--- title: "Software Development Outsourcing: Models and Costs | Azendo" description: "Three ways to buy software development outsourcing, what each costs once management time counts, and how to outsource software developers and keep quality." 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. What matters most is who manages the work, who is responsible for it and how long the people stay on your product. Where it happens matters less. There are three models: project outsourcing, staff augmentation and a managed dedicated team. The third suits a product that keeps growing, because the same engineers stay and the provider manages them for you. By [Mikkel Schmidt](https://azendo.co/about/mikkel-schmidt/) Published 24 September 2026 · Updated 11 November 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 hiring the team takes four weeks from 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, or one area such as testing or cloud operations. It can also be extra capacity added to an engineering team that already exists. Companies outsource for three reasons, usually in this order. The backlog 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/) starts quickly, and it suits a defined gap that one of your leads has time to manage. Providers in Eastern Europe tend to sell the same model as [developer outstaffing](https://azendo.co/services/it-outstaffing-services/). **A managed dedicated team.** The provider assigns engineers full time to your product and manages them for you: selection, onboarding, training, performance follow-up, reporting and replacements. You [hire dedicated development team](https://azendo.co/hire-a-dedicated-development-team-in-thailand/) members without taking on their management, and you still decide what gets built and when. One person on the provider’s side stays in touch with you about how it’s going. At Azendo that’s a [service delivery manager](https://azendo.co/how-it-works/). 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 is accountable | The provider, until handover | You | The provider, for the team and the service | | How long the people stay | Until the project ships | Until the contract ends | As long as the product needs them | | 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. 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. Whether offshore work goes well depends on how the provider runs it. [Offshore staffing companies](https://azendo.co/services/offshore-it-staffing/) differ most on three points. Do the engineers work from a real office on managed equipment? Do they stay? Does someone local follow up on quality? A cheap rate buys less when the engineers work at home on their own laptops than when the provider runs a real office. ## 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 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, and who plans the handover when one moves on. **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, where you hire dedicated development team members for one monthly fee, removes most of that arithmetic. Azendo’s fee is fixed: you agree the hours, and the amount is the same every month. It pays for the engineers and for everything we do around them, from delivery management and coaching to the office, the equipment, HR and payroll. As a reference point, full stack, backend and frontend developers on a managed team start from USD 2,200 per developer per month. That’s junior 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 compared 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 work lasts. 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 When outsourcing fails, it’s usually for a reason you could have checked before you signed. **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 is responsible 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, clients score our delivery in a short survey every week and get a report every month. Our Head of Delivery also meets each client one to one 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. We manage them day to day. Every two weeks a service delivery manager takes your feedback, and it comes back as training planned with our Talent Success team. Our specialists stay 3.3 years on average, and we handle replacements and handovers for you. We recruit each engineer for the client they join, and we test mindset and culture fit as carefully as technical skill. They’re our employees, based at our offices in Chiang Mai and Bangkok. Everything sits in one monthly fee, and new roles join under the same agreement. ## How to outsource software development, step by step 1. **Write a short brief.** Say what the product is, the stack and the roles you think you need. Add 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: a project agency, an [IT staff augmentation company](https://azendo.co/services/it-staff-augmentation-services/) or a managed team provider. 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 the time to hire.** Settle the roles, the monthly hours and the fee in one proposal. At Azendo the time to hire is four weeks from signing. 6. **Plan the first sprint together.** Share your definition of done, coding standards and review process in week one. 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 and you can recruit at the pace the product needs. You also need managers with time to grow new people. Outsource software developers when your plans outrun local hiring or a skill is scarce in your market. It also makes sense 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 our employees, and each one works full time for a single client. We give them a premium workplace and equipment, and we train and coach them all the way. A service delivery manager follows the team’s performance with you, and the product direction, the priorities and the code are yours. You meet the people we propose 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. If you’re ready to hire dedicated developers, the hiring page compares the routes side by side. Send us a message Tell us what you want to build. We come back with the team we would assign and what it costs. ## Software development outsourcing with and without the management. Two of the three models side by side: what stands behind each engineer, and how your coordination load grows with the team. What stands behind the person doing the work Both models put an engineer on your product. 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 manageroversees operations and delivery 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 Tailored to each plan * Development plan Built every quarter * Client delivery score Every Friday * 360° performance review Quarterly * Growth track and promotion readiness Live skill profile * AI training Every specialist 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 * Sprint planning * Quality gates __What stands behind an assigned specialist in each model__ | Element | Staff augmentation | Azendo managed service | | ------------------------------------------------ | --------------------------- | ----------------------------------------------------------- | | Who manages the specialist day to day | Your team | Azendo, with a service delivery manager overseeing delivery | | 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 | Tailored to each plan | | Development plan | Not part of the arrangement | Built every quarter | | 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 training | Not part of the arrangement | Every specialist | | 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 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 is responsible 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 has a second cost. We estimate it 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 that keeps growing needs the same people for years. It also needs a provider that manages them and stays responsible for the service. 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? At Azendo, where the offices, the recruiters and the employment set-up are already in place, the time to hire is four weeks from signing. Building your own team abroad, through an entity or an employer of record, takes longer. There the recruiting, the employment set-up and the workplace all start from nothing. ## Tell us what you want to build and we will tell you what it takes. A service delivery manager replies with the roles 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 business.