--- title: "Software Development Outsourcing: Models and Costs | Azendo" description: "Software development outsourcing explained: the three models, what each costs once management time is counted, why it fails and how to pick a partner." url: "https://azendo.co/blog/engagement-models/software-development-outsourcing/" --- 1. [Home](https://azendo.co/) 2. [Newsroom](https://azendo.co/newsroom/) 3. [Engagement models](https://azendo.co/blog/engagement-models/) 4. Software development outsourcing # Software development outsourcing: the models, the real costs and how to choose. Software development outsourcing means paying an outside company to design, build, test or run software you would otherwise build with your own engineers. The decision that matters is less where the work happens and more who manages it, who answers for it and how long the people stay on your product. Of the three models, project outsourcing, staff augmentation and a managed dedicated team, the third suits a product with a growing roadmap, because the same engineers stay and the provider answers for every sprint. By [Mikkel Schmidt](https://azendo.co/about/mikkel-schmidt/) Published 24 September 2026 · Updated 8 October 2026 One team, working on one product, year after year. In short: compare total cost, not rates, because management time, turnover and extras sit outside every quote. Get the code assigned to you in writing from the first commit. A managed offshore team is billed as one fixed monthly fee for an agreed capacity and starts four to six weeks after signing. ## What software development outsourcing means Software development outsourcing covers any arrangement where people outside your company write, test or run your software. That can be a whole product built from a specification, one discipline such as testing or cloud operations, or extra capacity added to an engineering team that already exists. Companies outsource for three reasons, usually in this order. The roadmap is longer than local hiring can serve. A skill they need is scarce or expensive where they are. And they would like engineering capacity as a predictable monthly cost instead of a recruiting project that never finishes. None of those reasons says anything about location. Software outsourcing can be onshore, with a provider in your own country, nearshore in a neighbouring time zone, or offshore software development on another continent. Location changes the rate and the working hours. The model changes almost everything else. ## Three models of software development outsourcing Every proposal you receive will fit one of three shapes, whatever the provider calls it. **Project outsourcing.** You describe what you want built, the provider quotes a fixed price or a time and materials estimate, builds it and hands it over. It works for a product with a clear specification and an end date. The provider’s people move on to the next client after handover, and so does what they learned about your code. **Staff augmentation.** The provider supplies developers who join your team and work under your direction. You plan their work, review it and answer for the result, and the provider handles employment and payroll. [Staff augmentation](https://azendo.co/blog/engagement-models/staff-augmentation/) is quick to start and suits a defined gap when one of your leads has time to manage the extra people. **A managed dedicated team.** The provider assigns engineers full time to your product and runs the team for you: selection, onboarding, training, quality, reporting and replacements. You own the roadmap and the priorities. A person on the provider’s side, at Azendo a [service delivery manager](https://azendo.co/how-it-works/), answers for what ships every sprint. Scroll the table sideways to see every column. | Compared | Project outsourcing | Staff augmentation | Managed dedicated team | | ------------------------ | ------------------------------ | -------------------------- | ----------------------------------------- | | What you buy | A defined deliverable | A developer's time | A team's ongoing delivery | | Who manages day to day | The provider, inside the scope | You | The provider, with you setting priorities | | Who answers for output | The provider, until handover | You | The provider, every sprint | | How long the people stay | Until the project ships | Until the contract ends | As long as your roadmap runs | | Best fit | A build with a clear end | A short gap you can manage | A product that keeps growing | The table hides one thing: what happens to knowledge. In project work it leaves at handover. With augmentation it leaves with each person who moves on. In a managed team it stays, because the provider keeps the same engineers on your product and plans every handover when someone does leave. ## Onshore, nearshore or offshore software development Location is the second decision, and it’s mostly about overlap and cost. An onshore provider shares your working day and your legal system, and costs close to what local hiring costs. Nearshore providers sit one to three hours away and charge somewhat less. Offshore software development is where the rate difference is largest, and where the working day needs the most planning. Overlap is easier to plan than people expect. Thailand is on UTC+7: five hours ahead of Northern Europe in summer and six in winter, and three to four hours behind Sydney. A team in Chiang Mai or Bangkok shares several working hours with an office in Copenhagen, Berlin or Sydney, and the hours that don’t overlap are useful too: work handed over in your afternoon is often reviewed by the time you start the next day. What decides whether offshore work goes well is how the provider runs it: whether the engineers work from a real office on managed equipment, whether they stay, and whether someone local answers for quality. A cheap rate from a provider whose engineers work from home on their own laptops is a different purchase from the same rate at a provider with its own floors. ## What outsourced software development costs Every quote gives you a rate. The useful number is the total cost of getting software shipped, and three things sit outside the rate. **Management time.** With staff augmentation, someone senior on your side plans the work, runs the standups, reviews the code and handles performance. Our own estimate, from engagements where the client runs the people, is four to eight hours a week per developer. Price that at your lead’s salary before you compare quotes. **Turnover.