team or develop your product. 

Plus, you won’t have to wait overnight for updates from the other side of the world.

And that’s why it’s a great choice.

Cost factors behind nearshore software development rates

Next, we’ll cover the main cost factors that influence the pricing of nearshore development.

Geographical location

Your nearshore team’s geographical location directly impacts development costs and their hourly rates.

Nearshore rates vary wildly between different regions.

Labor costs, economic conditions, and demand for tech talent all have a huge impact on the hourly rates and your total development costs.

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Countries with lower living costs typically offer lower development rates. 

Here’s a comparison of the average hourly rates by role in the top nearshore destinations we mentioned earlier:

Average hourly development rates by role and region

But, how much do you actually save when you hire a nearshore team?

Let’s say you’re based in the UK and you’re looking to build a brand-new fintech app. You’ll need a team with:

• 4 software engineers (frontend and backend)
• 1 solution architect
• 1 UX/UI designer
• 1 project manager

We’ll assume you’re hiring a full-time dedicated team, working 40 hours/week for a period of 12 months.

Here’s how costs compare between nearshoring to Eastern Europe and onshoring to a UK-based team:

Now, this is just a broad range based on the average hourly rates for these roles, so take it with a grain of salt.

But, in general, nearshoring is 50%-65% cheaper than hiring an onshore team, depending on their specific location and expertise.

So, location matters. Here’s a few tips on how to make the right choice:

• Compare rates and talent availability – Finding the right balance between cost and expertise is key. Some regions offer lower rates but have a smaller talent pool, while others may charge more but have highly skilled engineers with niche expertise.
• Look for strong English proficiency – Clear communication speeds up development and reduces misunderstandings. A team with strong English skills will collaborate more effectively in daily standups, documentation, and technical discussions
• Choose a country with a stable business environment – Political and economic instability can disrupt projects. Look for nearshore destinations with strong legal frameworks, reliable infrastructure, and a well-established tech industry.
• Consider cultural compatibility – A team that shares similar work ethics, values, and communication styles will integrate better with your business

In a nutshell, location plays a huge role when it comes to how much nearshore development costs.

And picking the right country will help you save money without compromising on quality.

Developer expertise and seniority

Experience and skill level have a huge impact on nearshore development rates.

A junior developer costs significantly less than a senior engineer, but (not) having the right expertise can make or break your project.

More experience means higher rates – but also faster problem-solving and better code quality.

Here’s a quick comparison of the average hourly rates by seniority:

Average hourly development rates by seniority

If you just hire juniors to cut costs, it could come back to bite you.

You might face more bugs and unnecessary delays which can cost you months of development time and drive costs up.

To avoid this, you need to:

• Match experience to project complexity – A simple mobile app with well-defined features can rely on juniors, but complex enterprise platforms need senior engineers.
• Invest in specialized skills when needed – If your project involves AI, IoT, or blockchain, you need experts in those fields. Generalists won’t cut it.
• Balance cost with efficiency – Senior developers work faster, write cleaner code, and can handle more tasks which reduces long-term costs even though they’re costlier upfront.

In short, expertise and seniority are major factors when it comes to nearshore rates.

And you need to strike the right balance between cost and expertise to make the right choice when hiring a nearshore team.

Tech stack

The tech stack you’re looking for will significantly impact how much you end up paying for nearshore development.

Widely used programming languages and frameworks have a larger talent pool, so developers are more available and affordable.

Others are more niche and skilled developers are harder to find, which drives up costs.

And this is especially true for technologies like AI, IoT, and Blockchain, due to high demand and low supply.

Here are the average hourly rates by technologies you can expect:

Average hourly development rates by technology

As you can see, AI engineers can be up to twice as expensive to hire than specialists in common languages like JavaScript and Python.

If you’re worried about costs, here’s what you can do:

• Stick to widely used languages – They offer the largest talent pool, so there’s more competition and rates are lower.
• Only use niche technologies when necessary – Specialized skills and tech increase costs quickly, so make sure you actually need them.
• Consider cross-platform solutions – If you’re building a mobile app, React Native and Flutter can help you cut development costs.

In short, choosing a tech stack isn’t just a technical decision – it’s a financial one, too.

Widely used technologies keep rates lower and specialized skills drive them up, so choose wisely.

Project complexity

Another huge cost factor when it comes to nearshore rates is project complexity.

The more complex your project is, the more expensive it gets.

Here’s a broad range you can expect, based on complexity:

• Simple software – $60,000-$90,000
• Medium complexity software – $90,000-$250,000
• Complex software – $250,000+

Cost-wise, this is what you can expect if you’re building a standard software product.

Simple apps require fewer resources to build, while complex software, especially enterprise software, needs specialized expertise, longer timelines, and more testing.

