In-House vs Outsourcing Custom Software Development: Which is Best?

Choosing between outsourcing and in-house software development is an endless debate in the modern IT industry.

Each side can find as many supporters as opponents.

These models work as complete opposites, compensating for each other's drawbacks. Yet, both solutions also have their own limitations.

One of the core issues is that both can be used in the same cases or contexts.

This results in dozens of hours spent researching which to choose: in-house software development vs outsourcing.

To answer this question once and for all, let’s examine both approaches and cases and determine when you can benefit the most from each method.

What is Outsourcing Custom Software Development?

Let’s start with outsourcing custom software development.

The main idea behind outsourcing is to create or extend a software application by engaging third-party custom software development services.

Apart from saving costs by hiring developers with smaller salaries, outsourcing your development can help to:

• Speed up the development
• Extend the team when you lack employees
• Cut the time and expenses on HR processes
• Gain access to a global talent pool
• Find niche experts and professionals
• Implement or integrate innovative technologies

Long story short, the popularity of software development outsourcing originates from its overall convenience, efficiency, and flexibility.

Latest reports show that the global outsourcing market is worth 1 trillion USD in 2025.

It is commonly the only possible solution for small businesses and startups, which face many financial and time constraints.

Still, it is not the final list of the pros or cons of such an approach.

Pros of Custom Outsourcing Software Development

The main benefits of outsourcing software development include:

Specialized Skills for Your Specific Project

When you outsource software creation, you contact third-party development companies.

Unlike in-house development, outsourced software product development services suggest hiring a team as a service. The vendor also covers its maintenance and management.

Such IT companies are also deeply engaged in your project. They are commonly involved in multiple operations and development stages.

For instance, to tell you the price and scale of the project, they must:

• estimate your project,
• define the number of employees,
• choose software technologies, etc.

Many outsourcing companies provide clients with niche insights and advice on software development, offering unique, personalized solutions for specific cases.

Many such companies also offer additional services to help ensure your project succeeds.

For example, in addition to providing full-fledged development teams, they can also offer team extension options if that would be sufficient.

Faster Development Timelines Due to Experienced Teams

Another result of working with IT outsourcing companies is a faster, more efficient development process.

Most such companies have extensive experience and expertise in software development: they earn money by developing on demand.

Choosing to outsource custom software development is a great solution when a business needs a fast and efficient implementation of an idea.

Most software projects can’t be monetized until they are delivered.

Reduced Labor Costs

Faster custom software development and delivery, and higher investment returns are not the only advantages of such cooperations.

The outsourcing model helps reduce custom software development costs by lowering labor expenses.

Such an app development approach gives access to the global talent pool, making it easier and faster to find the required expertise.

However, faster hiring and onboarding are not the only benefits of a global talent pool.

For example, companies can also benefit from regional salary differences.

This feature is popular among businesses of all sizes: from SMBs to large enterprises.

Flexibility in Scaling the Project Team

Outsourced software development is one of the most effective ways to scale project teams.

Hiring outsourcing teams is a popular way to extend an in-house team when a business project scales.

Even tech giants like Google or Meta regularly engage such developers despite having sizable in-house staff.

Thus, in-house software engineers are involved in prioritized processes and tasks.

At the same time, outsourced developers are used for various feature development and integration, as well as for supplementary service optimization, etc.

Outsourcing certain parts of a scaling software project is always faster and cheaper than extending the in-house team.

Cons of Outsourcing Software Development

When considering outsourced software development, you should also be aware of its challenges and potential drawbacks.

Barriers in Language and Cultural Differences

Outsourcing software development assumes constant communication with people from various regions.

Sometimes you won’t face any inconveniences, whilst at other times you might struggle with cultural specifics, time zone differences, and language barriers.

Unfortunately, it is tough to predict or prevent these issues in advance.

Most such problems become apparent after some time, making them impossible to avoid.

The only way to bypass these difficulties is to find a reliable software vendor that can assure and prove the quality of the services.

Privacy and Security Concerns

Software development outsourcing is much riskier than in-house development.

On-premises development can be easily protected through a range of security practices and measures.

At the same time, outsourcing requires a more careful approach.

Fortunately, this approach also offers many security solutions, such as VPN access and enhanced credentials.

Still, it also requires better monitoring and engagement.

To summarize, outsourced development demands high standards on both sides of the agreement.

Risk of Lower Commitment or Understanding of Company Culture

A lot depends on your contractor.

If you cooperate with an unreliable technology partner, you might face low commitment and a mismatch in company culture.

Finding a trustworthy IT outsourcing company is the best way to ensure commitment to your project goals, demands, and requirements, as well as the company’s culture.

To do so, you must research and deeply examine your candidates, review their feedback and reviews, and analyze case studies.

What Is In-House Custom Software Development?

