Software Development Outsourcing: The Complete Guide for 2025

What is software outsourcing? Software outsourcing is the type of cooperation in which a company entrusts software development to an external vendor. Outsourcing allows businesses to access the global talent pool, reduce costs, and focus on core activities while leveraging the skills and resources of an outsourced development team.

For more than 13 years now, the Cleveroad team has been providing outsourced IT services for businesses across the globe in multiple domains. In this article, we'll talk about all the features of outsourcing software development so you can know whether this cooperation model suits you.

Software development outsourcing means delegating software development tasks or entire projects to an external vendor. To simplify, you handle the whole development or a particular scope of tasks to the vendor’s professional team while having total control over the process. The vendor’s staff keeps working on their places and remotely completes the tasks given by the client. Now, let’s take a look at the models of outsourcing.

Software development outsourcing is divided into several types by location and the relationships between the client and the vendor’s company.

Depending on the distance between the customer and the IT service provider, the location-based types of outsourcing contain:

• Onshore outsourcing — your partner company is located in your country
• Nearshore software development — you transfer software development to adjacent region
• Offshore software development — you delegate the development process to a vendor's company residing far away from you

Business aims and the kind of management your project needs classify relationship-based outsourcing. According to these criteria, there are the most common three models of outsourcing:

• IT Staff Augmentation
• Dedicated Development Team
• Project-Based Model

IT Staff Augmentation. With staff augmentation, you get extra team members who work under your guidance. You manage their tasks, track progress, and make decisions. This model works best if you already have a development team but need more developers to speed up the process. It also gives you flexibility — scale the team up or down as needed.

Dedicated Development Team. A dedicated development team services give you a group of experts focused only on your project. You don’t have to worry about hiring or training — they already have the skills. You still provide direction, but the outsourcing company handles team management. This outsourcing software development model is a great choice if you want long-term collaboration without the hassle of recruiting and HR tasks.

Project-Based Model. If you want to focus on results rather than managing the process, this model is for you. The outsourcing development company takes full responsibility for the project — from planning to delivery. You define the goals, and they build the solution. This works best for businesses that need a ready-to-use product without day-to-day involvement.

Many businesses choose IT development outsourcing to save time and cut costs. You get expert help without hiring full-time employees. Below are key IT services you can outsource.

Whether you're a startup or an enterprise, outsourcing helps streamline operations and improve efficiency. Below, we discuss the key benefits of outsourcing software development.

Cost reduction is one of the biggest reasons companies turn to outsourced software development. Hiring an in-house team comes with extra expenses — salaries, office space and hardware. Outsourcing eliminates these costs. This allows companies to reinvest in other areas, such as marketing, product development, and customer acquisition. According to Enterprise Apps Today, outsourced employees hold about 40% of help desk positions in the banking industry, reflecting significant cost savings.

A business doesn’t only involve software development. Marketing, sales, and client engagement come into play. Outsourced software developers help with the technical tasks so the entrepreneur can focus on the business strategy and growth. According to Forbes, companies that outsource software development often achieve higher quality standards due to entrusting the software development process to specialized external teams. Delegating development tasks to experts ensures projects stay on track while companies concentrate on their core objectives.

Talent shortages make it hard to find the right developers locally. Software engineering outsourcing removes geographical limits, giving you access to a global talent pool. Statista reports that the worldwide software development workforce is around 28.7 million developers. Whether you need blockchain specialists, AI engineers, or experienced full-stack developers, outsourcing lets you find the right software experts without being restricted to a single region.

Hiring an in-house team takes time. Posting job ads, conducting interviews, and onboarding employees can take weeks or even months. Development outsourcing will speed up this process. McKinsey reports that outsourcing software development services can reduce the time-to-market by up to 25%, allowing companies to launch products more quickly. Instead of waiting, you get immediate access to skilled professionals who can start working right away.

Business needs change constantly. A software project may require more developers during peak phases and fewer for maintenance once it's completed. Outsourcing IT development allows companies to adjust team size based on project scope and demands. According to Statista, the outsourcing market's revenue is set to reach a staggering US$591.24bn by 2025, reflecting its continued growth and importance in business operations. This flexibility helps businesses manage budgets effectively and respond to market changes without the risks of long-term hiring commitments.

When companies decide to outsource software development, they need a solid strategy. Let's break down the essential steps to make your software development outsourcing successful.

Everything starts with defining what exactly you want to achieve. If you want to develop an application from scratch or modernize your outdated software, getting a good scope of the objectives of a project is important for it.

Think about it: Which objectives do you want to achieve? What platforms do you want to cover? Which features would you like to implement? Defining these goals will give greater clarity when explaining your needs to prospective software developers outsourcing and will help ensure that your project correlates with those requirements.

