The Ultimate Guide to It Outsourcing Cost in 2024

Through outsourcing services, balancing technology investments and budget control without bearing the full burden of in-house development costs has become possible. This approach suits businesses of all sizes.

But many businesses hesitate due to budget concerns. Estimating the IT outsourcing cost is challenging since the budget for third-party services varies from company to company. Without a general formula, how can you estimate IT outsourcing costs? The key is understanding what factors come into play in your development process and financial plans.

Besides obvious factors like project complexity, hidden elements can also impact the total cost. Some of these might surprise you. Continue reading to make informed decisions and manage your budget effectively.

I. What Are Your Outsourced IT Options?

1. Managed IT

Managed IT is when you outsource your entire IT department to an MSP. This removes the need to hire, train, manage, and pay an IT department. The MSP will handle all IT needs and involve you in important decisions.

Managed IT aims to reduce the burden of managing IT while providing valuable services.

Cost of Managed IT in Vietnam

Managed IT costs depend on your company’s needs. Unlike co-managed IT, you only get one monthly bill from your MSP.

Most managed IT plans in Vietnam range from $80 to $150 per user per month, depending on the provider and services required.

2. Co-Managed IT

Co-managed IT is a collaborative service where a third-party or a managed service provider (MSP) works with your in-house IT team to manage and support your IT infrastructure.

With co-managed IT, you can maintain on-site staff and decide the number of in-house technicians you need, reducing the pressure to expand your team continually. The MSP complements your in-house team’s skills by handling tasks your team may not specialize in.

The primary objective of co-managed IT is to allow your internal IT staff to focus on their core strengths. This approach can save you time and money while reducing stress. With IT staff concentrating on tasks they enjoy, you can expect more efficient customer service, a well-maintained IT setup means less downtime for your team.

Cost of Co-Managed IT in Vietnam

The cost of co-managed IT can vary depending on several factors, but it typically costs 20-40% less than a fully managed IT plan from an MSP.

For example, if a basic managed IT plan costs $80 per user per month in Vietnam, co-managed IT might range from $48 to $64 monthly. However, you must also account for the costs associated with your internal IT staff, including salaries, bonuses, training, and workstation maintenance. By adding these internal costs to the co-managed IT monthly fee, you can determine the total cost of your IT services.

IT outsourcing

3. Direct Outsourcing

Direct outsourcing means hiring independent contractors or freelancers instead of an MSP or agency. Working with freelancers worldwide can reduce IT costs but comes with risks like hiring the wrong person for the job.

You must also consider time zones, communication issues, payment options, and performance concerns. Freelancers can’t serve as on-site staff.

The main goal of direct outsourcing is to reduce costs. If you can handle the risks and are okay with off-site staff, direct outsourcing might be a good fit for you.

Cost of Direct IT Outsourcing

Outsourcing IT to freelancers or independent outsourcing companies can have a wide range of costs. You’ll need to consider location, expertise, and the expenses of onboarding and offboarding.

Depending on what you need and their rates, you might spend anywhere from $800 to $3,000 per month for each contractor.

4. Break-Fix IT

Break-fix IT is the last option for businesses. This model involves calling technicians when something breaks in your system and getting them to fix it.

The best part of break-fix IT is that you only call them when needed, making it generally more affordable than other options. However, fixing significant problems can increase costs.

Cost of Break-Fix IT

Break-fix IT costs can be everywhere since the bill depends entirely on the problem.

Typically, on-site technicians are billed on an hourly basis. Minor issues can cost around $20-$50 per hour for one technician, depending on where and who you hire. Costs like hardware replacement, software licenses, and long-term technical support are not included. More significant problems will cost more.

Here’s a table summarizing the costs for different IT outsourcing services:

II. Key Factors Influencing IT Outsourcing Cost

Budget is a crucial part of every business operation. Since IT outsourcing costs vary greatly, there is no standard estimation. Different company needs and project requirements lead to diverse pricing. Here are some key factors that influence your outsourcing costs.

Pricing Models

A pricing model determines your access to a service provider’s expertise and resources. Three common types are fixed-cost model, extended staff, and dedicated team. Each has unique considerations that affect the overall cost structure of outsourcing.

Staffing Capability

While pricing models outline the scale of outsourcing services, the cost will depend on the outsourced team’s staffing capabilities.

Experience

Developers’ experience significantly affects IT outsourcing costs due to its impact on project quality, efficiency, and delivery. Highly experienced developers can handle complex tasks efficiently and deliver high-quality results but often charge higher rates. Less experienced developers offer more competitive rates but may lack deep understanding and problem-solving skills.

Senior developers were once juniors, and juniors need time to gain experience through practice. Choosing developers with the right experience level depends on the project requirements and the company’s budget. Most projects benefit from a mix of senior, middle, and junior engineers to balance expertise and cost, enhancing return on investment.

