How to Estimate the Cost of Developing Software Offshore

With the recent rise of Zoom meetings and working-from-home, the world has become much smaller. Now, no matter where you live in the world, you can offer your services to the global marketplace. Some see this as scary, but some see it as a fantastic business opportunity. The cost of developing software offshore creates a world of opportunities.

The Digital technology industry has embraced this change more than most. Now, if you’re a software provider in, say, Atlanta, you no longer are in competition with other Georgia-based companies; you are in competition with lower-cost providers in places like Ukraine, India, Israel, and Vietnam. On the flip side, if you’re an Atlanta-based startup, you now have to choose among all software outsourcing companies in the world. What a daunting task! How are they supposed to choose a vendor from among the dozens of unsolicited emails from outsourcers that they get every day?

To make matters worse, it is incredibly difficult to compare costs among these outsourcers. How are you supposed to figure out which vendor will deliver the best quality product at the best price?

There are two ways to calculate the cost of developing software offshore

Outsourcers will give you two options: fixed-price or cost-plus.

1. Fixed Price

This means the outsourcer will quote you a single price for an agreed-upon Scope Of Work (SOW), usually broken into smaller installment payments. For the entire project. You do not need to pay any additional costs during the implementation. This is a simple calculation, and you can rest assured about the budget throughout the software development process. However, this pricing method also has certain disadvantages.

Let’s start by understanding how a quote is formed to better understand this pricing method. First, there will be meetings to agree on the software requirements with the vendor. The supplier will then estimate the amount of work to be done. They will then provide you with a quote that includes all associated costs and a contingency.

In a perfect world, this would be the best method for quoting. In practice, however, many problems arise. The first problem is that it will be difficult for you to visualize and state the level of software quality that your vendor needs to ensure. This leads to incorrect workload estimates. As a result, the quality of the software you receive is not what you expected. The second problem is that you will encounter some dishonest suppliers. Because they want to win the pitch, they will offer you the lowest prices with promises they will never fulfill.

Therefore, this pricing method will be better for general software, with few special requirements, since it has been done many times before. Equally important, you need a reputable vendor to ensure it's all estimated and executed to meet your needs.

2. Time and materials

Time and materials is a contract based on the time worked for the project. This pricing method quote also includes an estimated total project cost, but all costs are estimated based on time. This pricing method is relatively flexible. If your project idea changes in the future, you can update it at any time without issue.

This pricing method also requires a good description of the project requirements and scope of work. This helps calculate the cost of the entire project more accurately. It makes it easier to manage project finances.

Factors determining the cost of developing software offshore

1. Software Size

Software size is a key factor for estimating overseas software development costs. They are proportional to each other. It's very simple: the more screens or pages, the more effort it takes and the higher the software cost. For example, a small application typically has 10–25 pages of features, a medium application has 25–40 pages, and a large application has more than 40. As a result, the overall cost is a little high. For example, if you are developing a large application with more than 40 screens and many other complex functions, your costs will definitely be higher.

2. Scope

A large part of the cost of software development abroad depends entirely on the software's scope. Project requirements are proportional to the software cost. All possibilities, constraints, and assumptions for the project will be included in the software cost. If a project includes many features, database integration, or additional functions, and spans several phases of software development, the cost range should reflect that. So work with your development teams to create the most accurate and efficient estimate, including the time scale and distribution required from both sides.

3. Flexibility

Approaching problems flexibly will benefit both you and software development companies. It is almost impossible to keep software development costs to a minimum unless the project's scope and duration are clearly defined. A multitude of factors can affect the cost, including the number of tests and their results.

4. Software Budget

Many software development companies have limited budgets. If the client wants to add a feature to the project that costs much more than before, they need to set a priority or increase the budget. Your limited budget also makes it difficult to estimate software development costs. You should carefully calculate the cost before embarking on the project.

5. Software Complexity

When you are looking to determine the cost of software development abroad, understand that project complexity also affects the cost. Examples: type and extent of coding and testing, software design requirements, and whether you have a need to integrate the application with third-party applications or systems. It can be quite time-consuming if the application is multifaceted and involves processing large volumes of data with great detail. If you require a unique look with custom fonts, images, and icons, then you need to hire a website designer to handle all of these.

In addition, integrating the application with third-party applications or payment gateways will be much more difficult. Complexity also includes data migration, which may require a simple script to transfer data from one system to another and can involve many details.

6. Developer's Cost

The salary of software developers also directly affects the cost of the entire project. The salary difference here refers to differences due to qualifications; the salary difference here refers to the different salary rates in different countries. You can find high-quality software developers with competitive salaries in well-known outsourcing countries such as India and Vietnam.

However, offshore outsourcing also has some disadvantages that you need to consider.

Read more at: Top Countries for Offshore Software Development

Things to keep in mind when developing software offshore

1. Create a clear software idea

This is an important first step before doing anything. You need to have a clear idea of what you want with your software: who it is for, what the key features are, what the user experience will look like, whether it needs to work with a third party or not,... The more specific and clear your idea is, the easier it is for developers to understand what they need to deliver that project. The clearer your idea, the more accurate the vendor quote. It does not take much time to negotiate for both sides when working with a professional agency.

If you are still confused and want to clarify your idea, you can ask an agency for advice and support.

2. Clearly define the project scope

Sketch down your idea on paper once you've decided on it. It is advisable to create a detailed plan so the agency can provide you with a more accurate estimate of your software development team's costs.

A complete plan will be preferable; it should include information such as target customers, software goals, distribution methods, and so on. If you do not have a strategy, seek counsel from an agency.

3. Agree on the criteria between the two parties.

You should clarify all issues and criteria with your vendor. This gives you a more accurate quote and a smooth product development process.

Software development is a complex and challenging process. The cost of developing software offshore is also not small. Before doing so, you should take the time to learn and consider the cost of developing software abroad. It will save you money but bring back high-quality products. If you have any questions about software development, don't hesitate to get in touch with CodeStringers. We will answer your questions.