In-House vs Outsourcing Software Development: How To Choose?

Creating new digital products is a great way to enhance customer offerings, streamline workflows, or modernize legacy apps.

But for most companies, in-house software development is like building a spaceship in a garage. Recruiting top talent and enduring long development times with stretched resources is nearly impossible.

Thankfully, there’s a practical alternative. Outsourcing lets you offload the heavy lifting to an external team and save at least 15% in development costs. No wonder it’s the new standard!

From big tech to small companies, everyone is outsourcing software development these days, and the market is set to reach $777 billion by 2028.

So, should you develop in-house or outsource? We weigh both options to help you decide.

In this article:

• In-house software development
  • What is in-house software development?
  • What are the pros and cons of in-house development?
  • When should you use in-house development?
• Outsourcing software development
  • What is IT outsourcing?
  • What are the pros and cons of outsourcing?
  • When should you use software development outsourcing?
• Comparison table: In-house software development vs. outsourcing
• Choosing the right approach for your project
• Hire the #1 nearshore development company in Latin America

In-house software development

First, let’s look at in-house software development.

What is in-house software development?

Developing software in-house (also called insourcing) means using your current tech team to build your digital product. You handle every aspect of the project internally and hire additional developers as needed.

Theoretically, this lets you work more accurately when projects require institutional knowledge, though it depends on the talent and expertise you already have in-house.

What are the pros and cons of in-house development?

In-house development can provide the following benefits:

• Full control – This approach puts you at the helm. You have the reins on everything — from curating your tools to setting the project’s direction.
  
• Seamless communication – Everyone in your team operates in the same time zone and maybe even the same office. This allows easy face-to-face meetings and immediate communication.
  
• Security – Your data remains on-site, where you can control access. (This doesn’t eliminate security risks, though — insiders cause 34% of breaches.)
  
• Insider knowledge – Your in-house team is intimately familiar with your company’s pulse and long-term vision. This tacit knowledge can foster better decision-making and synergistic work. 

However, in-house software development can also be:

• Expensive – The average salary of an in-house software engineer in the US is $120,730 a year, putting the cost of a five-person development team at over $600,000. Besides salaries, you also have to pay for recruitment, training, benefits, and workspace overhead — not to mention ongoing equipment updates and taxes. These add up to a substantial investment with no guaranteed returns.
  
• Time-consuming – In a perfect world, your current team would have all the skills needed to build in-house developed software. But in reality, even large companies face technical skill gaps. Filling those gaps requires a few months of interviews and onboarding. And because new developers will likely struggle to get up to speed, the actual development process often takes longer.

When should you use in-house development?

Despite its disadvantages, it might make sense to develop in-house if:

• Your budget is limitless – In-house development is a viable option if money is no object. Make sure you have enough resources to attract top talent, buy the latest technologies, and manage any surprise expenses.
  
• You need complete control – Some projects require a level of oversight that’s difficult to achieve remotely. In these cases, it’s more practical to develop in-house.
  
• You have plenty of time – In-house software development often takes longer, factoring in recruitment, training, and iterations. But if your project isn’t bound by strict deadlines, you can take your time to gradually refine your product.
  
• You’re worried about security – Does your project involve sensitive data? To some extent, insourcing reduces the risk of data breaches and maintains confidentiality. However, that’s not to say that outsourcing inherently weakens security. You can always protect your data with robust security measures, regular audits, and clear service and non-disclosure agreements.

In-house development can foster better control and communication, but it can strain your resources. Be sure to carefully assess your current capabilities before choosing this approach.

Outsourcing software development

The other option is to outsource your software development.

What is IT outsourcing?

IT software outsourcing means bringing in outside experts to build your digital product. It is categorized into three types based on the developer’s location:

• Onshore outsourcing means hiring a provider in the same country. It’s easier to work together because you speak the same language, share the same culture, and are in the same time zone. That said, onshoring is often more expensive than the next two options.
  
• Offshore outsourcing means engaging a service provider in a country with cheaper labor, usually on a different continent. This translates to substantial savings, but challenges can arise from time zone differences, cultural nuances, and language barriers.
  
• Nearshore outsourcing means working with developers in neighboring countries. It combines the benefits of onshore and offshore development, reducing labor costs while removing cultural and time zone disparities.
  
  For example, nearshoring to Latin America can be practical for North American and Western European businesses seeking cost-efficient labor and seamless coordination. 

At Cheesecake Labs, nearshoring is what we do, and we’re proud to do it well! We’ve been named the #1 web app development company in Latin America by Clutch 3 years in a row — a big honor for such a vibrant region of development talent. 

