Should you have your product developed in-house or outsource it? That’s the million-dollar question for businesses of all sizes, from startups to large enterprises.

Deciding on in-house vs outsourcing software development can be difficult: both approaches come with their pros and cons. Which approach is more beneficial depends on the unique combination of your needs, constraints, and goals.

At Sombra, we’ve been a reliable software development partner in 200+ projects. Today, we’d like to share everything we know about in-house software development vs outsourcing – and help you make a well-weighed choice for your business.

The state of the outsourcing market

The global development outsourcing revenue is estimated to have reached $116 billion in 2022. It’s projected to increase to $145.7 billion by 2027, representing a +4.7% cumulative annual growth rate (CAGR) between 2022 and 2027.

Software outsourcing market projection

According to Deloitte’s outsourcing statistics, 76% of surveyed executives state that at least some of their companies’ IT functions are outsourced, not developed in-house. In addition to that:

67% of executives plan to increase spending on Operate Services
57% plan to spend more on Managed Services
32% report a budget increase for Traditional Outsourcing

Outsourcing survey

In-house software development vs. outsourcing: What’s the difference?

Before we can dive into in-house vs outsourcing software development differences, let’s define both terms:

In-house development means assigning your development project to an internal team. Your developers are the company’s full-time employees, with all the recruitment costs, employee benefits, and office premise expenses bleeding into the project costs. On the other hand, you have complete control over your team’s day-to-day work. In-house development examples include Amazon, Salesforce, and PayPal.
Outsourcing software development means hiring an onshore, nearshore, or offshore outsourcing partner to carry out a specific scope of work. This software development approach allows you to hire developers from anywhere in the world, reducing costs by 40% to 70%. However, this comes at the cost of control you can exert over the project. Companies like Google and Slack outsource parts of their projects.

Here’s how in-house software development vs outsourcing compare in terms of costs, flexibility, time-to-market, and more:

	In-house software development	Outsourced software development
Cost	Expensive and inflexible (includes recruitment costs, employee benefits, on-premise costs, etc.)	Moderate and flexible (depends on the engagement model and outsourcing partner location)
Culture and communication	In-house developers already share the company’s culture and know what’s expected of them	There may be culture gaps if the partner isn’t used to working with clients from your region.
Headcount flexibility	Low (recruiting new developers and laying off takes time)	High (expanding or shrinking the team can be done in a matter of weeks or even days)
Time-to-market	Fast (if you already have an in-house team ready to work) Slow (if you need to hire a team first)	Fast
Control	Full	Limited
Hiring	Difficult due to the limited talent pool	Easy thanks to the unlimited talent pool and engagement model

In-house development is thought to come with one significant advantage in the in-house development vs outsourcing comparison: total control over processes.

Due to the pandemic, companies have had to embrace remote work, which has resulted in the loss of complete hands-on control. And remote work isn’t going away: 12.8% of full-time employees continue to work fully remotely in 2023, while 28.2% work under a hybrid model.

What’s the main outsourcing vs in-house development of a website difference?

A website developed in-house will cost you more than an outsourced one since you have to pay for office space, employee benefits, and recruitment. On the other hand, in-house development will give you complete oversight and control over the process.

A word on the hybrid approach

“Develop the product in-house vs outsource software development” doesn’t have to be a binary choice. You can combine in-house implementation and outsourcing software development to get the best of both worlds. This is known as the hybrid approach.

Hybrid development teams consist of a mix of in-house and outsourced developers. This approach allows companies to decrease development expenses and quickly expand teams while retaining control over the development process and its specific components.

Hybrid development can come in many forms, based on the level of trust toward the outsourcing partner:

Want to get the best of both worlds with staff augmentation? Contact us to expand your in-house team with dedicated developers showing an in-house level of dedication!

10 pros and cons of outsourcing software development

To help you weigh in on in-house vs outsourcing software development in your particular case, let’s take a closer look at outsourcing software development pros and cons.

5 advantages of outsourcing software development

Outsourcing app development comes with several undeniable advantages when we compare in-house development vs outsourcing. So, let’s break down the five benefits outsourcing allows you to reap.

Outsourcing software development pros and cons

Outsourcing software development pros and cons

Reduced costs

The lower IT outsourcing cost is the number one reason companies opt for traditional outsourcing in the in-house software development vs outsourcing decision. According to Deloitte, 67% of surveyed executives turn to it because they need to cut overall costs. And according to Accelerance, outsourcing IT costs between 40% and 70% less.