Evaluate how much investment you are ready to commit to the outsourcing of software development. The cost of outsourcing software engineering differs from unique business cases, depending on project complexity, the number of resources required, and the technologies involved. Setting a flexible budget allows for more proper financial planning and a better chance for negotiation.

Consider additional expenses, including software licensing, third-party integrations, cloud services, and post-launch maintenance. A well-planned budget ensures that you have the necessary resources to complete the software development outsourcing process without financial setbacks.

You need to decide whether you require a full team to manage every project stage independently or just a few specialists to supplement your in-house development team. Choosing the right approach ensures you get the necessary expertise without unnecessary overhead.

If you need a full-fledged team to handle the whole process, from planning to release and maintenance, you should choose the dedicated model. If you lack technical experts for your project, it's worth considering IT staff augmentation.

The selection of software development outsourcing destinations is also important. You can either choose onshore outsourcing, nearshore outsourcing, or offshore outsourcing.

• Onshore software outsourcing means working with a team in your own country, which ensures easy communication but at a higher cost.
• Nearshore software outsourcing involves hiring developers from neighboring countries, which offers a balance of cost savings and collaboration efficiency.
• Offshore software outsourcing provides access to skilled talent in distant countries, which reduces expenses but requires more coordination.

Every model and country that corresponds to it has its influence on the cost, communication, and time zone differences that will be on the project. You should choose them wisely on those parameters while staying within budget usage for operational consideration at the same time.

Once you select a location, start looking for potential outsourcing software development partners. Shortlist companies within the area that are aligned with your targets. A partner should be well-suited to the requirements of your project in terms of expertise, communication style, and industry experience. After having narrowed it down, contact each company to detail cooperation terms. In that way, you'd feel how well the company can be collaborated with and whether you are understood in your needs.

Before sharing any sensitive details about your project, have your development partner sign a Non-Disclosure Agreement (NDA). This document doesn’t allow the potential outsourcing provider to leak, use, or clone your idea, except if permitted by you. An NDA becomes more important when your software requires proprietary technology, innovative features, or confidential business data. The NDA legally binds both parties, creates an atmosphere of trust, and protects from misuse of your intellectual property. Therefore, a well-crafted NDA will save you from unnecessary quarrels in the future and lend you peace of mind as you progress with development.

Choosing the right outsourcing partner to outsource software development is vital. This process will primarily affect your project's success. To help you, we've outlined the essential aspects of selecting the best outsourcing development software provider.

While thinking about outsourcing development, verify the partner’s technical expertise. Do they have the specialized skills needed for your project? For example, if you require AI development services, check their experience in this area.

Additionally to general skills, industry expertise is also critical. A vendor’s understanding of your business domain is important in a successful software development outsourcing process. This shows that the partner understands the business challenges of your domain and knows how to solve them, especially when it comes to industries that are subject to strict regulation, such as healthcare, logistics, and fintech. The experience in these shows that they know what laws and regulations to follow and how to do such solutions.

A strong portfolio is a clear indicator of a partner’s capabilities. Always review their portfolio to assess their previous work. It must contain solutions similar to your project, solutions in your industry, with similar functionality, as well as complex and functional platforms. This step helps you confirm if they can effectively outsource software engineering for your project. A well-presented portfolio demonstrates their track record and gives you examples of their expertise.

• See Cleveroad's recent projects in our portfolio

It is important to take a look at client reviews and ratings to understand the reputation of your partner as someone whom you can trust. Client feedback on platforms like Clutch provides real insight into their working style, project management, and service quality. These firsthand accounts help you get a genuine perspective on what it’s like to work with them. Authentic testimonials build trust and give you a realistic idea of what to expect to outsource your software development projects to this partner.

Explore our clients' feedback about their cooperation with Cleveroad on our Clutch page. Also, here is what our client, Henrik Loop, CTO of Blockbuster, says about partnership with us on video-on-demand platform development:

Communication is the foundation of a good partnership, especially when you outsource IT development. Good communication allows cooperation to proceed without a hitch and facilitates project timelines. Having a partner with a good communication approach means you will be involved and informed throughout the entire web or app development life cycle.

At Cleveroad, we provide communication on projects – a schedule of meetings at a time convenient for the client, even if there is a big time difference on offshore outsourcing, sprint review, a separate channel in Slack, etc.

Security is non-negotiable. When you consider software engineering outsourcing, thoroughly verify the security measures the partner has in place. Ask detailed questions about their data protection policies, security protocols, and compliance certifications. One of the brightest indicators the company strictly adheres to safety and quality standards is the availability of relevant certificates.

