How much does it cost to outsource software development? 7 top cost factors explained

Outsourcing software development can feel like a no-brainer, especially when you’re under pressure to build fast and cut costs.

But if you don’t understand what actually drives the price, it’s easy to get blindsided.

One quote comes in at $40,000, another at $150,000. Same project, completely different numbers. And that’s before hidden costs start piling up.

The good news? You can avoid the traps, and make smarter decisions, if you know what to look for.

In this article, we’ll break down the 7 key cost factors that influence the cost of outsourcing and show you how to choose the right outsourcing partner.

Let’s dive in!

Key software development outsourcing cost factors

Here, we’ll dive deeper into the key software development outsourcing cost factors.

Geographical location

Where your development team is based will have the biggest impact on your budget. And it’s not even close.

Rates can range from $15/hour in India to $150/hour in the US. Same project. Same effort. Very different cost.

Let’s break it down.

Here’s what a different roles will cost you in different regions:

Average hourly development rates by role and region

This is why outsourcing exists. You’re not lowering quality, you’re just avoiding inflated local rates.

Take Eastern Europe, for example. 

Ukraine, Romania, and Bulgaria are well-known for strong engineering talent. And the rates are still around $35–60/hour for senior engineers.

Croatia is another smart choice. 

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It offers high technical skill, excellent English, and strong cultural compatibility with Western Europe and the US. And the average rate for a software engineer? Between $30 and $55/hour.

Compare that to Germany, where the same role costs $120–150/hour – that’s 3x the price!

And here’s the kicker – many of the engineers in these regions work at the same quality level. In some cases, better.

Let’s look at an example. Let’s say you’re a UK-based company building a software product and you need:

• 4 software engineers
• 1 project manager
• 1 UX/UI designer
• 1 solution architect

Here’s how costs compare between nearshoring to Eastern Europe and hiring an in-house team:

Same project, same timeline, and up to $1M difference – and that’s just the hourly rates!

Time zones matter too, when outsourcing.

If you’re based in the US, Latin America offers nearshore proximity with shared working hours. Mexico, Brazil, and Chile all have solid talent pools, charging $25–50/hour for developers.

If you’re in Western Europe, Central and Eastern Europe are your best bet. You won’t have to wait 12 hours for a Slack reply. That speeds everything up – decisions, iterations, and launches.

The truth is, outsourcing doesn’t mean compromising on quality. It means choosing the right country for what you need.

Here’s what you should look for:

• A good balance of cost and talent availability
• Strong English proficiency
• Stable business environment
• Cultural fit

You don’t need to pay New York or London prices to get world-class code, you just need to look in the right places.

And that’s why geography matters.

Team composition and seniority

Who you hire matters just as much as where they’re based.

It’s one thing to outsource and it’s another to outsource smart. 

That starts with putting together the right mix of roles and making sure each one has the experience to match your project’s complexity.

Let’s talk numbers first.

Here’s what developers cost based on seniority in key outsourcing regions:

Average hourly development rates by seniority

The gap between a junior and a senior can be $30/hour or more. And it’s tempting to go with juniors to save cash.

But here’s the thing: seniors move faster, make fewer mistakes, and don’t need hand-holding. 

They’re not just coders, they’re problem-solvers. They’ll push your product forward without breaking things.

If your project is complex and has custom integrations, AI, or enterprise features – you’ll need seniors. No way around it.

If it’s something simple, like a simple MVP with, then yes, juniors can get the job done. Just make sure they have guidance.

So, how do you make the right choice? Here’s what you need to do:

• Match experience with complexity – A team of junior or mid-level devs can build simple products. But, complex platforms need seniors who’ve built it before.
• Balance cost with efficiency – Senior engineers might cost more, but they ship faster, write better code, and can save you money long-term.
• Invest in specialized skills when needed – If your project has AI, IoT, blockchain, or another specialized technology, don’t wing it. Hire engineers who’ve done it before.

In short, you shouldn’t just fill seats. You need to build a team that can ship your product the right way.

And that starts with knowing who to hire and when to pay for experience.

Engagement model

How you set up the relationship with your outsourcing partner plays a huge role in your final cost.

There’s no one-size-fits-all solution here. The right model depends on your project, your timeline, and how involved you want to be.

Let’s break down the options.

There are three ways to structure your team: team augmentation, dedicated team, and the project-based model.

Here’s how they compare:

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

Team augmentation is like adding freelancers to your team, but with more structure.

You bring in expert engineers for a few months to speed things up or plug skill gaps in your in-house team. 

