What is software development outsourcing?

Software development outsourcing is the practice of hiring an external company or team to design, build, and maintain software products. It ranges from staff augmentation (individual developers integrated into your team) to full product engineering (an agency that owns strategy, design, development, and delivery). The global IT outsourcing market is valued at over $430 billion as of 2023.

When should a company outsource software development?

Outsource when: you need to ship a product faster than you can hire, you lack specific technical skills in-house (AI, mobile, cloud architecture), you want to de-risk a new initiative before committing to permanent headcount, or you need a burst of capacity for a specific project. Deloitte found that 70% of companies cite cost reduction as the primary driver, but speed-to-market and access to talent are increasingly important.

What are the risks of outsourcing software development?

Common risks include communication gaps (especially across time zones), quality inconsistency (junior developers swapped onto your project), loss of intellectual property control, and vendor lock-in. Mitigate these by choosing partners with transparent processes, overlapping work hours, code ownership clauses, and a track record of senior teams staying on projects.

How much does software development outsourcing cost?

Outsourcing costs vary by region: $150–$300/hour (US/UK), $80–$150/hour (Western Europe), $30–$80/hour (Eastern Europe, Latin America), $20–$50/hour (South/Southeast Asia). However, hourly rate alone is misleading — a $150/hour senior team that ships in 3 months is often cheaper than a $40/hour team that takes 12 months. Focus on total cost of delivery, not just rate.

What is the difference between outsourcing and staff augmentation?

Staff augmentation provides individual developers who work under your management. Outsourcing (product engineering) provides a full team that owns delivery — strategy, design, development, QA, and deployment. Staff augmentation works when you have strong technical leadership and just need extra hands. Product engineering works when you need a partner to own the outcome.

Thought leadership

Software Development Outsourcing vs In-House: When Each Makes Sense

The outsourcing vs in-house debate is often framed as either/or. In practice, it's about fit: stage, skills, and what you need to own. Here's how we think about it after building products with and for companies on both sides.

When in-house wins

In-house makes sense when you have a long roadmap, need deep domain knowledge in your codebase, or want to own every part of the stack for strategic reasons. It's also easier to align incentives and culture when the team is on the payroll.

The downside: hiring and retaining senior talent is hard and slow. If you need to move fast or need a burst of capacity for a specific product, in-house can be a bottleneck.

When outsourcing wins

Outsourcing works when you need to ship quickly, don't have the right skills in-house, or want to de-risk a new product before committing to a full team. A good partner acts as an extension of your team—same goals, clear communication, and ownership of delivery.

The key is picking a partner that does product engineering, not just staff augmentation. You want a team that thinks in terms of outcomes and can say no to scope creep, not just yes to hours.

Hybrid and how to make it work

Many companies run a hybrid: in-house for core product and platform, outsourced for a specific initiative or to fill gaps. Success comes down to clear ownership, a single point of contact, and a shared definition of done.

We work that way with a lot of our clients. If you're weighing software development outsourcing vs in-house and want a straight conversation about fit, get in touch.

Explore our Product Strategy, Custom Software, and AI Development services, or get in touch to discuss your project.