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What You Need to Know for Outstaffing and Outsourcing with Ukraine

Quick Summary - Demand is increasing for outstaffing and outsourcing as distributed teams are quickly becoming the “new normal” in software development.

What You Need to Know for Outstaffing and Outsourcing with Ukraine

What are the differences between outsourcing and outstaffing?

Companies of all sizes have a vested interest in exploring outstaffing and outsourcing – from early stage startups to giants like Google. Actually, Google has more contractors than employees. The differences between outsourcing and outstaffing can be confusing, so let’s simplify it:

  1. Outsourcing: You hand over control to an agency’s team which is then responsible for delivering software according to your specifications. The agency handles all management, finances, taxes, etc. Outsourcing costs more than outstaffing because there are more roles to fill (PM, BA, QA, SMEs, etc). Best Use Cases for Outsourcing: Non-tech SMBs, Lean Startups, and most Enterprises.
  2. Outstaffing: You arrange with an agency to provide your team the people with the skills you need. You retain full control of the project and handle all matters of management. The agency handles payroll, and tax issues. Costs less than outsourcing because you’re hiring for specific roles to augment your team. Best Use Cases for Outstaffing: Any business with an existing development team (or at least a software engineering manager) seeking rapid growth or expansion.
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In-House Employee

  • Developer’s salary
  • Project delivery risks
  • Overhead (BA, QA, HR, etc.)
  • Office space, hardware, furniture,
  • Employee benefits – free coffee to stock options
  • Health insurance costs
  • Employment taxes

Outsourcing and outstaffing are less expensive than hiring in-house developers, letting you avoid numerous expenses that can add 25-40+% to base wages. Odds are you’re already familiar with the traditional employee model, so we’ll focus on outsourcing and outstaffing models now.

Costs of software development

The single largest line item expense in software development is wages for software developers and engineers. For tech startups, outsourcing and outstaffing are the surest ways to extend your funding runway. There are five core issues involved as relate to software developer wages:

  • There is a global shortage of software developers.
  • Wages vary widely by country (and even by city).
  • Location is largely irrelevant – software developers can work from anywhere.
  • Wages have little to no correlation to Code Quality.
  • Code Quality has the highest impact on project success.

In practice, if you insist on developers working from the same office, you’ll pay 2-5x more than if you embraced a distributed work environment. For offices in Israel, this will range between 2-3x more; 3-4x more for most European and US-based, and 5x+ more for offices in major tech hub cities like San Francisco. The increased cost, again, has little to no correlation to Code Quality.

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We strongly recommend checking out why Ukrainian Developers Rank #5 Technically – Skills and Values. Ukrainian developers outscore their American and Israeli counterparts by 8.58% and 13.62% in technical assessments by SkillValue, respectively. These technical assessments reflect on the code quality of Ukrainian developers – not because they are “Ukrainian” but because of government, educational, and economic incentives that promote Ukraine’s software services industry. We’ll revisit why “wages have little to no correlation to quality” below.

Value of outsourcing

By outsourcing, you’re basically handing over the entire project to a third-party team to develop according to your specifications. You have no control over their work processes but you will still be involved in the approval of design and deliverables. Businesses outsource for a variety of reasons, namely:

  • It lets companies focus on what they do best and/or most.
  • To save money and resources vs. trying to do it in-house.
  • Gain fast access to specialized skills and technologies.
  • Get-to-market faster by existing teams vs. assembling teams from scratch.

It can take months to assemble a team with all of the skills needed for a project. Here, you get the entire team ready to go, typically within two weeks.

Value of outstaffing

Outstaffing is simply the most cost-effective, fastest, convenient, and stable way of getting the people with the precise skills your project and team needs. The key distinction vs. outsourcing, is that outstaffed developers augment your team.

You assign their tasks and they report to you. You define the skills they need and the staffing agency matches them to developers in their recruiting pool. You get to see their CV/resume and interview them before they start work. With PerceptionBox, your new developers will be able to start within just 10 business days.

  • Outstaffing saves money vs hiring in-house.
  • You’re able to find developers with the skills you need fast (10 days).
  • Outsourced developers report to you, work according to your processes and standards.
  • The agency is responsible for all issues of turnover.
How much does it cost to build a remote team in Ukraine?

If you decided to hire a development team in Ukraine or even open an R&D center, this calculator helps you figure out how much it would cost.