** Every time a developer leaves, the next one spends weeks learning your codebase. Ask how long a provider’s engineers stay. At Azendo the average is 3.3 years, and your service delivery manager plans every handover. **Extras.** Upfront fees, management surcharges, equipment invoices and charges for replacing a developer turn a low rate into a high one. Ask for the list of everything that can appear on an invoice. Outsourced software development priced as a managed team removes most of that arithmetic. Azendo charges one fixed monthly fee for an agreed number of hours. It covers the engineers, their delivery management, training and coaching, the office and equipment, and HR and payroll, and it’s the same every month. As a reference point, full stack, backend and frontend developers on a managed team start from USD 3,600 per developer per month: mid-level, full time and fully managed, with all of that included. Our [committed monthly capacity](https://azendo.co/pricing/) page shows the starting price for each role and everything inside it. ## Software development outsourcing contracts: fixed price, time and materials or monthly capacity Almost every proposal uses one of three contract types, and each one fits a different kind of work. **Fixed price.** The provider quotes one price for a defined scope and carries the risk of going over it. It fits a build with a clear specification and an end date, such as a well-understood integration or a first version with a fixed feature list. Every change becomes a change request with its own price, so it suits work that won’t move much. **Time and materials.** You pay for the hours worked at an agreed rate, and the invoice follows the effort. It fits work you can’t specify up front, such as discovery or a prototype. Someone on your side checks the hours against progress every month. **Monthly capacity.** You agree a number of hours a month for one fixed fee, and the same people work on your product for as long as the roadmap runs. This is how a managed dedicated team is billed. It fits a product that keeps producing work, because the budget is predictable and the team keeps what it learns about your code. Whatever the contract type, the agreement should assign the code and everything else the engineers create to you, in writing. Commissioned work doesn’t always pass to the client by default: the [US Copyright Office’s guide to works made for hire](https://www.copyright.gov/circs/circ30.pdf) sets out the limited cases where it does. Ask for IP assignment and confidentiality terms before you share details. ## Why software outsourcing fails, and how to prevent it Outsourcing rarely fails because the engineers can’t code. It fails for reasons you can check before you sign. **Delivery has no owner.** When the provider supplies people and the client is too busy to manage them, work drifts and quality slips without anyone deciding it should. Agree who answers for each sprint, by name. **The people keep changing.** Some providers move engineers between clients to fill gaps elsewhere, and your product becomes everyone’s second priority. Ask who else the proposed engineers worked for last month. In a dedicated team the answer is you alone. **The people are unclear.** A provider that can’t say where its engineers sit and who employs them can’t vouch for security or equipment either. Ask both questions before you sign. **Expectations are never written down.** Engineers who haven’t seen your definition of done will invent their own. Share it in the first week, with your coding standards and the review process. **Feedback comes too late.** Weekly feedback and a monthly report make problems visible while they’re small. At Azendo every client gets a delivery survey every week, a report every month and a 1:1 with our Head of Delivery every two weeks. ## How to choose an outsourcing partner Use these questions on every shortlisted provider. The answers say more than a sales deck. 1. Who else did these engineers work for last month? 2. Who manages the team day to day, and who answers when a sprint slips? 3. How long do engineers stay with you on average? 4. What happens when someone leaves, and who pays for the replacement? 5. How do you select engineers, and how many candidates make it? 6. Where do the engineers work, and who employs them? 7. What exactly is in the monthly fee, and what is invoiced on top? 8. How quickly can we add capacity, and under which agreement? A good outsourcing provider answers each one with a name, a number or a document. For reference, here are ours. Our engineers work for one client only. A service delivery manager runs the team and answers for each sprint. Our specialists stay 3.3 years on average, and we handle replacements and handovers for you. Roughly one in twenty-five candidates who enter assessment reach a client team. Everyone works from our own offices in Chiang Mai and Bangkok. Everything sits in one monthly fee, and new capacity joins at the next monthly cycle under the same agreement. ## How to outsource software development, step by step 1. **Write a short brief.** What the product is, the stack, the roles you think you need and how you like to work: your tools, your sprint rhythm and the hours you want to share. 2. **Shortlist three or four providers.** Pick the model first, then look for providers that sell it as their main offer. 3. **Ask every provider the same questions.** Use the [eight partner questions above](https://azendo.co/blog/engagement-models/software-development-outsourcing/#how-to-choose-an-outsourcing-partner) and compare the answers side by side. 4. **Meet the proposed team.** Talk to the engineers who would work on your product before anyone is assigned, and ask who would manage them. 5. **Agree capacity and a start date.** Settle the roles, the monthly hours and the fee in one proposal. With a provider that already employs its engineers and runs its own offices, a team starts four to six weeks after signing. 6. **Plan the first sprint together.