Hiring top talent at a lower cost is the main way outsourcing allows you to get more for less if we compare in-house development vs outsourcing. One reason is a difference in the cost of living across the globe – and, therefore, salary expectations. While a US-based software developer expects to earn an average of $104,310 per year, one in Ukraine earns an estimated $4,300 per month ($51,600 per year).

The Clutch data also shows a difference in rates depending on location. Custom software development services in the US and Canada cost $100-149 per hour. Choosing a Ukrainian partner for software development results in hourly outsourcing costs ranging from $25 to $49.

Access to the global talent pool

For one out of two executives surveyed by Deloitte, talent acquisition is the number one internal challenge. Recruiting top tech talent is also the top business challenge for 53% of 2022 Reveal Survey Report respondents, impacting their views on in-house development vs outsourcing.

Outsourcing development to a nearshore or offshore vendor allows you to choose from top talent in any of the desired technologies and domains. You can have your pick from hundreds of highly skilled engineers with diverse industry and tech experiences, which is a significant difference between in-house development vs. outsourcing.

Emerging technology adoption rate

A larger talent pool can remove a significant barrier to adoption for 64% of emerging technologies, adding to the pros of outsourcing in the in-house development vs outsourcing comparison.

Faster time-to-market (if you don’t have an in-house team)

Hiring an outsourcing partner is faster than fostering the required expertise in-house. Hiring an outsourcing partner is faster than fostering the required expertise in-house. This, combined with access to the global talent pool, means you can receive your product or services more promptly if we compare in-house development vs outsourcing.

You can also quickly add developers to your outsourced development team at a comparatively lower cost than with in-house software development. If you need to quickly seize a business opportunity before your competitor, we can arrange to accelerate your time-to-market.

Better risk management

Having software development teams in multiple locations can help avoid disruptions. A multi-partner strategy can also protect your interests in the face of economic turbulence and uncertainty, much like a diversified investment portfolio minimizes risks.

Multi-partner outsourcing can take on many forms, from hiring several partners in the same region to diversifying operations across countries or regions. Besides improving risk management, it also helps build best-in-class sourcing for each domain and technology. This adds to the benefits of outsourcing in the in-house development vs outsourcing comparison.

Greater flexibility

If you outsource development and realize along the way you need an additional engineer, you can easily add them to the software development team. You can also scale up your team if your product takes off or your priorities change.

This ability to ramp up production is another cost-efficient benefit of outsourcing in the in-house development vs. outsourcing comparison.

But this developer outsourcing flexibility isn’t going in one direction. You can also scale down your team whenever you need to optimize costs or reallocate resources.

As you can hire an outsource programmer more promptly than their in-house counterpart, you can reap the benefit of right-sizing agility, crucial in the in-house development vs. outsourcing comparison.

5 challenges of outsourcing

Of course, outsourced software development isn’t without its challenges – although their severity depends heavily on the chosen outsourcing partner.

Let’s break down the five most common challenges of outsourced development to consider during in-house vs outsourcing software development assessment.

Lack of control and visibility

Outsourcing project work requires trusting your partner to do their job well and meet your expectations. If you’re wondering, “What is one drawback of outsourcing?”, it might as well be this one that you should consider during in-house vs outsourcing analysis.

Under most engagement models, you won’t be able to exercise the in-house level of oversight over every outsourced developer, which you should take into account when comparing in-house development vs outsourcing. (That’s not the case in staff augmentation, where the outsource developer is essentially added to the in-house team as a temporary remote worker.)

Sombra’s solution: Consider outsourcing development to a partner with established processes. Look for transparency, clear communication, and thorough documentation. Consider hiring an outsourced development company for staff augmentation to build initial trust.

Confidentiality and security concerns

To outsource software development, you will have to give access to sensitive data to your outsourced development team. It may include proprietary technology, innovative business ideas and plans, whitepapers, etc.

This may raise concerns about data security and confidentiality during the in-house vs outsourcing software development assessment. You need to be certain your sensitive data won’t end up in the wrong hands when you outsource a project.

Sombra’s solution: To avoid paying the heavy cost of outsourcing app development – compromising your intellectual property, – sign a non-disclosure agreement (NDA). We also advise verifying the company’s cybersecurity practices (e.g., whether it holds an ISO 27001 certificate) when you outsource software engineering.

Culture and communication gaps

This is another potential cost of outsourced IT – miscommunication and culture gaps that lead to misunderstandings and subpar results. Your outsourced team may lack initiative or become “yes-men”.