But over time, it gets expensive. Vendors will usually charge more because your commitment is low and 

Dedicated teams are the best value for long-term projects.

You get a stable team that knows your product inside out and your partner can offer lower hourly rates because the workload is consistent and spread out across an entire team.

And finally, the project-based model works if you have clear requirements, strict deadlines, and just need someone to build it. 

But be careful – any change means extra cost. You’ll need airtight requirements and constant oversight.

Also, the pricing model you choose is even more important.

Here, you have 2 options – fixed-price and time and materials. Here’s how they compare:

Fixed-price vs. time and materials: overview

Fixed-price looks safer at first glance – everything is scoped, budgeted, and signed off. 

But once you sign it, you’re locked in. Need to change a feature mid-sprint? You’ll need to renegotiate and pay extra.

That’s why time and materials is the better option. You pay for actual work done, and you can change scope as needed if your priorities shift or features evolve. 

Also, keep in mind that vendors typically charge a higher hourly rate for fixed-price projects – that’s their risk buffer. 

Time and materials projects often come with lower hourly rates, but you need to stay on top of scope to make it work.

If you’re unsure where to start, go with time and materials and a dedicated team. You’ll get better control, flexibility, and long-term cost-efficiency.

And if you’re on a tight scope and tighter timeline? Fixed-price can work, sure. You just need to know what you’re signing up for.

Project complexity

Not all software is built equal. And complexity has a direct impact on cost.

The more moving parts, the more people you need. And that means higher hourly rates and longer timelines.

Let’s look at the numbers first.

Here’s what typical software projects cost based on complexity:

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

That’s a wide range. But it’s not random. Here’s what actually drives these costs:

• Feature scope – A simple booking app is one thing. A full SaaS platform with dashboards, real-time notifications, and payment integrations? That’s a different beast.
• Integrations – The moment you start connecting to third-party systems (CRMs, ERPs, payment gateways), complexity goes up. You’re now relying on someone else’s code. That means more edge cases and more testing.
• Scalability – Will your product have 1,000 users? Or 1 million? If scale is important, you’ll need cloud infrastructure, performance testing, and robust backend architecture.
• Compliance – If you’re building a fintech or healthtech product, you can’t cut corners. Compliance with GDPR, HIPAA, SOC 2, PCI-DSS takes time and expertise to implement.
• Advanced technology – AI, machine learning, real-time collaboration, and IoT integration are high-effort features. You’ll need specialized talent to get it right.

Here’s one mistake you should avoid – starting development with a massive wishlist. 30 features, 4 user roles, every integration under the sun.

Then reality hits. Development takes longer than expected, your budget runs out before launch, and the scope gets slashed late in the game.

Don’t do that. Instead cut your initial scope and focus only on what solves your users’ core problem. 

The earlier you manage complexity, the better your outcome – and you’ll lower costs, too.

Tech stack

Your tech stack isn’t just a technical choice – it’s also a significant cost factor.

Some languages and frameworks are widely used. That means more available talent, faster hiring, and lower hourly rates. 

Others are more niche, and limited talent always costs more.

When you look at the numbers, the difference is clear:

Average hourly development rates by technology

Hiring React Native developers from Eastern Europe? You’re looking at $35–55/hour. 

Hiring AI specialists? That jumps to $50–80/hour. Same region. Same experience level. 

That’s because some technologies and tech stacks are:

• Easier to learn
• Used in more products
• Taught in more schools
• Backed by bigger ecosystems

JavaScript is a perfect example. 

It’s the backbone of most modern apps. Frontend (React, Vue.js), backend (Node.js), mobile (React Native) – one language, everywhere. This keeps rates competitive.

AI, blockchain, and machine learning? Different story. 

Fewer specialists, more hype, and higher demand. And fewer people who can actually do the work well.

That’s why AI developers cost nearly double compared to standard full-stack devs.

So if you’re worried about tech stack costs when outsourcing, what should you do? Here’s a few tips:

• Stick to mainstream stacks unless you have a strong reason not to.
• Avoid cutting-edge tech unless your product is innovative.
• Use cross-platform frameworks if you’re building for both iOS and Android.
• Invest in niche tech only when the ROI justifies it.

And if you’re not sure what stack is right? 

That’s something you want your partner to push back on. They should tell you where you’re overengineering. And where it’s worth the extra cost.

Tech stack decisions have long-term impact, so you need to choose wisely.

Company size and reputation

Who you hire matters just as much as what they build.