Calculate now

Pricing models for outsourcing and outstaffing

Both outsourcing and outstaffing with Ukrainian software developers provide dramatic cost advantages compared to hiring employees. They also offer different payment options that can provide you additional flexibility and even extra savings. First, let’s look at the three main payment options:

  1. Fixed Price Model – An all-inclusive price tag. Any changes in features/scope must be renegotiated. Simple, predictable, but not flexible and risks quality. This approach depends quite heavily on precise software specifications. Type: Outsourcing mainly.
  2. Time and Material (T&M) Price Model – Software development services are based on “fully-loaded” (salary, benefits, payroll taxes, overhead) hourly rates of developers with a markup. Flexible for new technologies and changes to software specifications. Can arrange a “Not-to-Exceed” (NTE) maximum for planning purposes. Type: Outsourcing and Outstaffing
  3. Cost-Plus Price Model – Often used for long-term development and/or ongoing maintenance/support projects. Transparent terms with no hidden fees, you know the fully-loaded hourly rates of developers and the agency receives either a percentage-based or fixed fee markup. Flexible and predictable, as you can scale as needed. Type: Outsourcing and Outstaffing

Over the course of a project’s lifetime, it’s possible to make use of all three options. A MVP might start off with a Fixed Price, move into development with T&M, and transition to Cost-Plus after launch and initial debugging.

BONUS TERMS! With PerceptionBox, for projects anticipated to last 12 months or more, you get a 5% discount straight off the top. By prepaying for 3-months on projects of 4+ months, you can get another 10% off. We welcome you to try out our developer cost calculator for free – to see how much you can save by outstaffing through PerceptionBox.

Size and duration of projects for outsourcing and outstaffing

Outsourcing and outstaffing are options whether you need one part-time developer or dozens of developers. Projects requiring only a few hours a week, or short-term one-off tasks are better sourced through sites like Upwork.

Software development favors long-term assignments. It’s much easier for developers who wrote the code to make changes to it, to upgrade it, insert new features, etc. Teams with high turnover rates inherently suffer from inefficiency (3-6 months for new developers to learn the code) while introducing higher levels of code complexity (impacting quality, decreasing productivity, increasing software maintenance costs).

Ukrainian developers have a lower turnover rate than most European and US-based developers. When working with a staffing agency, like PerceptionBox, you don’t have to worry about direct costs of finding replacements. We aim for high-retention, but if someone leaves, we’ll find a replacement with the same skills for you immediately. Recruiting and replacement costs for most companies tend to run about a third of the developer’s annual salary.

The Big Mac Index

While no one ever equated McDonald’s Big Mac to being a high-quality burger. Regardless of where you buy a Big Mac, it’ll be nearly identical to any other Big Mac, except for one thing – price. In Switzerland, you’ll pay $7.29; in the USA – $5.66; in Israel – $5.35… but just $3.51 in Poland, and only $2.20 in Ukraine. That’s the “Big Mac Index” – a simple, but effective way of looking at Purchasing Power Parity. The basic principle is that the value of the Israeli Shekel or the US Dollar isn’t the same everywhere.

Is a Big Mac in Switzerland better than a Big Mac bought anywhere else? No. What’s responsible then? For starters, we can point out that the minimum wage in Switzerland is 23 Swiss Francs or about US $25. If you’re really curious – “check it out”.

Why are wages “low” for Ukrainian software developers?

This is a really good question and a complete answer would be lengthy, but consider:

  • Healthcare in Ukraine is ostensibly “free” or “at cost” – and even “premium clinics” are exponentially less expensive than in most countries.
  • Ukrainian families have a high rate of home ownership (apartment or house) – about the only real benefit inherited from the collapse of the Soviet
  • Union. Average rent for an apartment outside of Kyiv is ~$300 vs ~$1200 or so in Israel and the USA.
  • Most Ukrainians don’t own a car, relying instead on public transportation, and frequently walk for any local errands.
  • Tuition costs to colleges in Ukraine also run a fraction compared to most programs in Israel and the United States.

Adding just these things together equates to a “a lot of money that you don’t have to make” – to get by in Ukraine. Ukraine is not a member of the European Union – avoiding a lot of regulatory overhead. So, the full answer is much more complex, but these points might help to explain why cost and quality don’t always go hand-in-hand.

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