Calculating the ROI of Software Outsourcing

 

The cost of software development can calculated to understand if outsourcing might be a better option for you.

In the following blog post, we will try exploring and itemizing the cost of software development.

We will compare in house development to software outsourcing and examine which method will yield a better ROI.

In house development costs

Rent: For an in house development team, you will need an office that includes individual work spaces, a common area and a conference room for meetings. Calculating your rent will depend on real estate prices in your area.

Utilities: Electricity, water, and so on. The cost of your utilities will depend on the size of your team and office.

Office supplies: Those can include desks, chairs, printing paper and toner, snacks, coffee and a petty cash.

Computers and computer parts: Each employee will need a computer, multiple monitors, printer access, backup drive etc.

Supporting software: Developers and managers need dedicated tools in order to create software.

There is probably some room to negotiate here, however, if you are doing any kind of enterprise development, IDEs and servers might pose a significate expense up to 8% of a developer’s salary.

Recruiting: In today’s applicant market, a recruiter’s fee is about 20% of an employee’s first year salary.

Salaries: In order to attract top talent, you will need to spend top dollar in both salaries and in rent.

Developers prefer a good work environment and tend to choose positions offering office improvements.

Your developers will also have a turnover which will make training your work force a consideration.

The old saying of you got what you paid for holds true here, so, this is going to be your main expense.

Benefits: Medical, Dental, Vision, 401k and life insurance are standard benefits that can add about 30% to the cost of each employee.

HR: The cost of HR will include a fixed HR manager and per employee costs such as payroll processing and state fees.

Taxes: City, State and Federal taxes will apply. Payroll taxes can depend on the resided state.

Some cities such as Los Angeles have a gross income tax that does not depend on profitability.

Outsourcing Costs

cutting down expenses

 

Time and materials cost: If your software development partner charges using the Time and Materials method.

You can calculate the cost by simply reviewing the work statement they have submitted. The price per sprint should be multiplied by the number of sprints to indicate the total cost.

The project contract should estimate the total number of sprints.

Time and Materials is the best way to insure predictability along with good product quality and Inverted Software’s projects are estimated in such a way. Every project we take on, will have an accurate per sprint cost along with the estimated number of sprints so that you can easily budget the work.

A fixed bid: This type of bid will already have the final cost, however, can present a quality issue. Fixed bids are designed to win the business, therefore they might imply cutting cost in ways that compromise the product.

In addition, fixed bids might run late and that can pose an additional cost such as product to market delay, legal issues and more.

Conclusion

Putting the numbers behind in house software development, we can tell there is more to the cost than simply hiring developers.

If you are planning to do all your development in house, you might consider an in house team from Inverted Software.

If the cost is beyond what you are willing to spend, we will be happy to look at your project and give you an estimate of the cost of outsourcing.

How can we help?

Contact us at:

Phone: 818.262.8552
Email: contact@invertedsoftware.com

 

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