How To Calculate Outsourcing Cost?

By RisingMax

December 07, 2023

How To Calculate Outsourcing Cost?

With the constant evolution in the business perspective, outsourcing has resulted in a clever move for firms, looking to streamline their operations at affordable costs. The biggest pain point of every business is the elevated costs that suppress the development to a huge extent. Saving money without hampering or compromising on the functioning is a daunting part.

How To Calculate Outsourcing Cost

Hence, it's important to take consultation from the experts. RisingMax has been a pioneer in offering IT consulting services and guiding businesses on the right path. Our professionals will tell you everything regarding the cost of outsourcing that gives you an edge over your adversaries. 

If you are one of those, who find it difficult to decide either for outsourcing or hiring an in-house team, then this article is going to simplify things for you. Stay tuned!

Factors to Consider While Budgeting For Costs Of Outsourcing

With outsourcing, the businesses need not to worry about the way in which operations will be performed. By hiring third-party providers, they can concentrate on the core competencies and can thereby save money that will be spent on recruitment and utility purposes. Numerous parameters need to be considered while allocating for the outsourcing cost, as we have mentioned them as under;

Check the geoLocation

The biggest factor is the geographical location of the outsourcing partner which creates a significant impact on the costs. Different regions have distinct costs of living be it higher or lower. Such variation is because of the vast difference in operational expenses and labor. Check out the table for more insights;

Geographical Region
Hourly Rate

*According to the budget, hire your outsourcing partner.

Comparing Vendor Rates

Based on the geo-location, the vendor rates also tend to vary. There is a possibility that lower vendor rates would probably result in lower quality of services. Perform proper research, and find a partner that shows equal attention to prices and services. Do give preference to overall experience, feedback, and expertise.

Set The Necessary Requirements

After choosing the vendor, have multiple meetings with them related to the services that you want. Also, do tell them about your requirements and explain everything about the product you want. Depending on such things, the vendor will be able to find the top solution aligning with your needs and encompass every specification, based on which the estimated budget will be framed.

Pick A Long-Term Partner

Collaborating with a long-term partner will be advantageous for your business. For that, the IT provider should have strong relations with their previous clients. It leads to long-term cost optimization as you will be able to attain permanent cost savings for maybe for yearly or 2-year plan or maybe more than that.

Optimize Your Budgeting Strategy!

Discover the secrets of efficient cost calculation in outsourcing with our comprehensive guide. Learn how to calculate outsourcing costs strategically and maximize your ROI. Unlock the potential for cost-effectiveness in your business operations. Start your journey towards financial optimization now!

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Benefits Associated With Costs Of Outsourcing

Outsourcing aids businesses in saving money by eliminating hiring costs and offering training services to their staff. In a way, it helps businesses to stay driven and motivated in the marketplace. Outsourcing influences costs in a lot of many ways, for your convenience, we have illustrated some of them below;

Access to Diverse Talent Pool

Outsourcing allows access to varying specialized skills that are not readily available in their local market.

Operational Efficiency 

Specialized outsourcing partners perform tasks more effectively, utilizing their expertise and technology, eventually resulting in cost savings.

Risk Mitigation

With outsourcing certain risks are reduced, like skill shortages/labor market fluctuations eliminating their impact on operational costs.

Focus on Core Competencies

Outsourcing non-core activities allows companies to concentrate on their core competencies, potentially leading to increased productivity and cost-effectiveness.

Labor Cost Savings

Outsourcing to countries with reduced labor costs helps in making significant savings for businesses, specifically for tasks that can be performed remotely.

Flexible Resource Allocation

Outsourcing provides flexibility in resource allocation, allowing businesses to scale up or down based on project requirements, thus optimizing costs.

Infrastructure Savings 

Outsourcing partners already possess ultra-modern technologies and infrastructure, thereby preventing businesses from heavily investing in such resources.

Economies of Scale

Businesses performing outsourcing gain advantages through economies of scale by imparting fixed costs over a larger volume of work and lowering per-unit costs.

Ways to Calculate Outsourcing Cost

The best way to calculate outsourcing cost is best considered with the deep cost savings analysis. The most common reason why outsourcing is the best choice for businesses is to avail the services in less time while maintaining confidentiality. The pivotal element that plays a superb role in evaluating the outsourcing cost is the differential cost analysis. Various steps help in calculating the outsourcing cost, check for yourself.

Describing Business Function

One thing that holds utmost importance is defining the business function. It helps in acquiring a significant differentiation between in-house and accessing services through exterior sources.

Evaluating In-House Costs 

After that, the essential thing is to detect and calculate the in-house costs. It includes the costs of infrastructure, salaries, admin services, app development, etc.

Finding Out Total Outsourcing Cost

This includes the transition costs, bid price, costs related to requests for proposals, subscription fees, costs for processing change orders/processing payments to the contractor, salaries, etc.

Subtract Your Costs Of Outsourcing From In-House Costs 

Last but not least, the savings are calculated based on the cost difference between the in-house and the outsourcing costs For a better understanding, have a quick look at the table below;

In-house Cost Table

In-House Costs
App Development

Outsourcing Cost Table

ClassificationOutsource Costs
Contractor Bid Price$200,000
Contract Administration$30,000
Transition Cost$10,000
App Development$100,000

Comparison of Cost Tables

If we calculate the difference between the in-house and outhouse costs, the total savings can be calculated. We have performed the cost savings analysis and calculation for your ease.

In-House Costs - Outsourcing Costs= $705,000 - $340,000 = $365,000

Hire RisingMax As Your Outsourcing Partner!

RisingMax Inc. is a reliable IT consulting and software development company that has helped several entrepreneurs achieve their dreams and transform them into reality. We are known for providing fabulous custom software development services at cost-effective prices and within the decided timeframe. Here, we have mentioned the reasons why we hold an edge over the rest of our competitors.

  • Open Work Environment
  • Top-Notch Development Team
  • Result Oriented Solutions
  • Quality Services
  • 24*7 tech-assistance
  • Utmost Security And Transparency
  • No Communication Barrier
  • Best Project Management
  • Proven Records

Hurry up, connect, and share your project ideas with our team of experts!

How To Calculate Outsourcing Cost

Bottom Line!

Undoubtedly, outsourcing offers an extensive range of benefits, but it's also important for businesses to perform a comprehensive analysis of the costs involved. Costs of outsourcing enable entrepreneurs to steer their business strategy, exceed the challenges, evaluate financial gains, and consider risks to make informed decisions.

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