Outsourcing software development services can be a real game-changer for fast-growing small and medium-sized businesses. Not only can it have the effect of saving money and get you working software delivered faster.
If you’ve never worked with a software development company before, it might seem a little intimidating. That’s perfectly understandable! Putting your trust in a different company to deliver the results you are looking for is a big decision in any capacity, especially when success of your business as a whole can depend on it.
Based on our 15 years of experience in outsourced software development, this article summarizes everything you need to know about outsourcing software development: benefits, challenges, outsourcing strategies, and key elements you need to consider choosing software development outsourcing companies. Our goal is to maximize outsourcing benefits for you. Let’s get started!
What is outsourced software development?
Outsourcing software development is a business strategy of delegating software development project to an external company instead of executing it within in-house capabilities. The process of software outsourcing begins when a business decides to build start software project through the means of a third party.
Global IT outsourcing has grown to 512 billion USD in 2024. Behind this astonishing number, there are businesses of all sizes that are able to gain a competitive edge. Outsourcing allows them to complete IT projects faster by leveraging know-how, technical talent, and flexible team scalability offered by specialized outsourcing partners.
Why companies outsource software development?
Why do companies outsource software development? Here are some of the key benefits of outsourcing your business's software development.
Reduce software development cost The rapid pace at which technology evolves means that the software development industry is ever-changing. Hiring and training software developers for a project can turn into unnecessary overhead costs.
High-quality software development team With software outsourcing services you are able to hire with a diverse software development team with all sorts of skill sets. Those niche experts that can help you to understand the market from a domain and technical perspective.
Save time on hiring specialists The saying ‘time is money’ really is true, so you can cut costs ever further by bringing in pre-approved specialists. With developers in outsourced teams, the hiring and researching work has already been done. Now, you can swoop in there and enjoy all the successes by spending a minimal amount of time. The whole process of hiring an outsourced team can be equal to or less than the time it takes to hire one single developer into your in-house setup. Think about the time, and therefore money, that this has the potential to save you.
Gain access to world-class talent Part of the beauty of an outsourcing network is that you can bring in some of the finest software development from the other side of the world at the click of your fingers (kind of) on an outsourced basis. As long as you can utilise project management and collaboration tools, you can reap all of these amazing benefits.
Flexible team capacity and scalability An awesome thing about software development outsourcing is that it can give you a sense of ‘on-demand’ service. Imagine a scale between skills and cost (sure, it’s a loose idea), but this will help to visually the freedom that you have with this opportunity. Scaling your project as and when you need it has huge benefits for time and money.
Work with a managed team It’s not just individual developers that can save you manpower, and therefore time and money. Management is a huge part of this too. Hiring the right manager for an in-house team can be one of the most difficult things you will do with your company, but you don’t have to worry about that as much when outsourcing, as every team will already be managed. You’ll certainly need management to guide the project down the line, but a lot of the weight of management can be taken away from your own company.
Focus on your core business And that brings us nicely to the final benefit of working with an outsourced software development company. Being able to focus on your core business will undoubtedly allow you to get a better result overall, as there will be nothing to distract you and lose sight of your original idea. This could well be the most important thing to focus on overall.
Software development outsourcing models
There are some basics you need to pay attention to before you outsource your project. In this guide we would be focusing on the client and provider relationship model. This is primarily because healthy relationships drive business success. When the relationship is right, you don't have to worry about distance. Here are the three main relationship based models:
Staff augmentation In the staff augmentation model you own your project from start to end. The client takes the most of the responsibility. You're hiring tech talents from an outsourcing company To strengthen the team responsible for the development projects.
Managed team In this model responsibility and ownership are shared by the client and the outsourcing provider determining on which responsibilities belong to whom. Your managed team operates independently of your in-house team, with an outsourced Project Manager overseeing daily operations and workflows.
Project-based The outsourcing provider takes the most of the responsibility and own the projects from start to end. They complete your software project according to your specifications.
Different problems require different solutions and different software outsourcing models. So you make sure to know what kind of problem you have before looking for a solution. If you're new to outsourcing, staff augmentation is a good and easy start. It gives you a feel of the outsourcing world. As your needs increase and your relationship with your outsourcing partner grows, you can try other models of outsourcing.