Here’s a few of the key factors that increase complexity:

• Custom integrations – Connecting third-party APIs, payment systems, or CRMs raises development costs.
• Security and compliance – Meeting GDPR, HIPAA, or PCI DSS standards means longer development and more testing.
• Scalability – If your product needs to handle thousands of users, you need advanced cloud infrastructure.
• AI and automation – Machine learning and intelligent automation need specialized expertise and take longer to develop, increasing costs.

In a nutshell, you can afford to hire cheap developers if you’re building a simple product with well-defined features.

But, for complex products, this is a recipe for disaster. You need experienced, high-caliber engineers to successfully get it over the line.

And that means higher rates.

Engagement model

Another major cost factor for nearshore rates is the engagement model(s) you choose.

Different models suit different project needs, which affects hourly rates, too.

Let’s take a look at the pricing models first – fixed-price and time and materials.

Here’s a quick overview first:

Fixed price vs. time and materials: overview

Fixed-price projects are a better fit for projects with a well-defined scope and requirements.

You agree to the costs upfront, which reduces your level of risk. But, you have to separately negotiate all changes to the original project scope, which can be costly.

The time and materials model, on the other hand, is based on actual hours worked and is ideal for projects with evolving requirements.

Vendors generally charge higher hourly rates for fixed-projects as a risk buffer.

On the other hand, they charge lower rates for time and materials projects, but you need to actively manage the budget to keep costs in check.

Hourly rates also vary depending on the engagement model you choose – team augmentation, dedicated team, or project-based model.

For context, here’s a comparison of these models:

Team augmentation vs. dedicated team vs. project-based model: comparison

Since developers are hired on demand and can be removed at any time, vendors usually charge the highest rates for team augmentation.

Dedicated teams usually charge the lowest hourly rates, since costs are spread out over the whole team and they’re a long-term commitment.

Project-based rates are in the sweet spot between these 2 models, though they can vary depending on the type of project.

Long story short, the engagement model you choose directly impacts the hourly rates you pay and your total development costs.

So, weigh your options carefully.

Company size and reputation

The size and reputation of the nearshore development company you hire play a huge role in the rates you end up paying.

Huge, established development companies usually charge more but are more reliable and have more expertise.

They’re more likely to have structured processes, senior talent, and a proven track record.

Smaller and newer agencies are cheaper and more flexible, but have fewer resources and are less stable.

Reputation plays a huge role, too.

Top-rated agencies charge more, especially if they have Fortune 500 clients – their experience with high-stakes projects allows them to charge premium rates.

Also, boutique agencies with proven expertise in specific niches like AI or fintech also charge higher rates.

So, how do you make the right choice when picking a partner?

Well, sorry to disappoint, but the answer is – it depends. But, here’s a few general tips:

• For short-term/one-off projects, consider small agencies – They offer cost savings and flexibility.
• For scaling teams, work with mid-sized agencies – They provide a balance of cost, expertise, and stability.
• For enterprise solutions, choose established companies – They offer proven expertise and 
• Start with a pilot project – Before committing to a long-term partnership, evaluate a company’s quality with a small project to see how they actually work.

At the end of the day, the right nearshore partner isn’t just about price – it’s about finding the best fit for your needs. 

So, don’t be afraid to test the waters before making a long-term commitment.

How to choose the right nearshore development company

So, now that we’ve covered the main cost factors behind nearshore development rates, we’ll answer the age-old question – how do you choose the right nearshore development company?

Here’s what you need to do:

• Check their technical expertise – Take a look at their portfolio and case studies. Make sure they actually have the skills to successfully complete your project.
• Evaluate their tech stack – Make sure they have experience with the tools you want to use to build your product.
• Check their reviews – Read unbiased reviews on third-party sites like Clutch, G2, and Goodfirms to get a feel for how they actually work.
• Review their development process – Look at their approach to development and check if they follow best practices.
• Review their pricing –  Compare their rates to industry benchmarks and make sure there are no hidden costs.

This is just the process, though. 

And while it will help you narrow down your initial list of vendors, it’s just the start. 

Here’s what you actually need to look for in a potential partner:

• Flexibility and proactivity – Do they actively suggest improvements? Can they handle it if requirements suddenly change?
• Work ethic and cultural compatibility – Do they “get” your culture and values? Are they responsible and deliver quality work?
• Transparent and accurate communication – Will they tell you “no” if your idea can’t be made? Do they give clear and detailed answers to all your questions?

If they hit 3/3, you’ll know they’re the right fit and can successfully deliver your project.

And that’s more important than anything else.

Nearshore software development rates: FAQs

Need a reliable nearshore partner?

Are you struggling to find a nearshore development partner that’s the right fit?

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We’re a high-caliber, EU-based software development company with 12+ years of experience building top-tier software products.

Our team of expert engineers, designers, and product strategists is ready to help you bring your vision to life.

So, if you’re looking for a nearshore partner you can trust, let’s talk – reach out, and we’ll set up a quick call to discuss your needs in more detail.