For example, we at Cleveroad, as an ISO-certified company, provide robust security standards proved by ISO 27001 certification. We maintain high operational efficiency and ensure the security of sensitive information.

Inquire about vendor’s development methodologies because they affect the speed, price, and efficiency of the development. Today, the top methodology is considered to be Agile SDLC. It emphasizes flexibility, collaboration, and iterative development, so that’s why we at Cleveroad use Agile methodology. An Agile-focused partner is often better equipped to adapt to changing requirements and ensure a more successful software development outsourcing experience.

Now, we’ve come to one of the essential discussions: how much will software outsourcing development cost? The truth is that many things affect the final price.

First, what kind of software are you building? Is it for the fast-paced world of fintech? Or maybe you need a robust e-commerce platform? The industry you're in definitely plays a role. Next, think about what your software will actually do. More features and complexity naturally influence the price. And finally, consider where it will live – on the web, on mobile devices, or both. Your platform choices impact the cost, too. The main factor that affects the overall cost of outsourcing is the team's salary. Team salary primarily depends on two key elements:

• Outsourcing region
• Team composition

Let's look at the impact of each of these factors in more detail.

The region in which you choose to outsource software development significantly impacts the cost. Developer rates differ greatly from country to country due to the cost of living, taxes, the level of government support for the IT sector, etc. A higher cost of living in regions such as the US or Western Europe generally translates to higher hourly rates for developers than in other areas. In contrast, IT outsourcing Eastern Europe suggests more cost-effective services without quality reduction.

Furthermore, the dynamics of supply and demand in the tech talent market play a crucial role. Regions with a strong demand for software developers and a limited supply often see higher rates. Conversely, areas with a wide tech talent pool and competitive economies can offer more budget-friendly options.

There are the most popular destinations for outsourcing:

What specialists do you need for your software product? To obtain an answer to this question, you should note the service set and team composition. The list of outsourcing software development teams should include the following specialists:

• Software developers. This expert builds the actual code behind the product, making sure everything works smoothly and is functional.
• UI/UX designers. This specialist is responsible for creating a seamless user experience (UX), intuitive navigation, and attractive interface that would satisfy the client.
• Business analysts. This person figures out what the client really needs. They gather requirements, analyze problems, and find the best way to improve the product.
• Solution architects. They design the big picture. They decide which technologies to use, how different parts of the system connect, and how to make everything work efficiently.
• QA engineers. These team players track every software building stage, ensuring that the product components meet the international development standards and prevent flaws.
• DevOps expert. They focus on the connection between development and operations, making sure the product gets from the developers to the users without a hitch. Also, they set up automation, manage infrastructure, and ensure the product is stable and scalable.
• Project managers (PM). It is a person who runs the project, answers for planning organization, and reports to the client about the tasks completed. They also check whether the created product meets the client’s requirements.

Taking into account the factors above, here is how much specialists in different regions will cost you:

Cleveroad is an outsourcing software development company headquatered in Estonia, CEE region. We have R&D centers in Estonia, Poland, Ukraine, the US, and Norway. Since 2011, we have been helping startups, SMBs, and enterprises achieve their goals, developing robust digital solutions.

We meet the highest information security standards, and our internal processes work well, proven by ISO certifications: ISO/IEC 9001:2015 for quality management and ISO/IEC 27001:2013 for security management. Also, Cleveroad obtains AWS Select Tier Partner status within the AWS Partner Network (APN). Moreover, Cleveroad became 7th among Clutch’s Top 1000 Companies, which proves that we consistently provide high-quality solutions and keep our clients satisfied. We achieved the Fall 2024 Clutch Global Award honoree and a Clutch Champion and have been included in the top 5 among DesignRush's list of the best IT service companies.

By choosing Cleveroad for outsource software development, you’ll get such benefits:

• Three flexible models of cooperation: Dedicated Team, IT Staff Augmentation, and Project-Based
• Experience in 8+ business domains, such as Logistics, Healthcare, FinTech, Retail, Travel, Education, Media, Marketplaces, etc
• Free Solution Workshop stage to align your business requirements with technical implementation
• All guarantees for your business information security and signing NDA per your request
• Product quality assurance and control at all levels of every part of your software: functionality, integrations, performance, usability, and security

For now, our team has already delivered many custom software development projects for clients from the US, Australia, Asia, Saudi Arabia, the UK, etc. We’d like to present you several featured projects, so you can look through them and pick some interesting concepts for your business case:

• Quality management system
• Telemedicine management system
• Micro-investment platform
• Healthcare learning management system
• Location-based marketplace

Here’s what Oliver Carew, Founder of EI Tab, says about cooperation with Cleveroad: