Differences Between Onshore and Offshore Pricing

by | Jun 7, 2018

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Like anything else, in software development: cost varies. Something that adds a lot to the equation is offshore and onshore pricing when it comes to development. We’ve talked about hiring a software development firm in the past, and we’ve even covered the challenges of hiring offshore. But, we haven’t yet covered the nitty-gritty about the cost differences between onshore and offshore firms. That’s what we’re going to break down.

 

Differences between onshore and offshore pricing

Recently we launched a study that focused on the variable cost of app development. In it, we compiled our own data by emailing request for proposals (RFP) to 100 firms to get a specific type of app priced out; 49 of them responded with estimated development costs and timelines. With this data, we were able to extract numbers and estimates from all different veins of the app development process — specifically, when doing research, we noted firms as having an offshore arm if the offshore office was listed on their website or if we could find more than 3 employees in the same country outside of the United States via LinkedIn.

 

Offshore development offices

Surprisingly enough, we discovered that of the 49 development shops, a majority of the them had offshore offices (40, to be exact). The question can be asked: why? Well– it’s no secret that offshore work tends to come with a much friendlier price tag. So why weren’t all 49 using it? Why doesn’t everybody use offshore development! We want to focus on the price differences–but let’s do a quick overview of the advantages and disadvantages of offshore development.

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Advantages of offshore development

Cost effective

The rumors are true, offshore development does tend to be cheaper, overall, than onshore work. (We’ll explore this in depth later.)

Speedy

Offshore developers often tend to be quicker in their work, allowing you and your team to focus on other aspects of your business. That being said, this speed can sometimes impact quality, which is something to watch out for.

 

Disadvantages of offshore development

Uncertainty

You may not exactly know what type of quality you’ll get when you’re working with offshore developers. It can be hard to evaluate their work and get references.

Time and cultural differences

If there are cultural differences, and when there are (almost certainly) time differences: communication between your team and your offshore development team can be strained.

We’ve dove deep into the cons before, so now that we’ve briefly laid those out, we’re going to dive into one big pro– and really see what this is all about: cost.

With our RFP project, we found that 18 of the 49 respondents had their largest offshore office in India— average all-in year-one development cost for these firms was $47,596. This was a striking disparity from the average all-in year-one development cost for firms with no offshore offices, coming in at a whopping $282,470. This, according to our research, tends to be true across the board. Here are the numbers:

Offshore Development Services
  • Mean app development costs were $66,907
  • Mean app maintenance costs were $1,760
  • Mean costs of all-in the first year were $88,022
Onshore Development Services
  • Mean app development costs were $214,274
  • Mean app maintenance costs were $5,683
  • Mean costs of all-in the first year were $282,470

 

Differences between onshore and offshore development

While these numbers are great, the question remains: why? To answer this, we would refer you to our list of cons. Something interesting we found in our study was that many firms claim to be on-shore, but have offshore offices. This is likely due to the level of risk that comes with going offshore (people would often prefer to have onshore developers). And, while the numbers that we were pitched look great — several of the firms that we spoke to ignored the requirements of our RFP– this meant that their initial quotes were (probably) lower than the actual price-tag of work. These were prices that would likely be “re-negotiated,” as they were subject to change based on the work that was actually being done. These are all estimates not finalized prices. This is certainly something to consider if you’re thinking about going offshore.

Overall, the communication we had, even when just looking for proposals with offshore firms, was a bit difficult. While we do think it can be a great option, and there are plenty of success stories with offshore: proceed with caution. Oftentimes, when a number looks too good to be true, it is. Do your research, and consider all your options.

For the full story, and an in-depth breakdown of app development costs with various types of development agencies, download our Whitepaper.

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