What are the costs of IT staff augmentation? | Part 2
In this video, we present a case study showcasing the price differences. We compared an in-house SDH in Stockholm vs a Staff augmentation agency in Poland. The numbers are based on our existing customer for a regular software engineer.
Key Highlights:
Cost comparison between the USA and Poland: Find out how can you save money with with staff augmentation in Poland compared to in-house hiring and staff augmentation in the USA.
Pricing model: Understand the benefits of the time and material cost model for adaptable project management and cost efficiency.
Comparison of hiring models: See the comparison of in-house hiring and staff augmentation on scalability and cost flexibility.
Case study - Stockholm vs. Poland: A case study comparing the total annual costs of hiring a software developer in-house in Stockholm versus using a staff augmentation agency in Poland.
VIDEO TRANSCRIPT
0:02 In our previous video, we talked about various costs that impact the final price of in-house hiring and staff augmentation.
0:08 This time we will present a case study showcasing the price differences.
0:13 Obviously, the prices depend on the region, but today we focus on specific ones.
0:18 But first, let's highlight the general cost differences between the USA and Poland.
0:25 When hiring in-house, you need to add extra costs like training costs around $1,500 and include recruitment costs around $3,500
0:35 Having that in mind, the average salary in the US when hiring in-house is around $9,500 a month for one developer.
0:44 So for six months of work, including the cost above, it gives you above $61,000.
0:52 With staff augmentation you do not consider these costs and pay less.
0:55 However, if you go with staff augmentation in the USA, the average price for a single developer is $24,000 a month, which gives you $144,000 in half a year. Compared to staff augmentation in Poland, where a developer costs around $8000 a month, you skip the management and training costs, which in six months gives you only $48,000.
1:25 The time and material cost model offers a specific approach to pricing and project management.
1:30 The development cost is based on the number of developers devoted to your project and hourly rates set by a software development house.
1:39 It also includes costs associated with the price, such as materials, tools, infrastructure, or additional expenses required to complete the project.
1:47 Is it better than a fixed price?
1:50 Well, mostly, it depends on your budget.
1:52 These two sometimes can be mixed.
1:55 The time and material cost model offers flexibility to project scope and payments, but a fixed price determines the resources you have for app development.
2:05 However, the main advantage is that you can adjust project scope, resources, and materials at any time, allowing for interactive development with quick responses to changes.
2:16 With this model, the software development house will follow neutral coding, making the code always accessible and transferable to other software development houses.
2:26 Should you need to switch or get multiple teams on board.
2:34 Choosing the right approach requires careful analysis, and the best way to do so is to compare each strategy in terms of its cost, viability, and flexibility to help you make an informed decision for the requirements you might have.
2:48 We have compared both strategies in terms of the financial differences and the benefits.
2:55 In-house hiring involves extra costs like recruitment, expenses on boarding, and provision of infrastructure and tools.
3:03 In addition, ongoing expenses include benefits, training, and overhead costs on top of a basic salary.
3:11 Other indirect or hidden costs may include work delays during hiring or onboarding.
3:16 Enterprises typically have additional budget for recruitment and can afford the expenses.
3:21 However, these costs may easily overrun small and medium-sized businesses with limited budgets.
3:28 Staff augmentation may include costs at the beginning because you only have to pay for the hours and resources instead of consistent monthly salaries.
3:37 You also skip the training and onboarding process, and instead you can choose highly specialized talent.
3:43 With significantly fewer hidden costs Staff augmentation leads to better cost predictability, allowing you to meticulously manage your finances.
3:53 It is an interesting option if you want to speed up value delivery quickly rather than build all the processes by yourself.
4:02 If you want to scale your team, you need to hire people. It implies a long-term commitment, making it less adaptable to changes that occur during the development process.
4:12 This means you need to plan it in the long run and not only focus on business-critical tasks or engagements.
4:19 Staff augmentation allows you to engage in short-term contracts, so you only pay for external developers when needed.
4:26 This flexible scalability allows companies to optimize the resources on core business functions
4:36 In the following case study we present numbers based on our existing customer for a regular software engineer compared to hiring a developer internally in Stockholm.
4:46 First, let's take a look at the in-house agency in Stockholm.
4:51 The average salary is €73,000 - Recruitment costs start from around €3,500 - Onboarding €2000.
4:58 Training starts from around €1000 - Additional management around €500.
5:05 This gives you a total of €80,000 a year.
5:10 Compared to the agency in Poland, the average salary is €72,000.
5:14 Recruitment costs are included in the price - Onboarding €2000 - Training is included in the price and additional management is also included.
5:24 This gives you a total of €74,000 a year.
5:32 To pick the right strategy for building your software development team, you need to evaluate the true costs involved.
5:38 With any approach, the total cost is not just about direct expenses, but also those hidden ones that determine if your project meets the budget and reaches the finishing line to eventually become profitable.
5:52 Also, take a close look at your business needs and goals to make decisions that fit your unique situation.
5:59 If you want long-term commitment and control over your projects in-house, hiring might be a better option.
6:05 It lets you build a reliable team within your company, which can be game-changing for your complex, long-running projects that are core to your business.
6:14 But if you need to be flexible, deal with tight budgets, and want to assess specialized skills without long-term commitment - staff augmentation is the way to go.
6:24 You can quickly scale up or down your team and focus on what really matters.
6:28 Another great approach that we often use is the mix of both.
6:32 This allows you to take what is the best from both solutions.
6:36 Ultimately the choice between in-house and staff augmentation is all about balancing costs and getting the right talent for your business.
6:44 So assess your situation, weigh the options, and meticulously calculate the costs.
