Outsourcing Python Development: Pros, Cons and Costs

Here we are going to look at a theoretical example of a tech startup seeking to develop a web app using Python. We’ll presume that the startup has a tech-savvy partner who will be the project owner. Her name is Denise. She’s well-versed with the business requirements, and so she’ll also be serving as Scrum Master and Business Analyst.

In the planning stage, she wants to examine the pros and cons of an in-house development team vs. sticking to a lean startup model and outsourcing as much as she can. In her initial assessment, and wanting to get on track with Test-Based Development and Continuous Delivery from the get-go, she forecasts needing:

• 1 Senior Python Developer
• 2 Mid-level Python Developers
• 1 Mid-level DevOps Specialist
• 1 UI/UX Designer

So far, the startup Denise is with has signed up with an accelerator, has received some seed money, and needs an MVP. Her requirements are likely to change at some point, but for now, this is what she needs to get going. Obviously, your requirements could be very different.

A number of things must factor into her planning if she intends to hire all of her developers as in-house developers:

• Will developers need to work at the office or telecommute from home? There’s basically no advantage in having work-from-home (WFH) employees compared to outsourcing. On the other hand, having an office adds rent – variable by location, $5k per dev per year in Tel Aviv to $12k per dev per year in San Francisco.
• Having an office means covering furniture, computers, hardware, software licenses, utility bills. All variable expenses, but they add up.
• Having employees means paying health insurance and various taxes – variable by country, state, and even city. Health insurance in the USA averages at $7.2k for single employees and $20.5k for those with families.
• Fewer and fewer developers want to work in the office. Competing over those who do is likely to come down to offering other fringe benefits. These are also highly variable and can range from providing free coffee or daycare services to equity and stock options.

While the laws and actual benefits of having employees might vary by location, they mostly come down to being able to set where people will work, their office hours, and whether they must wear a uniform. And that most software developers having been forced to work from home due to COVID lockdowns don’t want to work at the office – it would take a strong strategic factor to warrant going with the in-house, centralized team model.

But let’s look at the numbers closer just to verify the logic.

There’s a substantial difference in all of these costs as compared to any city in Israel and any city in the United States – if just on health insurance costs. You can check out our comparisons for Tel Aviv and San Francisco. The fully-loaded costs of employees can vary quite dramatically depending on location – adding between 25 and 40 percent of base wages. For our purposes, we’ll play conservative and estimate the fully-loaded cost of employees in Israel at 20% and in the United States at 30%.

With PerceptionBox however, we’re able to extend your funding runway a bit further on top of the already significant savings you would realize compared to hiring locally. PerceptionBox offers a 5% discount for long-term projects of 12 months or more. We offer an additional 10% off for a 3-month prepayment.

If Denise took advantage of both options, the cost of her 5 developer team would drop to $17,927. That’s almost half (55%) of the costs of a fully-loaded team in Israel, and less than a third (29.7%) of the same in the United States.

If Denise had a $200k budget until her startup needed to complete a Series A, she’d have an 11 month runway. At the other end of the spectrum, with an US-based in-house team, she’d have just 13 weeks. Is that enough time? It depends on what she’s developing or what you’re developing if you have a similar scenario. For mobile apps, one study found that it took an average of 18 weeks to develop a mobile app MVP.

Before you can hire software developers, you have to find them first. In larger companies, that’s a task handled by Human Resources, or outsourced to recruiters. This amounts to quite a bit of effort. In a DIY-approach, you’d need to:

• Write the job descriptions
• Post the job descriptions
• Wait a week or more for candidates to apply
• Review their technical credentials to make a short list
• Schedule and conduct interviews
• You may want or need to conduct background checks and check with their referrals
• Make sure that the candidates you select cover all of your project’s technical requirements
• Possibly conduct a second interview to negotiate wages and benefits
• Have everyone sign on the dotted line.

Hiring software developers takes about a month, on average. But, if only it was that easy. Turnover for tech startups exceeds 25% on average and are concentrated in the first 90 days (a typical probationary period). Ghosting is also an issue, where a developer is hired, but doesn’t show up for work on their first scheduled day.

Working with an IT staffing agency hastens and simplifies the process dramatically. For starters, they specialize in hiring software developers and have large networks of candidates, and software to help match their skills to project requirements.

• In most cases the team you need can be available to start within 10 business days.
• The staffing agency handles issues of payroll and taxes so you don’t have to.
• You still get to review each team member’s resume and skills.
• You still get to interview each team member to see if they’re a good fit.
• The staffing agency is responsible for all issues related to turnover.
• These services and more are incorporated into the wages you pay for each developer.

But, what about developer skill? Ukrainian software developers ranked #5 globally according to SkillValue’s Where to Find the Best Developers in 2019. American developers ranked 27th while Israeli developers came in 34th on their list – based on 550 technical assessments. Ukraine scored 93.17% vs. a US score of 84.59%, with Israeli developers trailing with a score of 79.55%.

Lower costs, but higher technical skill? How does that work? As we’ve explained elsewhere on our blog, several reasons apply, but Purchasing Power Parity (PPP) provides the best overall explanation. A good example of it that you may have heard about is the Big Mac Index – or why the same burger can cost $8, $5, or $3 in three different cities. It’s an oversimplification, but Ukraine’s tech sector is optimized for providing software development services. This makes Ukraine a great source of IT Talent for countries like Israel with so many truly awesome startup programs.

With startup planning, it’s always possible to go into more depth and detail. Every project is different, certain languages and skill sets are in greater demand than others. But, hopefully we provided you a good overview of the considerations of hiring in-house or outsourcing. The example we provided with Denise’s startup is probably completely different than what you need. You can always use our calculator (link at the top of the page) to get a fast quote.