Personnel is a critical asset for outsourcing companies, impacting your project outcomes. Knowing their experience is important, even if they are not your direct employees.

IT outsourcing cost

Geographical Location

The location of the outsourced team significantly affects prices due to differences in living costs between regions. Latin America, Eastern Europe, and Asia-Pacific countries are known for affordable outsourcing prices, serving clients from more developed economies. Each country offers different hourly rates, creating diversity in labor costs across these regions.

If your company is in a more developed economy, offshore outsourcing can save you money. However, consider the time zone differences. This can be managed if the IT service provider sets up efficient remote workflows and communication channels for questions, feedback, and updates. Favor providers who manage these communication barriers well, even if they charge higher rates. Good communication is crucial and worth the extra cost to avoid unexpected charges later.

Project-related Factors

These factors depend mainly on your specific needs when seeking IT outsourcing services to support business growth.

Project Complexity

The complexity of a project significantly impacts IT outsourcing costs. Simple projects with basic features are less expensive, while complex projects with multifaceted functionalities, integration challenges, and extensive customizations require higher expertise and specialized skills.

Complex projects lead to higher labor costs due to the need for skilled team members with niche skills and experience. They also take longer to complete, often involving multiple iterations to meet quality standards. All these factors contribute to increased outsourcing expenses over time.

Timeline and Urgency

Urgent timelines can increase IT outsourcing costs. To meet accelerated deadlines, third-party vendors may need to reallocate resources, assign more developers, testers, and specialists, and prioritize tasks to expedite the project. This often involves overtime and additional compensation, leading to higher labor costs.

Strict timelines can also pose quality risks if projects are not managed effectively. Cybersecurity issues and errors may arise, requiring the outsourcing vendor to implement risk management measures and thorough testing. These additional steps ensure on-time delivery but can further increase project costs.

III. Secrets to Cutting Costs and Maximizing Value

We’ve gathered some solutions that can help you optimize IT outsourcing costs.

1. Opt for Quality Over Low-cost Development

Optimize costs by choosing a provider that uses Agile and DevOps practices. Prioritize quality if the software is crucial for your competitive edge, saving on future maintenance. Use templates, existing solutions, or open-source software to save time and money, especially for established systems like ERP or eCommerce. Upgrading outdated software can be more cost-effective than new development.

For larger projects, ensure clear priorities and documentation. Consider hiring a business analyst to align expectations and manage changing requirements effectively.

2. Start Quality Assurance and Testing Early

Begin testing early to optimize developers’ time and increase ROI. Based on the project’s scale, hire at least one QA tester for every 6 to 10 engineers. Treat quality assurance as essential to avoid higher costs from delays caused by fixing bugs in earlier versions.

Ask how your outsourcing providers balance manual and automated testing tools. Ensure testers use various tests to check code functionality, performance, compatibility, responsiveness, security, and user experience.

IT outsourcing software

3. Extend the Lifespan of Your Software with Technical Support and Maintenance

Due to its ongoing nature, software maintenance can become more expensive than development without careful planning. Older or poorly developed software requires more costly upkeep than maintaining a vehicle or a house. Managed services typically include software support and maintenance.

Software Support

Software support is reactive, addressing issues as they arise, such as bugs, system errors, and login failures. It’s similar to corrective maintenance, providing essential upkeep as needed.

Software Maintenance

Software maintenance is proactive and routine, regularly monitoring and updating to respond to feedback or external changes. Types of maintenance include:

• Adaptive Maintenance: Updates software to ensure compatibility with new technologies and developments in the IT environment.
• Perfective Maintenance: Enhances software performance and maintainability by incorporating user feedback and optimizing existing features to improve the user experience.
• Preventive Maintenance: Anticipates and addresses potential issues or future requirements through proactive upgrades as the product evolves.

These maintenance practices can be applied to various software components, including databases, configurations, and cloud services. Due to the variable nature of maintenance needs, costs can be challenging to predict. To manage these costs effectively, prioritize high-quality development and comprehensive testing from the outset. Regular updates and well-defined maintenance priorities will help mitigate revenue losses caused by software underperformance.

Conclusion

Outsourcing IT services offers a strategic advantage for businesses of all sizes, balancing technology investments with budget control without the full burden of in-house development costs. By understanding various IT outsourcing cost options and the factors influencing them, you can make informed decisions that align with your business needs.

Ready to elevate your business with top-notch IT outsourcing and competitive cost? Let’s have a chat! Contact TECHVIFY today for a friendly consultation and discover how our expert services can help you achieve your goals efficiently and affordably. Don’t wait—let’s start transforming your tech strategy together!