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Skilled developers are scarce. Engineering salaries are going through the roof. How do fast-paced tech companies keep up? Globally, companies are searching for new, cost-effective ways to build SaaS products. To stay competitive, 70% of companies already outsource software development according to Hackerrank.
But is software development outsourcing an effective cure for scarce and expensive engineers? Explore the benefits and the flip side of software development outsourcing below.
Have you ever hired an external company or team to handle a software development project? Outsourcing refers to that general practice. It isn’t limited to a specific location, nor to a specific type of software. Companies hire external partners to develop different types of software.
Companies no longer only rely on an in-house team of developers. More and more businesses, including SaaS companies, outsource projects for various reasons.
Depending on the specific reason, an outsourcing strategy will look different. For example, a Colorado software development company may outsource one-off projects to lower-wage countries.. But what about critical product features that need a lot of back and forth? Companies may not want to deal with timezone differences.
So, which types of software development outsourcing exist? And which approach is right for you?
Offshore software development is when you hire a development company in another country. Offshoring is a great option if you’re looking for a lower-cost alternative. And the good thing is, you don’t have to compromising on code quality!
Offshore outsourcing is common in countries like India, China, and the Philippines. These countries are home to many skilled developers. And labor costs are much lower there than in the United States, Canada, or Europe.
Nearshore software development is similar to offshore outsourcing. Instead of hiring on other continents, you work with a partner in a neighboring country. Outsourcing partners closer to home may also offer slightly lower labor costs. But with nearshore outsourcing, you still work in the same time zone and cultural context.
For example, partnerships between companies in Western and Eastern Europe are very common.
Did you know the cost of hiring developers in the United States can be up to 90% higher than in countries like India? Imagine how much budget you could save with offshore software development.
Even within the same country borders, companies save money with outsourcing. Working with an external partner cuts costs of salaries, benefits, and office space. Especially for side projects, this approach is very budget and resource-friendly.
Software development outsourcing is like an add-on to your team. SaaS businesses get access to specialized expertise they don’t have in-house yet. Whether in niche areas of software development, UX design, or QA testing.
Hiring and training new employees eats away time and money. By outsourcing smaller projects, companies can quickly scale their development teams up or down. Outsourcing partners can act as an extension of your team, when and where you need them.
Don’t have enough internal resources to ship new software features quickly? Afraid your competitors might beat you to it? Outsourcing software development helps businesses bring their products to market faster. With a bigger team of skilled developers, companies can ship features at least twice as fast. If not faster.
Software development outsourcing can sometimes lead to quality issues. Especially if the external partner ends up lacking expertise to handle the project.
Here are a few tips to lower the risk.
Sometimes, companies have trouble communicating with external development teams. Especially if there are language or cultural barriers.
Here are a few tips to lower the risk.
Giving an external team access to sensitive business information doesn’t go without risk. Software development outsourcing can sometimes result in intellectual property concerns.
Here are a few tips to lower the risk.
Outsourcing can pose a big security risk if the external partner doesn’t have the right policies in place.
Here are a few tips to lower the risk.
Outsourcing helps SaaS companies build product features faster at a lower cost. But managing an external workforce can be very demanding.
Do you want to ship new features with the same speed and cost as an outsourcing partner? But do you prefer to keep development in-house?
Software integrations are a new way of outsourcing specific development tasks. Low-code integration tools help in-house development teams do more in less time.
You get the advantages of outsourcing, while staying in full control of your development projects.
For example, let’s say you’re developing an email marketing platform. Your team has the skills to develop an email template builder or CRM functions. But what if your product users want interactive charts to analyze their campaigns? Your engineers aren’t skilled in developing data visualizations.
Instead, you could use an off-the-shelf software for interactive reports. This type of software integration is a cost-effective alternative to other outsourcing models.
You no longer need to hire external resources, even if they are cheaper. Your in-house developers can quickly add new features to your software product without losing focus.
So, what are some examples of software integrations?
All these examples are useful features for any SaaS platform, even if they aren’t at the product’s core.
ESXi backup solution integration can significantly enhance a SaaS platform's resilience by ensuring virtual servers and data are securely backed up and recoverable.
AI tools like GitHub Copilot, ChatGPT, and design automation tools haven’t eliminated the need for developers — but they’ve dramatically reshaped how outsourcing works.
In 2025:
Outsourcing partners are expected to bring AI-enhanced velocity, not just headcount.
If your dev agency isn’t using AI agents to improve output or reduce friction — they’re already behind.
Let’s address the old stigma.
In the past, companies outsourced quietly. Saying “we use an external dev team” felt like admitting a weakness.
That’s gone.
Today, investors, founders, and even in-house engineers expect strategic outsourcing — especially in early-stage companies or product innovation units.
Why? Because:
Outsourcing in 2025 is like using cloud infrastructure: it’s flexible, scalable, and expected.
The future of outsourcing isn’t siloed dev teams working in a vacuum. It’s blended squads — external and internal team members working side by side.
This means:
The best external teams feel like internal ones. They don’t just take instructions — they collaborate in real time, often using tools like ai meeting notes to align across time zones and surface key decisions..
Yes, this demands maturity from both sides. But when it works, it’s far more productive than a rigid handoff model.
One common fear with outsourcing is: “What happens if they leave? We’ll lose everything.”
That’s a sign you’re using outsourcing wrong.
In 2025, smart companies outsource to accelerate — not to replace their internal teams. The model works best when:
You should never be fully dependent on one partner forever. A good outsourcing relationship should evolve — or taper off — as your internal capacity grows.
Think of outsourced squads like scaffolding: essential at first, but not meant to be permanent.
Let’s be honest: building an in-house team takes time — especially in competitive tech hubs.
Finding the right talent, onboarding them, building team culture — it’s a slow ramp-up. Meanwhile, the market moves.
In contrast, top outsourcing partners offer:
For companies needing to validate ideas or build MVPs quickly, waiting 6 months to hire a team is often the greater risk.
Outsourcing buys you speed, and sometimes that’s the difference between surviving and scaling.
Outsourcing isn’t just about execution — it can begin at the discovery phase.
In 2025, many product development agencies offer:
The earlier you involve a smart partner, the better they can challenge assumptions, offer technical feasibility checks, and avoid wasted dev time.
The worst outsourcing happens when product requirements are frozen, dumped in a doc, and handed off to a team expected to build without context.
The best outsourcing happens when you say, “Here’s the problem. Let’s solve it together.”
Hourly billing still exists, but it’s no longer the only option — or even the best one.
In 2025, outsourcing pricing is more flexible, depending on goals. Options include:
Smart clients now negotiate shared incentives — ensuring vendors are rewarded for speed, quality, and clarity, not just time spent.
Generic dev shops — the ones that "do everything" — are fading.
In their place, we’re seeing highly specialized outsourcing partners:
This is great news for clients. You can now find outsourcing partners who know your world — your user base, your jargon, your compliance needs.
You don’t have to start from scratch. You can build on shared knowledge — or better yet, custom software development that’s already tailored to your space.
Software development outsourcing is a great, cost-effective alternative to speed up product development. And in some cases, low-code software tools are an even better alternative. They give your in-house teams more control without burning them out.
Are you considering outsourcing software development? Now that we’ve weighed the pros and cons, we hope you can make an informed decision! And if you're looking to in-source or outsource analytics, look no further than Luzmo. Our team of experts are ready to help you, book a free guided tour of our product today!
Build your first embedded data product now. Talk to our product experts for a guided demo or get your hands dirty with a free 10-day trial.
