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The Complete Guide to Software Development Outsourcing Models

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Not sure which software outsourcing model to choose? You are not alone.

For many businesses owners, outsourcing software development is appeal. Know for having a multitude of benefits including access to talent, cost cuts, and fast development, it's easy to see why businesses are drawn to it. 

However, when you first start looking into the topic, it often seems a little daunting. With a huge number of team locations, tech stacks and development models - it is difficult to know where to start. 

To make things a little more simple for you, this article takes a deep dive into software development models to help you choose which is the best for you.

Ready to start your software development project? Why not outsource your project to Deazy? Our engagement models make it easy for you to hire experienced developers flexibly from a global team to build your software. Book a call with us today!

Key Points

  • Software outsourcing is when a business hires a third-party agency to build its software. This practice is popular because it is flexible and provides access to global talents while reducing cost and risk.
  • There are several development outsourcing models. They are grouped under the location-based, relationship-based and contract-based models.
  • The location-based outsourcing model considers the distance between you and the outsourced team. You can choose onsite, onshore, offshore or nearshore outsourcing, depending on your need.
  • The relationship-based model stresses the type of cooperation you have with the outsourced developers. You can choose between a dedicated team, staff augmentation or the project-based model.
  • In the contract-based models, businesses can choose between the fixed price and the time and materials model. 

What Is Software Development Outsourcing? 

Outsourcing software is where a business engages an external agency to perform all software development tasks. This practice is increasingly becoming popular, with businesses choosing to outsource their project due to its many benefits listed below. 

Why Outsource?

  • Access to global expertise. IT outsourcing gives businesses, and organisations access to talent anywhere in the world. Firms in one continent can easily hire developers in another continent.
  • Reduced cost. Outsourcing allows firms to focus on their core activities and channel their resources toward growth. Startups can easily hire expert developers in regions with low living costs and save money.
  • Reduced risk. An experienced software outsourcing agency can help mitigate the risks of building your project. The team will be able to foresee liabilities and identify errors through testing and QA practices.
  • Flexibility. Outsourcing allows you to pay for the expertise you require when needed. Also, you can easily plug an external team with your in-house team.

Types of Software Development Outsourcing Models 

You can explore several IT outsourcing models if you want to hire an external agency to build your software. 

Location-Based Software Outsourcing Models

The models in this group focus on the distance between the software outsourcing provider and the clients. 

Most businesses use these models because they benefit from finding expert software developers in other countries. 

There are five kinds of location-based outsourcing. They are onsite, onshore, offshore, nearshore and multi-source outsourcing. 

Onsite Outsourcing

This IT outsourcing model is also known as in-house development because you and the developers work from the same office or physical location. 

A third-party agency will handle the hiring and vetting process and send the team to your organisation after. While an onsite team works like your permanent staff, they are controlled by a third-party provider. 

The advantage of onsite outsourcing is that you don't have to spend resources on job advertisements, interviews and onboarding the team. Since they are outsourced from an external provider to work from your office, you don't have to pay additional expenses. 

This makes it a cost-saving model compared to hiring permanent software developers to work with your organisation. Another benefit of onsite outsourcing is that the team will quickly adapt to your system and become familiar with your business. 

However, onsite development outsourcing means that you hire from your country. This might not be as cost-saving as offshore and nearshore outsourcing because you and the developers live in a country with the same living cost. 

Cost aside; onsite outsourcing can be a good choice if your software project requires tight collaboration and a quick turnaround time. 

Onshore Outsourcing 

In onshore outsourcing, a business will partner with an outsourcing company in the same country but not necessarily the same city. 

One notable difference between onsite and onshore outsourcing is that in onshore outsourcing, the developers will work from a remote location instead of your office. 

An example of onshore development outsourcing is a business in California hiring an agency in New York. While the business and the development team are located in the same country, they are not in the same location; hence remote working is necessary. 

Like onsite outsourcing, onshore development makes it easy to access local talents who will quickly adapt to your business and understand your customers. 

Also, since you and the team are in the same country, there will be no time zone difference, language barrier or cultural gaps. This will make it easy for you to communicate and collaborate with the developers and finish your project quickly. 

The setback of onshore outsourcing is that it costs more than offshore and nearshore because you and the team are in a country with the same living cost. Also, you are only limited to local talents. 

Offshore Outsourcing

Offshore development outsourcing differs because a business will hire developers from a country in a different time zone. 

Most businesses in the United States of America or the United Kingdom will outsource their development project to a team in Asia or Latin America. An example is a business in the US hiring from a development team in India. 

One advantage of offshore outsourcing is that it makes accessing talents you can't find in your country easy. 

A business can reduce expenses by hiring programmers in a country with low living costs. However, the time zone difference makes most businesses seek an alternative. 

In offshore development, the time zone difference between the client and the development team can be up to 10 hours. This will hinder communication because you will have to wait hours before the team replies to your emails, making it difficult to collaborate on your project. 

Aside from the time zone barrier, there is also a language and culture barrier. However, the offshore development model is the best way to save costs, especially for businesses on a tight budget. 

Nearshore Outsourcing 

In the nearshore outsourcing model, a business hires a development team in a neighbouring country, which means little time zone difference between you and the team. 