Learn more about our full product delivery and dedicated team models for your nearshore development needs.

What are the pros and cons of outsourcing?

There are many upsides to outsourcing:

• Speed – By outsourcing, you can skip the time-consuming recruitment process and start work immediately with a fully-equipped team. It’s like ordering a perfectly baked cheesecake instead of making one from scratch!
  
• Cost efficiency – Outsourcing eliminates in-house development recruitment, training, and infrastructure costs. This frees up more resources to channel into growing other parts of your business.
  
• Access to a wider talent pool – Need more hands on deck? Don’t limit yourself to local developers. With outsourcing, you can tap into global IT powerhouses like Brazil, which has over half a million software developers working with the latest programming languages like Javascript, Python, Golang, and Flutter.
  
• Team synergy – The pre-established rhythm of a dedicated team irons out any workflow issues. This translates into efficiency, fewer disagreements, and better productivity.

Outsourcing lets you essentially “test-drive” before buying. Before committing, you can evaluate a potential partner’s portfolio to assess their range, expertise, and work quality. This is important because you want a company that can effectively mitigate the potential drawbacks of this development approach, including:

• Less visibility over the development process – Outsourcing could potentially compromise day-to-day oversight and quality control because of the physical separation and distance involved. Cheesecake Labs solves this issue with a tailored communication plan designed to maintain transparency. We use collaborative tools like JIRA and Slack to provide real-time updates and keep everyone in the loop.
  
• Increased security risks – Sharing sensitive data with an outsourcing provider may compromise your system’s security. But don’t worry — at Cheesecake Labs, we prioritize data and IP protection, using service agreements and NDAs, and having a DevSecops department to protect your information.
  
• Integration challenges – Different work habits and communication styles make merging an external team into your existing workflows harder. At Cheesecake Labs, we understand this, and as a remote-first company, we minimize friction by aligning our development plan and communication strategy with your operational processes.
  
• Language and time zone disparities – These inherent barriers can lead to misunderstandings, errors, and delays. But with Cheesecake Labs, you don’t have to worry. Our teams are proficient in English, and our operational hours align conveniently with the US and Western Europe.

When should you use software development outsourcing?

Software development outsourcing can be a strategic tool if you want:

• A shorter time-to-market (TTM) – Need to get things off the ground fast? Working with an experienced software outsourcing company can help speed up your TTM to make your digital product more profitable. These experts manage their tech and have worked on projects similar to yours, removing the learning curve.
  
• Cost-effectiveness – Outsourcing gives you access to top talent at better prices. For example, it costs less to hire a top-tier developer in Brazil than to hire a US-based counterpart. Plus, outsourcing eliminates HR costs like employee retention and insurance.
  
• Scalability – Outsourcing lets you swiftly scale up or down based on demand. This flexibility is crucial if you have fluctuating requirements and a tight IT budget.

Key takeaways: IT software outsourcing vs In-house

Looking for quick information on in-house vs. outsourcing pros and cons? Here’s a quick comparison:

Choosing the best development team for your project

If having full control over every aspect is a priority, in-house development is a solid choice. This approach requires more time, money, and resources, but you can maintain a direct hand in shaping your project.

Outsourcing is the best option if you’re looking to hit the ground running and reduce app development costs. You can readily tap into your partner’s expertise and capabilities to achieve your goals efficiently.

Need the best of both worlds? Consider augmenting your team with outsourced technical talent. This hybrid approach blends the strengths of your in-house developers with specialized skills from external experts. It lets you bring fresh skills to the table without sacrificing control over your project. 

When it comes to software development, there’s no single “correct” choice for every situation. Take a moment to consider what matters most to you — whether it’s speed, control, or a balanced combination — so you can make the right decision. 

Hire the #1 nearshore development company in Latin America

With a decade of experience across 300+ projects and a #1 ranking from Clutch and The Manifest, Cheesecake Labs excels at building world-class digital solutions.

I am impressed at the enthusiasm, genuine care for the customer, and strategic thinking of the team. CKL is not your typical nearshoring agency, in that they provide much value added services above and beyond delivering code. They were very helpful with providing insight, feedback, and a customer perspective on the products they were developing

Karen C. Chang, VP of Product & Engineering at Stellar Development Company

Our nearshore software development services combine onshore collaboration and offshore cost-efficiency. So if you’re interested in outsourcing software product development, you deserve no less than the best. Let’s chat about your ideas today!