Why there is no single number
Anybody who names a price before they know what you want is guessing, or selling. The price of outsourced software depends on three things, and a fair answer is a range with its assumptions written beside it.
- What is built: the scope, and how much of it is still unknown.
- Who builds it: the skills, the seniority, the size of the team and the rates of the place it works from.
- How the risk is shared: the pricing model, which decides who pays when the estimate was wrong.
What moves the price
Ask each partner about each row, so that you know what a price is made of.
| What | Why it moves the price | What to ask |
|---|---|---|
| Scope and unknowns | More features and more unknowns mean more work, and more margin for what nobody can foresee. | Which parts are certain and which are guesses? |
| Complexity | Payments, integrations, offline use, real-time features and strict security take longer. | Which of these are in the quote and which are assumed? |
| The team | A more senior team costs more an hour and may need fewer hours. | Who is on the team, at what seniority, and for how much of their time? |
| The place | Rates follow the partner's market and the skills in demand there, which differ by country and between companies, whether it is onshore, nearshore or offshore. | Is the rate card in writing, in which currency, and what changes it? |
| The quality bar | Tests, documentation and security reviews take time and save more later. | What is included: tests, reviews, documentation and handover? |
| The date | A tight date means more people or longer days. | What does the quote assume about the date? |
| Change | Scope that changes while the work runs is paid for one way or another. | How are changes priced, and how fast are they agreed? |
Pricing models compared
The model decides who pays when the estimate was wrong. Choose it before you ask for quotes, so that every partner prices the same thing. The guide to dedicated teams and staff augmentation goes into the team models.
| Model | What you pay for | Who carries the risk | Works when |
|---|---|---|---|
| Fixed price | A defined scope, for one price. | The partner, for the agreed scope. You, for what you left out. | The scope is clear and stable. |
| Time and materials | The time spent, at a rate card. | You, for how long it takes. | The scope will change or is not known yet. |
| Dedicated team | A monthly fee for a team. | You, for keeping the team busy. | There is a continuing flow of work. |
| Retainer or bank of hours | Hours bought in advance. | You, for hours that go unused. The partner, for keeping capacity. | The work is irregular but you want a quick start. |
| Milestones | Payments tied to stages that you accept. | Shared between you. | The work splits into clear stages. |
Fixed price is not a guarantee
A fixed price covers the scope written down. Anything not written down is a change, and a change is priced separately.
A lower rate is not a lower cost
Compare the cost of a delivered outcome, not the price of an hour.
- How many hours the same task takes a more or a less experienced team.
- How much rework a lower price brings.
- How much of your own time the partner needs.
- How long a new person takes to learn your system.
- The cost of a delay, to your business and not only to the project.
A rate card is not a quote
A rate says what an hour costs. A quote says what a result costs. Ask for the second, with the team and the assumptions behind it.
How to compare quotes
Quotes that look alike are often different in what they leave out.
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Give every partner the same brief and the same assumptions
If one partner assumed a web app and another a mobile app, the prices are not comparable.
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Ask for the team in writing
Roles, seniority and the share of each person's time.
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Ask what is excluded
Tests, hosting, design, documentation, support and the work of connecting to other systems are the usual gaps.
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Ask for a rate card for changes
It tells you the price of the surprises you will have.
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Ask how payment follows delivery
Payment should follow work that you have seen and accepted.
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Put the quotes side by side
One column for each partner and a row for each exclusion, and compare the total after you have added what each leaves out.
Keep the cost in check
You cannot remove the uncertainty, but you can limit what it can cost you.
- Start with a discovery step or a small pilot before the large commitment.
- Split the work into phases, each with value at its end.
- Put a cap or a review point on time and materials work.
- Keep a reserve for change.
- At each stage, compare what was delivered with what was paid.
Red flags
Any one of these is a reason to ask more questions.
- A price far below the rest, with no scope behind it.
- A fixed price with no assumptions.
- No rate card for changes.
- Pressure to sign before you have met the team.
- Payment up front for all of the work.
- A refusal to say what is excluded.
Keep reading
- Custom software: Web, mobile and back-office systems built around your process.
- How to outsource software development: a step-by-step guide: How to outsource software development step by step: what to hand over, how to brief a partner, how to test one, and how to stay in control of the work.
- How much does custom software or an app cost in Kenya?: What decides the price of custom software and apps in Kenya, three ways projects are priced, and how to get quotes you can compare. No made-up figures.
- How to choose a software outsourcing partner: a due diligence checklist: A due diligence checklist for choosing a software outsourcing partner: what to ask, what proof to see, how to run a paid pilot and which red flags to act on.
- Talk to us about your project
Common questions
How much does it cost to outsource software development?
It depends on what is built, who builds it and how you work together, so nobody can give a single honest number in advance. Ask for a range with its assumptions, the team and what is excluded, and compare total cost across partners.
Is fixed price or time and materials cheaper?
Neither is cheaper by itself. Fixed price puts more of the risk on the partner and often costs more for it. Time and materials follows the real effort but needs a cap or regular review. Choose by how clear and stable the scope is.
Why are software development quotes so different?
Quotes often differ because they assume different scopes, teams, quality levels and exclusions, not only different prices. Give every partner the same brief, ask for the assumptions and the exclusions, and compare like with like.
How does the fee for a dedicated team work?
A dedicated team is usually a monthly fee for a team assigned to you. Ask who is on it, how much of each person's time is yours, whether a lead is included, who pays for tools, and how much notice it takes to grow, shrink or end the team.
Are hourly rates the right way to compare partners?
Only in part. A lower rate can cost more if the work takes longer, needs rework or needs more of your time. Compare the cost of a delivered result for the same scope, and look at the quality of the team as well as its rate.
What hidden costs should I plan for when outsourcing?
Your own time as the product owner, tools and cloud services, testing and security reviews, changes after the first version, bank and exchange charges, taxes on cross-border payments, and support after launch.
How can I limit what I spend when I outsource?
Start small, split the work into phases, put a cap or a review point on time-based work, keep a reserve for change, and pay for work that you have seen and accepted.
Want a price you can compare?
Tell us what you want built and how you would like to work. We will reply with the assumptions written beside any price.