Comparison of the software development outsourcing models
| STAFF AUGMENTATION | MANAGED TEAM | PROJECT-BASED | |
| Scope | Not set | Estimated | Predefined |
| Timeline | Predefined | Estimated | Predefined |
| Control | High | Medium | Low |
| Client Technical Expertise/Leadership | Required | Recommended | Optional |
| Communication with Outsourced Team | Daily | Frequent | Occasional |
| Overlap with In-House Team | High | Some | None |
| Product Management | Client | Shared | Client |
| Task Management | Client | Outsourcing Provider | Outsourcing Provider |
Software Development Outsourcing Models — Which is Best?
How do you outsource a software project?
Increased productivity, improved product quality, and cost savings are just a few of the advantages of outsourcing software development. However, you cannot effectively outsource IT development without careful preparation, and developing a sound outsourcing strategy is the first step in hiring an outsourcing partner to meet your demands. However, how do you construct one?
Define your goals
Every project has multiple stakeholders, and you can’t expect all of them to be participating in every detail of the project. When we say project stakeholders: company leadership, end-users, customers, etc.
Outsourced projects can differ in nature, so sometimes, you can expect stakeholders outside organizations or even individuals that will use or be directly affected by the final product.
You’ll probably also want to run your ideas past other members of your team and perhaps even other people you know in the business so that you know your project has well defined goals.
Prepare Scope of Work documentation
There’s no point trying to reach out to a software development outsourcing company if you have not prepared the plan. They’re going to want to know your budget and your requirements, and good documentation is the best way for this.
Define your technology stack
Given that software development outsourcing is often performed remotely, it's critical that your custom software development partner has a technical profile that matches your project’s requirements. We recommend creating a comprehensive list of the frameworks and tools you’ll need. Keep security and data protection on your radar from the start, as data breaches are a persistent risk.
PRO TIP: A strategic option worth considering is our boilerplate approach, which includes pre-built common functionalities (e.g., authentication, subscriptions, RBAC) and a ready-to-use UI design system.
This cuts development cost by up to 40% compared to starting from scratch, delivering a custom, high-impact product without sacrificing quality or adaptability. Contact us and get a free quote for your project!
Bring experienced Engineering Leader
An engineering leader wears many hats: architect, coach, strategist, and problem-solver. First and foremost, they ensure technical decisions align with business priorities, so that your software solution delivers tangible value, not just functional completeness. Their strategic oversight helps teams adopt the right technologies, plan realistic milestones, and maintain effective documentation—critical aspects for projects spanning multiple time zones or involving remote collaborators.
At SoftKraft, our Engineering Leaders serve as the cornerstone of every successful outsourcing partnership. They never operate in silos; instead, we bring together a diverse set of perspectives for each project, empowering us to share valuable insights gained across projects.
Manage project scope, budget, and timeline in each iteration
Managing scope, budget, and timeline is critical for the success of any outsourced software development project. To drive better results and mitigate risks, keep in mind these key practices:
- Define priorities and deliverables for each project iteration.
- Track spending against milestones, and address any budget overages early.
- Leverage communication tools and schedule frequent check-ins to detect and resolve bottlenecks.
Outsourcing software development step-by-step
Regardless of how complicated a software product is, it must be adaptable, maintainable, and upgradeable. This may be accomplished by meticulously preparing each stage, from ideation through maintenance. The stages of the software development life cycle (SDLC) differ between software development companies.
Requirements Gathering Once a gap or opportunity in the organisation’s application landscape has been identified, there is a need to understand and document exactly what that business requirement is in order to select the correct solution. It is important to resist the urge of jumping directly to a solution in this phase and stakeholders may need coaching and support to take an open mind about any solution preferences they may already have.
Design Once the requirements for the new software have been sufficiently documented and signed off, the design work can begin. At this point, organisations should decide if their effort is best spent on building a new bespoke system or purchasing something off the shelf. This may require a tender process such as a request for proposals (RFP) or a request for information (RFI).
Build In the build phase, the output of the “requirements” and “design” phases are transformed into working software by software developers. This could consist of various things such as building front ends, back ends, databases, microservices or many other components.
Test In the testing phase, test analysts will conduct a number of validation checks on the software such as performance testing, load testing and exploratory manual testing. The main objective is to ensure that the quality of the work implemented in the build phase is sufficiently robust to meet the demands that will be placed on the system during normal operating conditions and determine what happens when those conditions are exceeded.
Deployment During the deployment phase, the software is loaded into the relevant production environments & platforms from which it will be run. These environments may be physical servers located in the businesses data centre, or more increasingly, a cloud-hosted platform.
Maintenance During the maintenance phase, the system is handed over to the team who will be supporting it for the remainder of its life at the organisation. Correct documentation and helpfiles will need to be prepared for service desk operatives so that they know how to direct user support requests to the correct team.
