Outsourced Software Development: A Net Money Saver

Outsourced Software Development:  A Net Money Saver

Comparing the real net cost of in-house software development with using an outside partner

Over 20 years ago, in a meeting with a business unit manager at a Fortune 100 company in New Jersey, I was describing how our company could develop quality software efficiently and on time.  The manager grilled me on our software approach, and how we managed projects, and seemed satisfied with my answers.  The dreaded moment came when he asked, “And what’s your hourly rate?”   I gulped.  At the time, I feared this question because I always expected the client to regard it as much higher than a staff member salary.  I answered, fully expecting pushback.  To my surprise, the manager replied, “Ok – that’s good – that’s less than our burdened internal rate.”

The real cost of in-house staff

This response is no longer surprising.  The more I looked and listened, the more I understood this perspective.   The full cost of a staff employee is far more than just a salary.   It can nearly double once you add in all the additional costs that accrue to a staff member.   Costs such as:

    • Health and life insurance
    • Disability coverage
    • Bonuses
    • Paid time off
    • Educational benefits
    • Other company-paid benefits
    • Office and desk space
    • IT resources
    • Software licenses
    • Some portion of a manager’s time

These costs may not show up in a department budget (although frequently they do), they are no less real. A few years ago we surveyed our clients and revealed an average overhead cost of anywhere from 70-75% on top of base salary.

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