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DEDedicated Team vs In-House Team — New IT Department Cost Rundown
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Any business when growing faces the issue of digitalization, scaling, automation… That said, IT needs appear and they need solutions.
At this stage, a dilemma usually arises, which is better — to start forming an in-house team or to use the services of a dedicated development team, aka to hire an already existing team. And it is often quite difficult to understand what will be better and more rational.
If you were wondering what’s better to hire dedicated development team or have an in-house one, we will help you find the answer you seek in this article. Read on!
What to consider?
Let’s start with what it takes to build a full-fledged IT department.
To have an IT department that would be able to successfully develop a product, it is necessary to provide the following components:
| If you have one | If not | |
| Recruitment Department | Your recruiters need to learn the specifics of hiring IT specialists. | You can use any recruiting agency that specializes in finding IT specialists. |
| People Management or HR Department | It is a good idea to invest in your HR staff’s development through courses because the IT field differs from others. Most IT companies in Europe have quarterly 1-2-1 and bi-annual salary reviews. And it is important to form a growth roadmap for each employee. | You should definitely look for a high-level HR manager with relevant experience. Don’t consider HRs that are not specialized in hiring dedicated development team or in-house team. |
| Finance Management or CFO | If you hire a local team—it’s okay, but it reduces the hiring geography, which means that the speed of hiring will be slower. | You can use any legal agency that specializes in managing IT companies. |
| CTO | The CTO should form a development team and handle its coordination and development. This person is also responsible for selecting the best technologies and solutions for the product. | You cannot build an IT department Without an experienced CTO. It is necessary to find such a person either on a full-time basis or use CTO-as-Service. |
After that, we can proceed to form the Delivery department. As a rule, a team is formed for products with the following roles:
| Role | What problems does it solve? |
| Product Owner (PO) | This role comes with responsibility for the product and protecting its interests at all times. That’s someone who:
|
| Business Analyst (BA) | That’s someone who:
|
| Product Designer | That’s someone who:
|
| Project Manager (PM) | That’s someone who:
|
| Quality Assurance Engineer (QA) | That’s someone who:
|
Dedicated team vs In-house team—What’s better?
Of course, the choice of whether to dedicated software development teams or getting in-house specialists is totally up to you. But here is something worth keeping in mind.
A dedicated development team is definitely better for small projects (1–6 months). For medium-sized projects (6–12 months), which after launch won’t need active development, but only support — a dedicated software team is also better. But if you feel that your business is growing rapidly, and there will be many and constant tasks — both options will work just fine.
What’s more cost-effective?
There is a stereotype that in-house developers are cheaper than to hire a dedicated developer or outstaff developers. But it’s just a myth. We are sure that you’ve done this calculation a million times. But let’s run it through once again:
- Let’s suppose that the average salary of a middle developer is $3000, and a senior developer takes $4500 home (NET)
- We add 20–40 % of income tax and other taxes (depending on the country)
- We add 25 % of indirect costs (HR, recruiting, financial management, benefits package, etc.)
- We add 15 % for vacations and sick days
| Developer level | Strong Middle | Senior |
| Salary | $3000–3500 | $4000–5000 |
| Income tax | $600–640 | $800–1000 |
| Indirect expenses | $750–800 | $1000–1250 |
| Vacations and sick days | $450–480 | $600–750 |
| Total | $4800–5120 | $6400–8000 |
| Hourly rate | $30–32 | $40–50 |
As a result, we see that the cost per hour of work of such employees will cost $30–32 and $40–50, respectively. At the same time, the average market value of such developers in the outstaffing market is about $30 and $40 (+/- 5 USD).
In addition, every recruiter knows that the salary of a developer depends more on how much the developer wants to receive than on his actual level. It’s quite common to see the situation in a company, where let’s say, a middle developer with 3 years of experience receives $1000 or even $2000 more than his senior colleague with 5 years of experience.
It is important to be able to filter out bad candidates, otherwise, the losses for the business in terms of time and money can be costly. Therefore, technical expertise is very important if you want to hire dedicated developer or a team. It is necessary to find an experienced person who could help interview candidates and help you find suitable in-house or dedicated IT development teams.
Which one is easier to manage?
In the age of global remote work, there is no difference whether you are a full-time employee or hired as an outstaff. Developers usually like to work remotely, so they usually choose a company that provides this option.
All developers are managed by a PM. Companies hire and pay PMs to MANAGE teams. And those managers are responsible for the efficiency of developers.
You should not waste your precious time on micromanaging, but invest it into running the business, working on marketing and sales, etc.
Who is easier to find?
When a company focuses on finding a new developer for an in-house team, it limits itself to the number of available candidates to only those who are looking for a job. If you need a developer, and you don’t limit yourself by considering outstaffing or using dedicated development team services, the number of available developers will be much higher.
Besides, you’ll need to hire a recruiter first (which, by the way, is also not always an easy task and often requires significant investments), then this recruiter will find the N-number of CVs, then selection, screening, technical interview, test task, interview meeting with the team, agreeing on the offer… How long will it take? And how many developers today are ready to go through all the way? What percentage of developers will accept your offer?
Developers from the dedicated software development team have already passed it. They are ready to go through a few more interviews with your tech specialist. And most importantly, in 95 % of cases, they will not refuse the offer, you will not have to compete with other companies for good candidates.
What is more effective?
Depending on the needs, the team can change. Usually, the team that develops the product is larger than the one that then supports it. Also, BA and PM are usually not required full-time for small projects, it is enough to involve them part-time.
The ability to maneuver the composition of the team is very important in IT, where everything changes very dynamically.
Who is responsible for the product?
For a product to be successful, there must always be a person who is fully responsible for it, namely the Product Owner. It must be a person who burns for the product, believes in it, someone who puts the interests of the product above all other interests.
The Product Owner relies on the CTO, who is responsible for the technical department and their professionalism, and the CEO or CMO, who is responsible for the marketing and sales of the product and is essentially a bridge between the business and development.
It is important to understand that this is a role that anyone with the appropriate qualifications can take on. It can be PM, BA, and the client if he has enough free time and wants to do it.
When you form your team, you must find such a person. Choosing a dedicated development company, the team will determine who will take on this role. And consequently, the company will continue to be responsible for the success of your product.
Let’s summarize
In today’s competitive world, those who know how to focus on one thing and be the best at it win. Niching is the way to be on top. So if you have a profitable business and you’re successful in building it, that’s cool, and that’s what you need to focus on.
Solving IT needs should be entrusted to someone who specializes in it, and who knows how to do it well. This greatly reduces the chance of failure and, most importantly, saves time and money. It takes much longer to form an experienced team than to hire an existing one.
We at OmiSoft have gone further, we see our clients as partners. We cover our clients’ IT needs on a turnkey basis and offer the most rational solutions. As a result, clients have no headaches and can focus on business, something they do best.
Do you have IT needs and no one to help? Looking for a dedicated software developer? Contact us and get a FREE consultation from our specialists. If you are seeking technical advice, feel free to write to me on LinkedIn, I don’t bite 🙂
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