Eventually, most software companies think about hiring more people to grow their businesses. Often, vendors extend the software development team to develop a new project or expand their product line. They also need specialists when the product becomes large and complex or requires new features, and the team lacks the necessary skills. 

Fortunately, we live in an age with plenty of options for hiring professional developers. What’s more, they do not even have to stay in the office five days a week. As you know, high-speed Internet is available to everyone today, and people can work from anywhere in the world.

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Cost is critical when you are choosing between expanding an in-house team or hiring an offshore team. Even for large companies, cooperation with outsourcing software development companies turns out to be more profitable than hiring personnel. What about startups where aspiring entrepreneurs have limited funds and do not hire high-level professionals?

We at Relevant have worked closely with many startups and product development companies in the United Kingdom. We know firsthand how difficult and costly it can be to hire a developer UK.

To back up our findings with facts, we investigated the costs of setting up a software development team in London. Based on this data, we compared the actual cost of hiring an in-house software development team in London, UK, with the cost of contracting a development agency. We also compared the average software development rates in Ukraine with the rates of developers in the UK to see which model is more cost-effective. Read on to find out all the details.

The cost structure of in-house and offshore software development models

If you choose between hiring an internal team and working with a development agency, you should know the costs comprise different components in each case.

As you can see, the list of expenses for your team is much longer than with hiring a developer or a whole dedicated team from an offshore app development company.

Therefore, looking for software developers, you should carefully calculate how much a full-time team in London will cost to hire remote developers.

In-house software dev team in London costs

If you are thinking of software development outsourcing to London, carefully read the following points.

Developer salaries

According to Glassdoor, the London-based front-end developer makes around £4,087 a month. The same resource shows that the salary for the back-end developer is 5,435 pounds per month and the wages of a QA engineer – £3,452 per month.

If you hire software developers full-time, remember that workers are entitled to 28 working days of paid leave under UK law. Every year, you will pay each developer a salary for almost a month while they do not work.

Office rent

Office rent depends on the location you plan to operate. After reviewing the proposals, we found that an elementary office with open space for ten people and minimal amenities would cost £3 630 per month when considering a long-term lease.

Other positions

If you plan to run your development company, you will need people for other roles. At least an HR manager or recruiter to look for candidates for you, and an accountant who will keep the ledgers. If your company continues to grow, you’ll need to hire an SYS-admin, office manager, or additional recruiter.

If we look at Glassdoor again, we can see that the average salary in London for the positions we mentioned is:

• Recruiter – £2,646 per month.
• Accountant –  £3,517 per month.
• System administrator – £3,363 per month.

So an accountant and recruiter will add to your business’s expenses £6 163 per month.

Software licenses

The product defines the technology stack, and it selects the tools and frameworks to help you develop software better and more quickly. Therefore, we will include in our assessment the primary means that are commonly used in development companies. These tools are more of an administration and collaboration tool, so they are suitable for any project:

1. Confluence (document filing tool). The premium plan will cost £7.64 ($10.50) per user/month.
2. Jira (Project management tool). The premium plan will cost £10.56 ($14.5) per user /month. Again, Atlassian uses the same pricing policy and charges a flat fee for a team of up to 10 users.
3. GitHub (Product development tool). The Enterprise plan will cost £15.29 ($21) per user/ month. That plan has advanced features, including access control and support. GitHub has a free plan for ten users, but its functionality is quite limited.
4. Slack (instant messaging and chatting tool) is free from small teams. However, you can get more with the Pro version at £4.85 ($6.67) per user/month.
5. Google Drive (documentation tool) – free with 15GB of cloud storage per user.

Simple calculations show that a basic set of tools for your internal team of five people will cost you £191.7 per month.

Employee benefits, equipment costs, and taxes

These are the costs that every software company has to handle, but it’s hard to estimate on average. For example, employee benefits can vary depending on the size of the company and the stage of development.

Everyone uses extra perks to keep their employees, but each company decides for itself what to offer to its team:

• Medical insurance;
• Gym membership;
• Free lunches;
• Learning opportunities;
• Payment for mobile communication;
• Sick leave;
• Team building activities.

Of course, in each specific case, the total cost of the buns offered by the company will be different. The same goes for hardware costs, as the hardware requirements depend significantly on the development project.

As for taxes, here we will quote Benjamin Franklin: “In this world, nothing can be said to be certain, except death and taxes.” Therefore, you must also add taxes that your company will pay, but the actual amount of taxes is difficult to estimate.

Total in-house team costs

Let’s use the numbers we calculated to estimate the cost of owning a software company in London, the UK, for one month, six months, and 12 months (excluding taxes, employee benefits, and hardware costs from our calculations).

Costs for offshore development teams

If you’re using an outstaffing model, your only expense is the hourly pay for each developer you hire. The development agency assumes all administrative and related costs, and they do not bother you in the least.

The reason companies will hire app developers in Ukraine is because the average hourly fee for a front-end or server-side developer is around £19,47. That is £3,115.2 per month if you contract with a developer for 160 hours.

The average hourly rate for a QA engineer is £14,83 or £2,373.4 per month. A team of the same three professionals will cost you roughly the following amounts:

These are the only costs you will have to incur. As you can see, submitting a project to offshore software development outsourcing is cheaper than hirе a developer in the UK (meaning in-house developers in London UK).

Final words

In conclusion, we note that internal and outsourcing models of hiring developers have nuances, not only in price. For example, hiring is a rather lengthy process with an in-house team, as the candidate must quit the previous job with proper notice. In addition, it can be difficult to fire someone who does a mediocre job for legal reasons.

With outsourcing, you can hire developers for a startup and get a complete team quickly. You can expand or cut the group if it depends on the requirements of your project. You will only have to pay for the actual number of hours the developer has spent on your project, not a penny more. 

Specific skills for a short-term task, for example, UX / UI Design or QA, you will receive for as many hours as it takes. And these are not the only advantages. For more information, see our study of the benefits of outsourcing in top outsourcing countries in 2021. We hope our in-house and software outsourcing research can help you find the best option for your project! And if you want to know more about the models for hiring professional software developers or find specialized staff, for example, hiring Node.js programmers, contact us.