When companies and individuals first decide to explore outsourcing this can be for a number of different reasons, such as:-
- Unable to find the required team members in their local area
- In house talent keeps getting poached by bigger players with deeper pockets
- Local talent is over priced and out of budget
- Specific projects require a quick team onboard and speedy delivery
- Team simply understands the quality of talent they can access through outsourcing
- … and many more.
However, alongside the excitement of this new potential stream of talent naturally comes a lot of concerns, ‘How do we find them?’ ‘What if I hire the wrong team?’ ‘What if they don’t speak English?’ ‘How will we clearly communicate our requirements?’ – And much more.
The most common complaint I hear around outsourcing is communication – this gets thrown at me time and time again and I only have one response for this:
If there is no or bad communication, you are to blame.
Having worked on over 30 complex, outsourced software projects I have seen where relationships can break down and I’ve also seen what makes them thrive. The common component in relationships going sour was clients not sticking to their agreed daily stand-up video calls. Excuses such as ‘I’ve got another meeting’ or ‘Can we do it tomorrow’ – tomorrow never comes. I don’t understand why some tech companies hold such little importance or value over the team that is building their product. As a tech company, your product is the most valuable asset that you have yet some people don’t treat it as such. That’s the problem.
Myself and my business partner Ivan have been working together for almost 6 years on multiple different products, our own and for clients. We started Clockers with a crystal clear goal in mind,
The 3 Pricing Models
I’ll be completely open and honest at this point – while access to talent is a huge factor in the decision to use offshore software development teams, cost-effectiveness (pricing) is the other big player when it comes to decision making and appeal.
Having a pricing model that works fairly not just for the client but for the outsourcing agent and the actual developers completing the work on a day-to-day basis is key to building a successful outsourcing relationship that can flourish and most importantly, last.
While there are actually more than three pricing models for outsourcing, I’m only going to touch on three in this article and for good reason. Two of them are the most popular and the models that we use time and time again, the third is also extremely popular however I am so against it (and for good reason, explained below) I thought it worth mentioning.
Let’s get started.
Recommended Pricing Models
Time & Material (Billed Hourly)
Popular for early / mid stage startups. Let’s say you require 2 Ruby on Rails developers to join your existing team. You have a clearly defined scope of work for the next 3 – 6 months and know exactly what needs to be completed. You work in two weekly sprints and clearly define the scope of work to be completed throughout the next two weeks.
We supply you two Ruby on Rails developers to work on this sprint alongside your existing team and you assign them tasks. Each of our developers will work really hard and complete their scope of work throughout the sprint, once finished hand over to a QA – Sounds normal correct? That’s because it is. The only difference – once our two team members have completed their tasks and handed over for testing, you are no longer paying for them as you only pay for our team members when they are physically working.
Yes, they are available for bug fixing and updates from a QA, however, instead of paying for a full 40 hour week when the allocated tasks only took 22 hours, you simply just pay for the 22 hours. Under this model we will use the developers for small tasks on other projects or allow them to continue supporting roles for previous projects they have worked on, however you get priority whenever they are required.
Dedicated Team Member (Fixed Monthly Cost)
Used by Scale ups and Enterprise level companies.
The biggest difference between Time & Material and this pricing model is that you are now paying for your new employee full time, 35-40 hours per week (based on contract). You are paying their outsourcing company to essentially ‘rent’ or ‘outstaff’ their internal employees for your own project.
Your new team members are fully committed to your project every working day from start to finish and will not be assisting any other projects or taking supporting roles. This model works well for companies that may have a roadmap of features for the next 12 months. However during a sprint your team member may regularly get interrupted and required to jump on different tasks or asked to support a different department for whatever reason.
This option is definitely the most attractive, however as you are effectively rendering the outsourcing companies key staff as useless to them this comes with a premium price.
Using an hourly model where you allow the outsourcing company to still allocate small workloads to your developer, they are much friendlier on pricing but should you wish to take key staff members all to yourself for a long period of time then you must pay for the privilege – it works extremely well and is still cheaper than hiring a full time developer of similar or equal experience.
The One To Avoid
Fixed Price (Agreed price up front to complete the project)
I understand that running a startup is hard and budgets are tight, all good outsourcing companies can give you a very clear and good estimate prior to starting work with them using an hourly model.
Many companies make the mistake of insisting on a fixed price for their project and usually this happens when a tech specification hasn’t been properly written or clearly outlined and has been estimated anyway. The problem here is outsourcing agencies tend not to win 9/10 projects they estimate for and so the first estimate is always rough and if you are interested, they will usually offer a re-estimate. Time and time again I see companies insisting on outsourcing agents to stick with the initial quoted price after many debates over emails, thankfully, most people drop off at this point and look elsewhere but some do proceed.
