Are you paying too much for offshore programmers? The answer is yes if you are paying such a cheap rate that it takes them three times as long, and most of your own time, to get anything done.
A few weeks ago I met the CEO of a Silicon Valley startup company looking for Drupal programmers. I described the Accelerance Global Partner Network and how we have several approved vendors who have the programmers she needs.
“How much do they charge?” was her immediate question.
I explained that the rate depends on the country, number of programmers you need, skill level and finally the length of the engagement. But a good budgetary number to use is a blended rate of about $4,000 per month for each developer.
“Oh, that’s too high. I’m paying $2,000 per month for programmers in India right now.”
“That sounds like a pretty good deal” I said. “Why don’t you just hire more of them?”
“Well, I want to have somebody here in the office I can keep under my thumb.”
Those were her actual words. Yes, it sounds like those offshore programmers are a heck of a deal. If only they would do what she wants!
One of my global partners told a similar story about cheap programmers. He made a call on a prospect who said they were paying $900 per month for programmers in India.
The prospect said, “These programmers suck! But they are so cheap we can’t stop ourselves from hiring them – even though we know we spend about 80% of the time telling them what to do. It’s like an addiction.”
By the way, I don’t mean to pick on India. We have many terrific partners in India and a great deal of excellent software is developed there. And I’m sure you can get bad software developed in other countries too, even the U.S.!
So who’s right? Are you getting ripped-off if you pay more than $900 a month?
I decided to ask the question on LinkedIn
One of my global partners responded to the question privately and said, “Hey, I thought you were the expert on this!” Yes, but maybe I’m out of touch and rates have dropped radically since the economy hit bottom.
But no. I received 21 answers and my conclusion is that rates are under pressure but you still have to pay more than the CEO with the big thumb to get reliable results.
Here is a summary of the answers:
- Even if it is possible to find a team that operates at that rate, it would be doubtful if quality of development, management, support will be acceptable.
- It's common practice to [offer] the price of the lowest cost resources, then try to stuff the project with more expensive people that have more appropriate skills… The first step is winning the business, the next step is figuring out how to get it done (hopefully).
- You should differentiate between an IT application developer and a product developer. Product developers are at a premium. [Steve: Agreed. We’re talking about product development here.]
- There are places where $12-$14 an hour is fair but for other places that is way too low. [Steve: $12 / hour is about $2,000 / month]
- If cost is the compelling factor, I would recommend going the Fixed Price route [Steve: yes, but that’s not practical unless you have a detailed specification. Most do not.]
- It all depends on the volume, skill set and level of experience required.
- Talking about ongoing rate on offshore resources is like speaking about ongoing prices for houses. Even when you narrow it by geography, skill, & engagement type the rates will fluctuate dramatically from company to company
- We're trying to re-establish the link between outsourcing activities and results by moving towards offering performance-based engagements where clients pay based on outputs delivered or outcomes achieved. [Steve: I think this means > $4K per month!]
- Go to http://www.odesk.com/trends. There are real-time rates for every specific type of programmer based on the actual freelancers using the oDesk service. [Steve: Not true. oDesk doesn’t show the rates and if they did, freelancers working out of a spare bedroom are always cheaper than a team of professional programmers. And it’s hard to manage a widely distributed team of more than just a couple freelancers.]
- $2000/month sounds low. It may be signs of desperation for projects (and hence taking assignments at below cost) or a company with severe cash flow issues or someone who will deploy junior resources.
- Range would be around $2600-5000 depending on skills involved, size and mix of the team. I think for medium sized companies average would be around 3200-3500 where as for larger company’s rates would be higher 4000+.
- $2,000 per month per developer is low… A realistic price for good programmers in Romania for instance would start at $3,000 per month depending on skill set and seniority.
- $12 an hour can be for somebody just out of college post training for 6 months in the company.
- Surely a focus on cost is always important, but studies have suggested that a focus on costs actually leads to cost escalation, but a focus on outcomes generally yields a more positive relationship/success.
Price is not the first questions we ask about when evaluating partners for membership. It's #7. Here's what we look for:
- 10 – 2,000 engineers with a desire to staff client projects that start with 5 to 25 engineers
- Focused on custom software development services, not selling their own software products
- Technical expertise in one to three key areas
- A track record of success with several satisfied clients—preferably in the U.S.—who will provide positive references
- A web site in English
- The ability to communicate well, in English, via the phone and in writing
- A good value proposition that benefits clients, by delivering reduced costs for specialized skills
- Reasonable goals for growing their services business
- Very high integrity, honesty, and excellent business ethics
I like that last point. After all, your goal should be to create great software, not to hire the cheapest programmers on the planet.
There were also a couple answers from vendors who said they could actually deliver software development services at $2K / developer / month. If this still excites you then look them up on the LinkedIn answers.
But keep in mind this answer which I considered the best one:
- You certainly can get this rate, even lower. The question is, though, what would be your TOTAL COST. I would suggest few factors in evaluating it:
(2) How professional they are in software development?
(3) Do they have a REPEATABLE PROCESS that will produce deliverables of PREDICTABLE quality?
(4) Do they have professional and dedicated testing?
(5) Do they have any legal [entity] in your country?
(6) Will the people dedicated to your project?
The Runtime Bottom Line
Before low-cost global software development, the usual way to begin a good-sized software development effort was to order tee shirts for the team, budget a million dollars and then hire a room full of programmers.Today the cost of using global programmers is dramatically lower. But don’t expect to get good results using offshore programmers for what you previously spent just for the tee shirts.
What’s your offshore cheap programmer story? Have you paid $2,000 / month or $12 / hour or less and gotten good results?
Until next time,
Steve Mezak, CEO
Steve@Accelerance.com
Accelerance, Inc.
Risk-Free Outsourcing
+1-877-99-ACCEL (877-992-2235) x101 Toll-Free
+1-650-472-3785 Global Calls + Fax
Or contact me at: http://www.Accelerance.com/contact.htm
Author of the new book -
Software without Borders: A Step-By-Step Guide to Outsourcing Your Software Development
www.Accelerance.com/swb.htm
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