In-house vs outsourcing software development

If the software is your product and you will be working on it for years, hire. If the work has an end, or you need a skill for six months rather than six years, outsource it. That is the short answer to in-house vs outsourcing software development. The rest of this post is about working out which of the two your work actually is.

We are an outsourcing firm, so read this knowing that. We also tell prospects to go and hire when the work is permanent, and this post sets out why, with the public numbers we used to get there. Every figure below links to where it came from.

The cost of in-house vs outsourcing software development

A salary is not what an engineer costs. Here is what the public data says for the three markets we are asked about most.

United States. The median software developer earned $135,980 in May 2025, according to the Bureau of Labor Statistics. Salary is only part of the bill. For professional occupations in private industry, wages were 69.2% of what employers spent on compensation in June 2026, and benefits were the other 30.8% (BLS, Employer Costs for Employee Compensation). Scale the median salary up by that ratio and one developer costs about $196,000 a year.

Then there is the hire itself. SHRM’s 2025 benchmarking put the average cost of a nonexecutive hire at $5,475 (SHRM). Its 2026 report puts the median time to fill a nonexecutive role at 39 calendar days (SHRM). Both are averages across all jobs, not engineering alone. SHRM measures time to fill from the requisition to an accepted offer (SHRM), so the new engineer’s notice period comes on top.

United Kingdom. The median full-time programmer or software development professional earned £56,914 in 2025 (ONS, ASHE Table 14, provisional). Employers pay National Insurance at 15% on earnings above £5,000 a year (GOV.UK), which adds about £7,800. The minimum employer pension contribution is 3% of earnings between £6,240 and £50,270 (GOV.UK), about £1,300 more. That is roughly £66,000 before a laptop, a recruiter’s fee or anyone covering their holiday.

India. The median total compensation for a software engineer in Greater Bengaluru, as reported to Levels.fyi, is ₹36.5 lakh a year. That sample leans towards larger tech employers, so treat it as the upper end of the market rather than the middle. On top of pay, employers contribute 12% of basic wages and dearness allowance to the provident fund (EPFO).

None of these figures include ramp-up. A new hire spends their first weeks learning the codebase and the domain. An outside team has the same learning curve, so neither side of the comparison gets that time for free.

Against those numbers, outsourcing looks cheap. An embedded engineer from us is $5,400 a month, about $65,000 a year. That comparison is real. It is also the wrong way to decide, because for work you will still be doing in five years, the cheapest option is rarely an outside firm.

When hiring in-house is the right answer

This is the section we would want a friend to read before calling us. Hire when any of these is true.

The software is the product. If the app or platform is what customers pay for, the people who build it should work for you. Nearly every decision about it is a product decision, and product decisions need people who will still be there next year.

The domain knowledge is the advantage. Insurance pricing rules, clinical workflows, the edge cases in a logistics network. If it takes a year to understand the domain and that understanding is what makes the product good, it should sit on your payroll. When a supplier’s contract ends, what they learned leaves with them.

The roadmap is long. If you can see three years of work ahead, the maths changes. Recruiting and onboarding are one-off costs, spread across every year the person stays. A supplier’s margin is paid every month for as long as the work lasts.

You need a team, not a task. Hiring the next five engineers, setting how code gets reviewed, an on-call rota that people take seriously because it is their system. An outside firm can help with each of these. It cannot own them.

If that describes your situation, hire. We will say the same thing on a call. What an outside team can still do is cover the gap while you recruit, which comes up again below.

When outsourcing software development makes sense

The case for outsourcing is strongest when the work is bounded.

The work has an end. A first version to put in front of users, a database migration, an integration with a third-party API, the rebuild of one service. When it is done it is done, and a permanent hire would then be looking for something to do.

You need a skill you will not use full-time. Infrastructure is the usual example. Most startups need a few months of serious cloud and deployment work, then a few hours a month of upkeep. A full-time specialist for that is expensive, and hard to keep once the interesting part is finished.

You need to start before you could hire. Thirty-nine days to an accepted offer, then a notice period, then ramp-up. If the deadline is sooner than that, an outside team is the only way to start this month.

You are still finding out whether there is a product. Outsourcing software development for startups makes the most sense before product-market fit. The question at that stage is whether anyone wants the thing, and some of the code will be thrown away. Paying for a team you may not need in a year is the bigger risk.