Software development is a fluid process. Things change, bugs happen, features break, customers complain, founders add in features (feature creep) through the process because their friend thought it was a good idea over a beer. The problem? None of this was in the initial estimate, as how can it be? How can you estimate for bugs and a ‘change of mind’? You simply can’t.
Due to this fixed price, projects put a lot of strain on the development team. Yes, the client is happy, however, if a lot of changes and bugs are happening behind the scenes and the devs are forced to stick with their initial price, they are going to implement the fastest and easiest solution just to get something working and shipped. You are not paying for quality code – you are just simply paying for a shipped product of any unknown standard. This may be ok for some people, but if you wish to become a true scaling tech company this error will eventually come back to bite you and when it does, you’ll end up paying 3 even 4 times more than you would initially. Be warned!
How to select the right pricing structure for your company
Having read the above and researched for numerous hours on the internet, you probably think that you want Dedicated Team Members who are only your staff – but please do not let ego of staff numbers or a blind sense of not wanting to share misguide you. Dedicated Team works excellent for certain situations and so does Time and Material.
The simple factor should be how much can you afford to realistically spend on development for the next 3 – 6 months? Know your numbers, get your budget and have a clear spend in mind before approaching a potential development team, this will solve all of your problems and answer your questions. Most importantly, what is your agreed total monthly development budget and how much do you have for the development phase you are entering.
You’ve just raised £100,000 from angel investors and are ‘ready to go at 100 MPH’ – excellent! Don’t make the common mistake of putting it all into development and completely neglecting the funds you will need for marketing, sales and PR. Tech products are the lifeblood of your business, however using the right team you’d be surprised how far £30k can go and what you can achieve. In certain parts of the UK (bigger cities) £30k won’t even get you an MVP using the wrong people and correct me if I’m wrong, but that’s not an MVP.
Alongside knowing your budget, you should also know your roadmap like the back of your hand. Simply approaching a team and saying, ‘I want to build an app’ will get you nowhere. Having a good CTO or Product Manager in house can fix this issue for you (and if you are the CTO – I trust you know what I’m talking about), identify what the core tasks you want to achieve are and a time frame you want to deliver them, being realistic and give this to your proposed team up front for estimation.
Don’t be alarmed if initial estimations come back higher than you expect as you can just ask ‘Why?’ – work with your partner as if they are your own in house team and see what features you can cut out and what must absolutely stay in to help achieve your budget, there is a solution that works for everyone, provided you are happy to work towards it and not go in screaming and shouting (this happens too often, and honestly, if we get a sense that this is how potential clients behave under pressure they will not be a client of Clockers).
If you have a fast scaling business and lots of revenue coming in, firstly, huge congratulations! What an achievement. Now, you have a huge problem, scaling the team to meet your goals. Hiring dedicated team members can be extremely helpful in this situation as you simply have people on seats working on whatever is thrown at them at any given day, whether scoped out or not.
If you are still not sure what is the best option for you feel free to get in contact with us via our website (www.clockers.io) and speak with one of our outsourcing specialists. We advise start-ups daily on pricing structures and models and will be more than happy to assist you.
Here you can see two real case studies each using one of our preferred pricing models. Both of these are very successful long term clients of Clockers, for confidentiality reasons we cannot name the companies in this document.
Time & Material Example
This SaaS client has annual revenue north of £200k and are absolutely killing it in their niche industry. The growth in which they are on-boarding new clients is both insane and inspiring and an absolute pleasure to be involved with.
A client with this type of growth requires the technical product and team to support it at every stage. This team hit an interesting dilemma as they built an MVP product that took off much better and faster than they ever anticipated, leaving them with ‘legacy software’ that they never intended to still be using at scale. As expected, the system simply couldn’t cope with the volume of users and feature requests from the clients. They had a decision to make, keep going or start again this time with a much more complex set up and scalable product that has all the bells and whistles. The biggest issue they had was access to talent. With 3 in house developers all supporting the existing system and clients, they were trying to recruit new devs to develop the new platform and were coming up empty due to a small(but growing) tech scene in their city.
We were approached and given a very detailed plan of the new system requirements written by a great technical product lead who knew what he was doing. Perfect! With these requirements one of our development partners was able to identify the team requirements and also the rates and time frame to deliver the first stage of this project (in total, there have been 3).