How to choose an outsourcing software development company?
So, you’ve decided to outsource your software development. Congratulations! You’ve just made the first step towards the implementation of an awesome new software project, and now it’s time for phase two: finding the right software outsourcing companies..
This is another crucial stage of the process. The outsourcing company that you choose has the potential to massively increase the quality of your project or be a factor behind its failure! It goes without saying, therefore, that plenty of time and focus should be spent on this part of the development lifespan.
It is important to consider the topic in two ways, depending on the model of your business and the type of project that you are about to embark on: you’ll want to assess their skills and experience in the more general world of software development, and more specifically, how that skills set applies to your own work, including their experiences working with similar clients.
Our recommendation questions should cover all bases on both fronts, but you are probably going to want to add a few of your own to double down on making sure that they are the right developers for you specifically.
Software vendor interview questions
Questions to ask software development companies can really vary depending on a number of factors. This being said, the 15 questions we are about to recommend should be good questions to ask a software developer in most cases. They are general enough to cover the most important aspects of software development projects, but also specific enough that they will encourage revealing answers from the individuals responding.
1. Could you present a project similar to mine in terms of technology?
Right off the bat, this is probably the most important thing that you can ask a potential software developer. You can assess their answers to this question in two ways:
- Do they have the right technical expertise to suit you?
- Has that technical expertise been applied in similar ways to what you are looking for?
The confidence with which they answer this question and the assurance that you feel when they do so will be very telling as to how good this company could be to work with you.
As well as this, don’t settle for just one or two vaguely similar projects here. The more there are, the more experience that software outsourcing company has, and the more likely they are to deliver the goods for you.
2. Can you provide good references from previous projects?
Talking about how good you are as a development company in delivering similar pieces of work is one thing, but anyone hearing that information will want to ensure that it is backed up by reviews from clients.
It is great to be able to see examples that correspond to your project as a business, but what is truly telling is seeing how well the provider’s software development processes and the delivered software performed for the client and other businesses supported with the software respectively. If you can get good feedback from two, three or more other businesses that your software development outsourcing partner of interest has been working with, that will be a big green tick by their name.
3. What kinds of companies do you typically work with? / Who is your ideal client?
Here, you’ll want to check if your interviewee has target clients with characteristics similar to your own, including your vision and the size of the project. If they do, it increases the probability that you will have a positive experience with them.
Small startups that engage with larger software development companies (who have a tonne of big clients) might find that they are not top priority and that things take longer to happen.
Software development outsourcing contracts and pricing
Once you've found the ideal software development company, the next critical step is to sign the software development outsourcing contract with us. The custom software development contract is a legally binding document that establishes the terms and conditions of the relationship between the customer and the contractor. It assists both parties in avoiding risks while achieving expected results. A strong contract ensures the project's good quality and a positive experience working with the development team.
There are two primary ways of paying a developer for the production of custom-made software: an hourly charge, or a lump-sum (known as a "fixed-price" agreement). Therefore, the two types of software development contracts are “time and materials” contracts and “fixed price” contracts.
Time and material This is the most typical sort of custom software development outsourcing arrangement. By signing a time and material contract, you commit to paying the developers for their time spent on your project. To get the total fee, simply multiply the number of hours delivered by all the developers by the hourly rate adopted for the project (or a total number of man-days X man-day rate).
Fixed budget A fixed-price agreement requires a high level of certainty on all dimensions of a project, from design to technical solutions for both parties. It involves an assessment of all stages of the project and is more suitable for engaging suppliers to perform minor tasks.
Custom software development contract template checklist
There are certain key provisions that should be in every software development contract, notwithstanding whether the contract is a time and material contract or a fixed budget contract.
Conclusion
Software development outsourcing gives you access to a diverse pool of tech talent, enabling faster, more cost-effective project delivery.
If you’re in the process of outsourcing software development, reach out! At SoftKraft we combine our deep expertise in custom software engineering with a boilerplate-based approach:
- Pre-built core modules: We have ready-made, extensible components for mission-critical features like Authentication, Subscriptions, User Management, and more. By starting with these foundational modules, you can skip weeks of custom coding and move on to differentiating features right away.
- Ready-to-use UI design system: Launch with a polished interface from day one. Our catalog of tried-and-tested UI elements eliminates common design pitfalls, ensuring a consistent, user-friendly experience from the start.
This approach cuts development cost by up to 40% compared to starting from scratch, delivering a custom, high-impact product without sacrificing quality or adaptability. Contact us and get a free quote for your project!