If you plan to outsource software development to India, as with anywhere, the saving is only part of it. Ask how many hours of your working day overlap with theirs, who answers when something breaks at night, and whether you will talk to the engineer writing the code or to an account manager.

Companies do not treat this as a one-way door. In Deloitte’s 2024 survey of more than 500 executives, 70% had brought some previously outsourced work back in-house over the preceding five years. At the same time, 80% planned to maintain or increase their spending on outsourcing (Deloitte). Most organisations do both, and move work between the two as it changes.

Outsource the work that has an end. Hire for the work that does not. Either way, keep the decisions and the accounts in your own hands.

The hybrid model most teams end up with

For many teams the honest answer is some of each. Three arrangements work well.

An embedded engineer alongside your team. They join your stand-ups, work in your repositories and take tickets from your backlog. Your people keep the product and architecture decisions. The embedded engineer adds capacity, or a skill the team does not have yet.

An outside team for a defined project, handed back. A migration or a new service is built, documented and then owned by your engineers. The supplier leaves; the system stays with people who understand it.

Contractors while you recruit. Cover the seat now, hire the permanent person, and overlap the two for a few weeks so the knowledge moves across rather than out.

What makes a hybrid fail is vague ownership. If nobody inside can say who decides the database schema, the supplier decides by default. Deloitte found that 70% of executives reported their vendor management function was not fully mature (Deloitte). Put plainly, most companies are not yet good at managing suppliers. That is fixable, and the next section is most of the fix.

What to keep in-house even when you outsource

However much of the building you hand over, some things should stay with you.

Product ownership. Someone on your payroll decides what gets built and in what order. A supplier can advise. It should not set priorities, because its incentive is more work.

Architecture decisions. The supplier can propose them. Someone inside approves them and understands why. Ask for each significant decision to be written down with the alternatives that were rejected, so the reasoning survives the people.

Accounts and access. Repositories, cloud accounts, domain names, app store listings, the payment provider. Create them in your organisation and add the supplier as a user, never the other way round. If the relationship ends badly, you remove their access. You should never be in the position of asking for yours back.

Someone who can read the code. Even a fractional CTO for a few hours a month. You need one person who can review a pull request and tell you whether what you are paying for is any good.

Code ownership and handover

Who owns the code is a contract question, and the default may not be what you assume. Under US copyright law, work an employee does within the scope of their job is a work made for hire and belongs to the employer. Commissioned work from an outside party only counts as work made for hire in nine listed categories, and only with a written agreement signed by both sides (17 U.S.C. § 101). Software is not named in that list. So ownership of what a contractor writes should rest on an explicit assignment in the contract. Other countries arrange this differently, and if the product is your company, have a lawyer read the clause.

Three things to check in any development contract:

• When the IP passes to you. On creation is cleaner than on final payment, because otherwise a dispute over the last invoice becomes a dispute over your code.
• That the supplier cannot reuse code written for you in someone else’s product.
• What happens to open-source libraries and any pre-existing code the supplier brings in.

At TurtleByte the code and repositories belong to the client from the first commit. Expect the same from any supplier, and treat anything less as a warning sign.

Handover is where outsourcing most often goes wrong, and it is decided at the start rather than the end. A good handover is a by-product of how the work was done:

• Architecture notes and runbooks written as the system is built, not in the final week.
• Infrastructure defined in code, so someone who has never seen the environment can rebuild it.
• Your engineers reviewing pull requests from early on, so the code is not a stranger when it arrives.
• A period where your team runs the system while the supplier is still reachable.

Before you sign, ask a supplier to show you an example of the documentation they hand over. If they cannot, you are buying a dependency. Our process page sets out what ours contains.

Four questions that settle it

Most decisions come down to these.

Will this work still exist in three years? If yes, hire, and consider outside help only to bridge the gap while you recruit.

Is the knowledge it needs a reason customers choose you? If yes, that knowledge belongs on your payroll.

Do you need it working before you could realistically hire? If yes, outsource or embed now, and plan the hire in parallel.

Is there someone inside who can own product decisions and read the code? If not, fix that first. Without it, neither a hire nor a supplier will be managed well, and the choice between them matters less than it looks.