Project Manager and Translator – £29.50 per hour
Mid-level Designer – £27 per hour
Senior Architect PHP Backend Developer – £30 per hour
2 X Mid-level Backend Developers – £27 per hour each
Mid level Frontend Developer – £27 per hour
Quality Assurance Tester – £27 per hour
Alongside this team we also made plans to bring in 1 of the existing team developers to act as the Project Manager from the UK side – his key role was to deliver the documentation required for every sprint and work with the outsourced Project Manager, together they killed it, going on to become one of the most successful, outsourcing relationships I’ve ever seen. The reason? Clear scope of work, excellent documentation, good business manners and mutual respect. It was nice to see.
Phase 1 Development – How many hours were required?
Please note – each sprint below was run for exactly 2 weeks and the hours you are seeing below are 2 weeks worth of work by each team member. This will give you a really good idea of how a Time and Material project can progress while saving money in the process.
|Sprint||Project Manager||Designer||Architect||Backend Devs||Frontend Dev||QA Tester||Total Hours|
The successful delivery of this project lasted 12 weeks equalling 6, 2 weekly sprints.
The average 2 week sprint cost roughly £5659.62 requiring a monthly development budget
of £11,391 (excluding VAT).
This was a fairly large Time & Material project, hopefully you get the idea of just what can be achieved using this model. Also, looking at the hourly tables above and seeing how many hours were worked by each team member it’s very clear that the backend developers were almost full time. The rest of the team were plugged in and used as and when needed saving the client literally thousands in this build. Not bad right?
Dedicated Team Member Example
We were approached by a startup eCommerce company that was growing fast and getting some excellent traction in a very niche industry. They had recently completed a whole new platform using Magento 2 that could facilitate their rapid growth. The problem they faced was that the UK based agency that was building the platform for them had missed the last 3 delivery deadlines and their patience was wearing thin.
Within 7 days of approaching Clockers we had mobilised a specialist Magento team that was highly experienced and ready to take on the project. The best part? The client was paying almost 3 times less per month for each team member we supplied them vs the UK agency. A huge win for the client and money they could now allocate to other areas of the business.
Within 30 days of inheriting the project, we were able to turn things around, understand the platform and get it launched and live! This was the start of a great long term relationship. Over the next few months we have added extra team members to specialise in different parts of the build as and when required and now we have a very powerful, fast performing site that processes orders with revenue into the millions giving us not only a successful project and case study, but a very happy founder.
When we initially took on the project the first and most important team member we put in place was the Project Manager, a highly experienced lady that has worked on countless eCommerce projects of this size and scale and knew exactly what team was required.
The Team and Fixed Monthly Costings
|Developer Type||Monthly Rate|
|Mid / Senior Magento 2 & PHP Developer||£3500|
|Mid Level Magento 2 Developer||£3000|
|Mid / Senior Frontend Developer||£3400|
|DevOps Engineer (Part Time)||£1000|
|Quality Assurance Tester (Part Time)||£1400|
|£15,800 (ex VAT)|
Over the course of this project, the outsourced team Project Manager has worked extremely close with the clients in house technical lead, together they have built systems and processes that work extremely well allowing them to scale the business while continually successfully delivering on the platform.
How to really win at outsourcing
Firstly, when you are hiring an offshore software development team there are two ways to do it. First and not recommended, is to hand over a piece of work and ask for it to be delivered in a specific time frame and have no or little interaction with the project manager and development team throughout the process. Eventually you will receive something you are not happy with due to a small misunderstanding in a brief that has been left for too long going in the wrong direction. This is expensive to fix!
What I recommend is hire a team and work with them on a daily basis, create a Slack channel and bring in all the key stakeholders of your business. Have daily stand-up calls and make yourselves available for questions and comments throughout the day that may arise with the development team. You must create an environment that is fully focused around interaction and creating conversations. Communication is key as they say and this will set you up for success. Do NOT miss the daily stand-up calls.
Secondly, just because you are outsourcing does not mean that you do not need to think or care about your new developers because you don’t see them every day and they are in a different country. This is the totally wrong mindset to bring into the relationship. Instead, share the company vision with your new team and make them as excited as you are about what you are building, after all, they will be working on your project day in day out for the next few months so it’s important to get them excited as vested team members always deliver a better product.
Not only are you sharing the vision of the company but you are showing trust and transparency and creating a company that people will want to be part of, isn’t that one of the most important factors of a business, its people? So make sure to treat everyone the same, in house or not.
Finally, when team members are required to work late to hit deadlines, or maybe jump in on weekends to fix a critical bug, or even when a huge scope of work has just been completed and you can see your team members are exhausted you should always make sure to reward them. I’ve seen some of my most successful clients have a crate of beer delivered to their outsourced team’s office so they can celebrate wins with the UK team, or maybe give a small financial bonus as a thank you for a job well done. Even and the most ultimate, offer a day off work a Friday or Monday maybe enabling a long weekend.
Treat your offshore team like team members and you will reap the rewards. Best of luck to you and your business.