Sombra’s solution: To successfully outsource software development, we advise you to hire a partner who has worked with companies from your region. Such companies are well aware of potential cultural gaps and will help you navigate in-house software development vs outsourcing differences smoothly. We also recommend you zero in on your expectations regarding communication and be upfront about them.

Time zone differences

The time zone difference is usually a significant factor of in-house development vs outsourcing only when you assess offshoring software development pros and cons. In that case, it can reach eight, ten, or twelve hours. So, scheduling meetings can be complicated, and communication may take longer than you’d prefer.

Sombra’s solution: If time zones need to overlap, consider hiring outsourced software developers nearshore within three time zones. Alternatively, you can use a significant time zone difference as a competitive advantage by having development or maintenance run almost around the clock.

Lack of involvement

Under the traditional outsourcing model, your outsource development team probably won’t be working exclusively on your project. Instead, developers may be juggling multiple outsourced IT projects. This understandably raises concerns over their level of involvement and dedication in in-house development vs outsourcing.

Sombra’s solution: If involvement is crucial for you, opt for the staff augmentation or dedicated team software engineer outsourcing models. You can openly discuss developers’ level of involvement and dedication when discussing your project with potential service vendors.

Looking for an outsourcing partner who knows how to navigate outsourcing challenges? Contact us to put your project into safe hands with Sombra!

8 in-house software development pros and cons

Now, let’s compare in-house software development vs outsourcing by listing the pros and cons of developing software in-house.

In-house software development pros and cons

In-house software development pros and cons

4 advantages of in-house development

In the in-house vs outsourcing software development assessment, the former does have some alluring advantages – such as the four below.

Complete control over the development

The main advantage of in-house vs outsourcing software development: you’re in full control over the development team’s day-to-day work. Your project manager oversees task distribution and development progress. They can also catch any issues in their early stages.

When developing software in-house, resources must be dedicated to oversight which can inflate costs. Although, it may be easier to ensure quality standards compared to outsourcing.

If you opt for the former in outsourcing vs. in-house, your outsourcing partner’s project management capacities make all the difference. If they are strong, your project will be managed as well as it’d be in the case of an in-house application – without you having to dedicate your resources to project management.

Faster time-to-market (if you already have an internal team)

Your in-house team will be dedicated to your project full-time, and you will have direct communication with its members. On top of that, you won’t have to invest time in finding a suitable outsourcing partner.

These three aspects of in-house development vs. outsourcing can accelerate the overall time-to-market.

However, when you assess in-house vs. outsourcing software development, faster time-to-market can be an advantage for either of the two approaches. That depends on whether you already have an internal team. But even if you do, remember that reallocating your in-house resources to a new project means someone else has to pick up their current scope of work.

Fewer logistical challenges

When your product is developed in-house, your developers work on the same schedule and in the same time zone as the rest of the company. So, meetings and communication in general are as seamless as possible. For instance, you won’t have to wait for an answer for hours because the working day hasn’t started in your partner’s location yet.

If your in-house team works in the office part-time or full-time, it also facilitates ironing out small details and tracking progress on the go. This makes for another advantage of in-house development vs outsourcing.

Streamlined communication and shared culture

When you decide to have your software developed in-house, you can rely on your engineers to be already on the same page regarding your company’s culture and values. For example, they may already know that taking initiative is encouraged and that feedback is always appreciated.

This ensures your development team stays aligned with the company, minimizing miscommunication and cultural misalignment during in-house projects.

What’s more, in-house developers are familiar with the company’s behind-the-scenes processes. If we compare in-house development vs outsourcing, this advantage also saves you time you’d otherwise spend explaining how your company works or why you do things in a certain way.

4 disadvantages of in-house software development

Opting for internally developed software isn’t without its cons, of course. Let’s break down the four most vital ones you should consider when considering developing software in-house vs outsourcing.

Required budget and resources

The in-house development cost is almost guaranteed to be higher than that of outsourcing. That’s because you have to factor in:

Recruitment costs (they can reach as high as $16,999 per employee, according to Toggl)
Employee benefits (paid vacation, sick leave, etc.), which inflate the total employee cost by 25% to 40%
Higher salary expectations, compared to popular outsourcing locations like Colombia
The costs of maintaining office premises (if your in-house team isn’t 100% remote)

Keep in mind that you will also need to invest in hands-on project management, employee training and onboarding.

Long time-to-hire

It takes 68 days to fill a tech position, on average. But that’s the global average. Tech positions in the US and Canada get filled faster (56 days), while the ones in Europe take a whopping 85 days to fill.