Most organisations will nearshore to a country with less than 3 hours of time zone differences, making it easy for them to reach out to the team during work hours and share feedback when necessary. 

A good example of the nearshore development model is a company in Germany that hires a team in Poland. 

Nearshoring gives you the best of onshoring and offshoring because it allows you to cut costs and access a large talent pool with little time, language and culture difference. 

You can eliminate language and cultural differences if you hire a team from a country that speaks the same language.

Multi-source Outsourcing

Why limit yourself to one outsourcing model when you can explore all of them? Organisations that multi-source combined onsite, onshore, offshore or nearshore development outsourcing. 

For instance, a US-based business can hire a cybersecurity team from the same city (onshoring), a development team from Mexico (nearshoring) and a UX design team from Poland (offshoring). 

When done right, multisourcing can help businesses optimise their software development cost and give them access to the best skills in the industry. 

Relationship-Based Software Development Outsourcing Model

This software outsourcing model is based on the type of cooperation you have with the service provider. There are three relationship-based models you can explore. They are staff augmentation, dedicated team and project-based model. 

Staff Augmentation

Staff augmentation makes it easy to plug an external team into your in-house team. You can outsource from an external agency if you have four programmers working on-site and want to hire two more because of increasing requirements. The external team will work like your in-house team, and you will retain control over your project. 

One advantage of staff augmentation is that you don't have to spend months finding and hiring the right developer. Your partner will provide you with all the necessary skills you need. 

Aside from that, staff augmentation makes it easy to hire devs when and how you need them. And if the project is completed, you can easily end the contract. 

One setback of staff augmentation is that the external team might struggle to adapt to your processes. 

Dedicated Team Model

Software development requires more than one developer. To build fully functional software, you need a developer, QA analyst, UI/UX designer, software architect and project manager. 

The best way to get all these experts quickly is by hiring an external software development company like Deazy to build the squad. The team will be known as the dedicated development team and will work solely to tackle your project. 

This outsourcing model gives you complete control over the development process because you can set everything according to your needs. Also, a dedicated team is best if you have a long-term project and want complete control. 

Project-Based Model

In this model, a business outsources to an external agency that manages the entire development process based on the specifications provided before the start of the engagement. It is similar to the dedicated team model, but managing the project falls on the external team.

The project-based model is for businesses or startups with no experience or technical expertise in building software. Also, if tech is not your niche and you don't want to invest in an IT team, you can hire a dedicated team. 

The project-based model is the fastest way of building software for clients because they don't have to worry about management, development risk or technical issues. However, they must ensure they outsource to a trusted software development team. 

Contract-Based Software Development Outsourcing

The contract-based model focuses on how the outsourced team will get paid. You can choose between the fixed-price model or the time and material model. 

Fixed-Price Model

In this model, you and the outsourced team will agree on a fixed rate before commencing the project. The rate is based on the estimated time and resources needed to build your software. 

Most clients will choose this model because it is easy to set up, and it helps them avoid overpaying. However, the setback of the fixed-price model is that it doesn't accommodate changes in the project scope. 

If there is a flaw in the software requirements, either the client will keep the software or the developers will fix it without getting paid for the extra work. This is one reason the fixed-price model is best for small, simple projects. 

Time and Materials Model

This IT outsourcing model is one of the most flexible options because you only pay for the time the developers spend building your software. You and the outsourced team will discuss hourly rates beforehand, and you will pay them based on the hours spent on the project. 

You can choose this model if you want to make monthly payments, track the hours spent or if you want to scale your team as the work increases. However, remember that you can easily go over your budget, so you must know how much you plan to spend building your software and keep it in mind. 

Deazy Is the Best Software Outsourcing Partner 

At Deazy, we make it easy for businesses to hire developers from our vetted global team. Our software development outsourcing models allow you to build your team with devs across tech stacks. 

From brief and estimation to selecting developers and delivery, we help you manage your project. Whether you want to build a dedicated team or plug our devs with your in-house team, you can scale on demand whenever possible. Ready to kick off your project? Book a call.


The best software development outsourcing model depends on your project requirements, budget and hiring preferences. If you want to access tech talents in a country different from yours, then offshoring or nearshoring are the best options. 

However, onsite or onshore outsourcing are two options to explore if you want to work with developers in your country without the risk of language and culture barriers. 

You can combine location-based outsourcing models with relationship-based ones to reap the greatest benefit. For example, you can hire a dedicated team of nearshore developers and use the time and material model to pay for the hours spent on your project. Always ensure that any outsourcing model you choose works best for you! 

Are you ready to start your software development project? Book a call. 

Frequently Asked Questions

What is development outsourcing? 

Development outsourcing occurs when businesses choose to have their software developed by third-party agencies. Outsourcing software has many benefits, including access to a talent pool, cost reduction and fast development. 

Is software development outsourcing cost-effective?

Outsourcing your software development to an external agency makes it easy to cut costs if you hire skilled developers in a country with low living costs. For example, a business in the US can hire programmers in a country like India. 

What should I look for when outsourcing software development?

Before outsourcing your project, you should consider technical expertise, cost, work culture and location.