Big agencies, boutique studios, and freelancers. They all offer software development, but at very different price points and levels of reliability.

Huge agencies or vendors come with higher price tags. That’s no surprise.

They’ve got structured processes, senior-level talent, and a proven track record. And that comes at a price.

Smaller agencies are cheaper and more flexible, but they’re more likely to have a shallow bench or lack experience with huge projects.

But, this is just one part of the equation. Reputation is just as important, if not more, than company size and plays a big role in how much they charge. 

A top-rated agency working on high-stakes, enterprise-grade projects with Fortune 500 clients will naturally charge a premium for their services.

Now, there’s no right or wrong answer here. 

A small agency might nail a complex project, while a huge vendor might completely derail it – it all depends. But, here’s a couple of tips you should keep in mind:

• For short-term/one-off projects, consider small agencies – You’ll get lower costs and better flexibility.
• If you need to scale your team, work with mid-sized agencies – They provide a balance of cost, expertise, and stability.
• For enterprise-grade solutions, choose established companies – They offer proven expertise and experience you need to get your project over the line.
• 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.

In any case, your main goal should be to find a development partner that actually meets your needs, no matter their size.

And you don’t have to go all-in on day one. Start small before you commit long-term.

Hidden costs

Outsourcing can look cheaper on paper. But the real cost isn’t just the hourly rate you pay.

There are hidden costs you need to be aware of – some predictable, some not.

If you don’t plan for them, your budget will blow up fast.

Here are the top hidden costs you should know about:

source: Solvd

Let’s take a closer look at 2 of the most dangerous hidden costs – communication costs and quality control costs.

If you’re outsourcing offshore, communication delays can add days or weeks to your project timeline. 

Even nearshore teams with solid English skills will still need time to adjust to your workflows.

Misunderstandings also cost money. A single unclear requirement can mean weeks of rework.

To avoid this, make sure to pick a region with strong English proficiency and schedule at least 3-4 hours of overlapping working hours with your outsourced team, if possible.

As for quality control, you need to know this – cheap developers can end up being the most expensive. If the team cuts corners, you’ll pay for it later in bug fixes, refactoring, and delays. 

You might save $40,000 upfront on a low-cost vendor but then spend $80,000 fixing the mess.

So, don’t just go for the cheapest option – focus on value, not just price.

And make sure proper QA and testing are included in any contract you sign. 

Outsourcing isn’t just about saving money. It’s about making the right investment.

A good vendor will help you ship faster, build smarter, and avoid unnecessary costs. A bad one leaves you paying twice – once for development, and again for fixes.

Next, we’ll show you how to choose the right partner.

How to choose the right outsourcing partner

Outsourcing isn’t just about price. It’s about trust.

The right partner will help you make smart decisions and avoid costly mistakes. The wrong one will burn your budget and delay your launch.

So how do you choose?

Here’s what you need to do:

• Check their technical expertise – Start with the basics – do they actually know how to build what you need? And can they prove it? Read their case studies and ask about previous projects.
• Check their reviews – See what their past clients have to say to better understand how they actually work.
• Evaluate their tech stack – Make sure they’re using the right tools for your product, not just their favorites.
• Review their development process – Ask how they manage scope, feedback, and iteration because that’s what keeps projects on track.
• Look into their pricing – Compare their rates to industry benchmarks and make sure there are no hidden costs.

But, this is just the process.

And while it will help you narrow down your initial list, you’ll still be left with a bunch of companies.

So, what should you do to make the right choice? Here’s what you need to look for in a potential partner:

• Flexibility and proactivity – Can they adapt if priorities change? Do they speak up when something could be done better?
• Work ethic and cultural compatibility – Do they take ownership of their work? Do they “get” your culture?
• Transparent and accurate communication – Do they give you the full picture, even if it’s something you don’t want to hear? Do they keep you in the loop without you having to ask?

Remember, the right outsourcing partner won’t just say “yes” to everything. 

They’ll challenge your assumptions and help you make better decisions.

And that’s exactly what you need to look for in a partner.

Software development outsourcing cost: FAQs

Need a reliable outsourcing partner?

Are you tired of mediocre vendors who struggle to deliver even the simplest projects on time and within budget?

Well, you’re in the right place.

We’re an EU-based, full-service software development company with 12+ years of experience in building complex, enterprise-grade solutions for some of the world’s biggest companies.

So, if you want a partner who can actually deliver and will hit the ground running, feel free to reach out and our team will get back to you as soon as possible.