The reason? The demand for tech talent exceeds the supply: 86% of CIOs face more competition for qualified candidates, and 73% are concerned about talent attrition. Your ideal candidate’s profile also matters: it takes 10.5 days more to fill a senior data scientist role, as opposed to a data scientist.

When you consider developing software in-house vs outsourcing, not having an in-house team ready to get to work can become a serious obstacle. For one, you’ll need to invest time and resources into hiring the right tech talent. This inflates the time-to-market for an application developed in-house, as well as its final cost.

Limited talent pool

When you need to hire engineers for your in-house project development, your selection is restricted to the qualified candidates currently available in your country. Besides that, you may also have to finance relocation for a suitable candidate – and you will have to compete for talent with other companies.

Besides that, narrow expertise is harder to come by. While web development technologies (JavaScript, HTML, CSS) are the most popular among developers, Swift is used by just 5.18% of engineers, according to the Stack Overflow Developer Survey.

So, if you need Swift engineers, hiring them in-house can prove to be difficult. You should factor this in when considering in-house software development vs outsourcing.

Lack of flexibility

If you have your software developed in-house, you can’t scale your team up and down in a matter of days or even weeks. Finding a new hire can take several months, and laying off a worker is also a lengthy process that comes with additional costs.

When comparing in-house development vs outsourcing, in-house development doesn’t allow you to right-size your team as promptly as outsourcing. There will always be a substantial lag between the change in business needs and the change in the team composition.

Need a cost-efficient way to develop your product? Contact us to get excellent expertise at an affordable price tag.

Outsourcing development: Rate comparison

The global median software engineering rate stands at 64$, according to Accelerance. As costs are a crucial factor in in-house vs outsourcing software development assessment, let’s compare rates for different regions (courtesy of Accelerance):

North America: $62-209/hour
Latin America: $34-96/hour
Central & Eastern Europe: $26-95/hour
South Asia: $24-71/hour
Southeast Asia: $18-70/hour

How do you select the right location if you opted out of having software developed in-house? You have three options to choose from:

Onshore development means hiring a company within the same country.
Nearshore development means hiring a company located in another country within three time zones from you.
Offshore development means hiring a company located more than three time zones away from you.

Some companies allow you to benefit from both nearshore and offshore development services. For example, if you are located in the United States and you hire Sombra, you can benefit from our offices in both Colombia (nearshore) and Ukraine (offshore).

How Sombra helps clients meet their development needs

Since 2013, we have been assisting global companies in meeting their development needs when they are unable or unwilling to develop a product in-house.Over the years, we’ve successfully completed 200 projects in a variety of industries, from banking and finance to e-commerce and healthcare.

For example, you can find a top 15 bank in the world among Sombra’s clients. Our collaboration started in 2015 when we provided one engineer to help the bank meet its needs. Now, Sombra’s team counts 28 developers, and we’ve delivered 30 projects for our client.

You can also find an Australian photographer, Chris Garbacz, among our clients. He came to us with an idea for a studio CRM tool that would streamline workflows for photographers and videographers. Our team of seven developers, a project manager, and three QA specialists delivered the tool and moved into a supporting role.

We can lend you our expertise under the staff augmentation, managed team, or full outsourcing engagement models. Contact us to discuss how we can help you close your talent gap.

Final thoughts

In our experience, outsourcing is the more suitable option in in-house vs outsourcing software development for:

Projects that require a rare combination of technical and industry expertise that’s hard to find locally
Companies that need the product developed fast but don’t have an in-house team with the right skills readily available
Projects on a tight budget
Projects without clear technical requirements

On the other hand, having software developed in-house is more suitable for:

Projects where complete control over the development process is critical
Companies that can afford to invest resources in recruitment, training, project management, employee benefits, office premises, etc.
Companies that already have an in-house team with the right skills available

If you decide to look for an outsourcing partner, we strongly recommend you do the following to select a reliable vendor:

Study the portfolio and case studies closely.
Check out the company’s reviews on Clutch and other review platforms.
Make sure low hourly rates don’t come at the expense of quality.
Be thorough with the phrasing of the NDA, contract, and non-compete agreement.
Ensure the company follows best cybersecurity practices (this can be proven with an ISO 27001 certificate).
Discuss the company’s project management and communication practices and ensure the company aims to be fully transparent in both.

Need an experienced developer fast? Contact us to ramp up your development capacity within days!

In-House vs Outsourcing Software Development: What’s the Best Option for You?

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