IT Outsourcing Budget: What To Consider?

“You get what you pay for.” 

When going out to buy goods or technology devices, people normally link high prices with high quality. More aware customers will know that prices also come with the brand’s reputation. But the norm is you get what you pay for. 

Comparing prices is what we normally do when purchasing something or some services, software development outsourcing is not an exception.

But what toilsome is outsourced IT services are not a commodity and their price can vary, depending on the market, the level and services variety it offers, and more importantly, different providers employ different billing or engagement models.

Then how can I know when I overpay them, you ask.

Well here are some tips that can help you to understand the IT outsourcing market better.

Average cost of software development outsourcing services

The most common rate is the flat-rate, all-inclusive method of billing. 

IT outsourcing vendors normally charge by average per hour rates, it could be anywhere from 20 USD to over 49 USD per hour for some off-shore vendors, and 100 USD to more than 190 USD for other up-scale firms in the developed, western market. 

(Above rates are referenced as per

Generally speaking, on average, if you’re paying higher than that, chances are you could be overpaying. The ideal range should be somewhere in between. But remember to take the services they offered, the quality, the reputation into consideration; The higher the price is (within the ideal range of course), the better their services are - well most of the time. 

IT Outsourcing Budget: What To Consider?
: ask for case studies.

The price of the services is also synonymous to the providers’ operation maturity level (OML).

Like we have mentioned above, their ‘reputation’: how well the business functions. A cheaper outsourced IT provider often lacks back-end processes.

Besides the skills and experience specialists, the prices also reflect how ethical the companies are, well to some extent. An expensive IT service provider does not necessarily pay their employees a high rate but a cheaper provider is definitely not paying their staff well enough.

Again, the price is not based solely upon the cost, but also influenced by the provider’s offered services, their culture, and their operation.

When choosing your providers, have a look at their OML, a managed services provider (MSP) with a low OML often lacks uniformity of resources and knowledge of how to run a business effectively.

Signs to stop paying too much

Now since you already know about the average rate for IT outsourcing, forget about it for a moment, and keep this in mind: IT outsourcing services are there for reducing costs but still help you to ensure the company’s IT network, or any other technology-related domain’s quality. 

Your IT vendors should deliver and advise you about your future IT strategic plan, and transparently provide business reviews. If you can’t save much with an IT outsourcing service provider, you’re likely paying too much.

Software development companies should not only comply with your requests but also give you insights and advice about their domain. If they don't do anything above but charge you on average more than $190 per hour, per developer, no matter how good the result is, you could be paying too much for someone who is just a compiler.

How to budget IT services?

It is still a myth that IT outsourcing is a waste of time and a risk of confidentiality being exposed. 

Business also claims that there’s insufficient room in their budget for hiring an offshore IT team; moreover, getting things done by yourself or internally is a better feeling, after all, compares to asking someone else to do it. 

However, companies can save huge amounts of money throughout the year by outsourcing their IT department with the guarantee of getting the job done, instead of employing a full-time, on-site person. You’ll have someone who looks after your whole IT systems, projects can be done faster and maintained after that. 

Not to mention, when you use your in-house IT person and he or she is on sick leave or vacation, he or she couldn’t monitor your IT environment, or doesn’t have enough skills or resources to manage a business’s IT system, your business is at risk for loss. 

Don’t depend on one source, find a backup plan that not only saves time, money but also effort.

When your staff have to deal with server crashes, or router malfunctions, printing delays, recreating documents, or any similar technical problems, they are throwing away company time and money. This, once again, can be solved by outsourcing a team to maintain and ensure that your staff don’t have to deal with any technical issues. 

So you see, outsourcing an IT service provider is definitely beneficial, however, many IT service vendors partnered with third-party technology vendors and will likely recommend you some certain software in order to get commission.

These vendors will charge more than the normal price. Now we don’t say you should completely avoid them, but remember to make sure that that software suits your needs.

Fixed-fee IT service payment model and why you need it

Like we said earlier, an MSP with higher OML is a better partner, not only they will ensure the quality of service but also they will more likely provide a fixed-fee option. 

A fixed-fee pricing model could be a go-to option when you want to take full control of your budget. This model will provide you with a consistent budget and a precise IT service plan to prevent any network or technology issues. If the vendor fails to effectively maintain your IT network, they will mend the errors without any extra cost.

You should avoid services that offer, for example, a block fee of 20 hours upfront, even though it might look very tempting compared with vendors who offer a fixed price of a few thousand dollars per month service. 

The block charge is variable, you don’t want to have a plus-minus 10 percent every time you pay. Some vendors might even mislead the buyer by saying that they offer a flat-fee, but normally omit most of their services out of their price. Sometimes they can charge an extra fee for on-site support or new computer delivery. 

So, tips to take with you after this blog post:

  • Have a look at their operational maturity level (OML) 
  • Ask for case studies to have a whole landscape of their services and quality, then ask yourself: is the price match the service?
  • Stop if they’re compilers.
  • The fixed-fee model could be a good choice

And remember: outsourcing can be a savior in terms of cutting costs, especially in this pandemic when the economy is crashing. If you’re still not sure and want to know more about cost, or just simply want to get some insights from the industry, contact one of our experts today!