** Share your definition of done, coding standards and review process in week one, and give the first sprint small, well-defined tickets in one area of the code. ## When to outsource software developers and when to hire in-house Hire in-house when the role is central to your company’s identity, when you can recruit at the pace the roadmap needs, and when you have managers with time to grow new people. Outsource software developers when the roadmap outruns local hiring, when a skill is scarce in your market, or when your leads are better used on the product than on running a bigger team. Many companies do both: an in-house core that owns architecture and product decisions, and an outsourced team that works inside the same sprints. Companies that need IT run for them, such as support and infrastructure, are buying [IT outsourcing](https://azendo.co/blog/engagement-models/it-outsourcing/), a different purchase with its own models. ## How Azendo approaches software development outsourcing We run software development outsourcing as a managed team, built for products that keep growing. The engineers are ours: we employ them, assign them full time to one client, give them an office and equipment in Chiang Mai or Bangkok, and train and coach them throughout. A service delivery manager runs delivery with you, and you own the roadmap, the priorities and the code. A team usually starts four to six weeks after signing, and you meet the proposed specialists before anyone is assigned. The [dedicated software development team](https://azendo.co/services/dedicated-software-development-team/) page shows the roles and team shapes we put together, and if you’re ready to [hire dedicated developers](https://azendo.co/hire-a-dedicated-development-team-in-thailand/), the hiring page compares the routes side by side. ## Software development outsourcing with and without the management. Two of the three models side by side: who answers for the work, and how the coordination load grows with the team. What stands behind the person doing the work Both models put a specialist on your roadmap. A managed team also puts a development programme behind them, which is what keeps them with you, and improving, in year three. Staff augmentation Your teamdirects the work Assigned specialist Behind the specialist Employment and payroll. Development, coaching, reviews and retention are usually left to you. Your side carries * Priorities * Scope * Technical decisions * Acceptance * Sprint planning * Quality gates * Performance reviews * Training * Retention * Continuity Azendo managed service Your teamsets the roadmap, reviews output Azendo service delivery manageraccountable for what ships Assigned specialist Talent Success programme, around every specialist * Talent Success and Workplace Experience managers Two per specialist * Well-being check-in Every 2 weeks * Coaching and development Monthly, in-house * Development plan Reviewed monthly * Client delivery score Every Friday * 360° performance review Quarterly * Growth track and promotion readiness Live skill profile * AI certification Before assignment 3.3 years Average time a specialist stays with Azendo, which keeps your product knowledge in the team Your side carries * Priorities * Scope * Technical decisions * Acceptance __What stands behind an assigned specialist in each model__ | Element | Staff augmentation | Azendo managed service | | ------------------------------------------------ | --------------------------- | -------------------------------------------------------------- | | Who directs the work | Your team | An Azendo service delivery manager, accountable for what ships | | Talent Success and Workplace Experience managers | Not part of the arrangement | Two per specialist | | Well-being check-in | Not part of the arrangement | Every 2 weeks | | Coaching and development | Not part of the arrangement | Monthly, in-house | | Development plan | Not part of the arrangement | Reviewed monthly | | Client delivery score | Not part of the arrangement | Every Friday | | 360° performance review | Not part of the arrangement | Quarterly | | Growth track and promotion readiness | Not part of the arrangement | Live skill profile | | AI certification | Not part of the arrangement | Before assignment | | Average specialist retention | Not published | 3.3 years | Coordination hours a week falling on the client As the team grows, staff augmentation takes on the hiring and leaves the management with you. Azendo's estimate from our own engagements, at the midpoint of four to eight hours per specialist per week. __Client coordination hours per week, by team size__ | Team size | Staff augmentation | Azendo managed service | | ------------- | ------------------ | ---------------------- | | 1 specialist | 6 hours | 2 hours | | 3 specialists | 18 hours | 2.5 hours | | 5 specialists | 30 hours | 3 hours | | 8 specialists | 48 hours | 4 hours | ## Questions about software development outsourcing. What is software development outsourcing? It's paying an outside company to build, test or run software for you. The provider may deliver a fixed project, add developers who work under your direction, or run a dedicated team for you. The three models differ in who manages the work, who answers for the result and how long the engineers stay. Is software outsourcing cheaper than hiring in-house? Usually, once you count everything an in-house hire needs: recruiting time, salary, benefits, equipment, office space and management. Compare total cost, not hourly rates. A low rate that leaves the managing to your own engineers carries a second cost, which our estimate puts at four to eight hours a week per developer. Which outsourcing model suits a growing product? A managed dedicated team. Fixed price projects suit a build with a defined end, and staff augmentation suits a short gap you can manage yourself. A product with a roadmap that keeps growing needs the same people for years and someone on the provider's side who answers for delivery every sprint. Who owns the code when you outsource software development? You should, from the first commit, and the agreement should say so. Ask for IP assignment and confidentiality terms in writing and an NDA before you share details. At Azendo the team works in your repositories and your tools, so the code never leaves the place you keep it. How long does it take to start an outsourced software team? With a provider that already employs its engineers and runs its own offices, a team usually starts four to six weeks after signing. Building your own team abroad, through an entity or an employer of record, takes longer, because the recruiting, the employment set-up and the workplace all start from nothing. ## Tell us what the roadmap needs and we will tell you what it takes. A service delivery manager replies with the disciplines we would assign, the monthly capacity and what the first month looks like. [Get in touch](https://azendo.co/get-in-touch/) [How it works](https://azendo.co/how-it-works/) ## Not sure which engagement model fits your roadmap.