In-house software development is the most basic and traditional approach.

It suggests gathering a software team on-premises and **maintaining all software development processes ** in-house.

Advantages of In-House Development

Advantages of in-house development include:

• Direct control and oversight of development
• Streamlined communication and quick feedback
• Focused outlook on the objectives of the final product

Direct Oversight of Development

This development takes place in your office.

Thus, it is much easier to maintain your team and monitor the progress of software projects.

Besides being more convenient, on-premises development is much safer and protected thanks to numerous best security practices.

This also helps avoid language barriers, time zone differences, and other inconveniences.

Finally, having your team on-premises significantly simplifies internal communication and speeds up the feedback or updates.

Streamlined Communication and Quick Feedback

Having your team in the office enables fast, streamlined communication.

Your developers don’t need to wait for the rest of the team to be online.

Your software engineers will most likely share neighboring tables, making communication as seamless as possible.

Focused Outlook on the Objectives of the Final Product

Eventually, in-house teams are easily managed and monitored.

You can literally check the project's progress whenever you want.

Such cooperation terms make it easier to focus on the objectives and their fulfillment during development and until the initial product delivery.

You can also track your team's commitment in real-time.

Disadvantages of In-House Development

The most common and crucial In-house development drawbacks consist of:

• Limited technological expertise
• High costs and extra expenses
• Time-consuming recruitment and onboarding

Limited Expertise in Certain Technologies or Practices

In-house hiring targets your local talent pool.

It is commonly highly competitive and offers a limited number of available niche experts.

If you aim at general and standard technologies, it won’t be a significant disadvantage.

However, if your project requires specific software solutions or expertise, like AI or Blockchain integrations, you might lack experienced developers.

High Upfront Costs

Local hiring is more expensive than software outsourcing.

Developers from various popular outsourcing destinations offer the same level of expertise at a much lower price.

Additionally, in-house development incurs additional costs for sick leave, holidays, bonuses, and other related expenses.

Don’t forget about the hiring process itself and office maintenance.

Time-Consuming Recruitment and Onboarding Process

Finally, in-house recruitment and onboarding take much more time and resources.

Software development outsourcing provides your company with a full-fledged team.

At the same time, the in-house approach assumes finding each developer, interviewing them, and inviting them to the team.

There is no guarantee you will assemble a complete in-house team quickly because of:

• Limited talent pool in your region
• Long recruitment and hiring processes

Due to these factors, in-house team gathering can take up to a few months.

Comparing In-House Software Development and Outsourcing

When choosing between in-house and outsourcing custom software development, it is possible to define a few scenarios and factors in which each approach is more beneficial.

The list of core factors to consider when choosing an approach consists of the following:

• Cost Comparison: In-house vs Outsourcing
• Talent and Expertise Availability
• Project Timelines and Speed of Delivery
• Scalability and Adaptability to Changing Needs
• Risks and Challenges for Both Options

Cost Comparison: In-House Software Development vs Outsourcing

Outsourcing development is much more cost-flexible, offering several options to meet project budgets of all sizes.

The final cost of IT outsourcing depends on numerous factors, including the developer's technical expertise and the outsourcing region.

Outsourcing locations are commonly divided into:

• Offshore Software Outsourcing (global market; fastest and cheapest solutions)
• Nearshore Software Outsourcing (same region; more manageable with balanced costs)
• Onshore Software Outsourcing (same country; suitable for enterprises lacking experts; as expensive as in-house)

Software outsourcing is prevalent among startups and small companies that require software solutions.

It is also commonly used by mid- and large-scale businesses for part-time projects and for completing low-priority tasks.

In-house development is a more expensive approach commonly used by SMBs and enterprises to maintain a core team of experts.

Comparing their costs, outsourcing is an obvious winner.

Still, this difference defines the proportions of the complete team (in-house to outsourced), not choosing either/or.

Talent and Expertise Availability

Outsourcing custom software development offers more flexibility and options for talent acquisition.

It provides access to a global market and to developers with diverse backgrounds, experiences, and tech expertise.

At the same time, in-house development has many limitations and restrictions, making it more complicated and expensive to find the required specialists.

Thus, the software outsourcing model wins once again.

Project Timelines and Development Speed

One significant drawback of outsourcing software development is the limited time on the project.

Dedicated developers can be used on demand for various software development projects.

Still, they won’t be there for you forever.

At some point, a dedicated team will have to leave, and your business will have to maintain and support the existing software.

So, outsourced development is an excellent solution for developing and delivering software.

In the long run, hiring an in-house team will benefit your business more.

By gathering a team on-premises, you will have full-cycle services, including post-launch maintenance and support.

In other words, in-house teams are better suited to long-term projects, providing businesses with additional services and full-cycle coverage.

Scalability and Adaptability to Changes

Frankly, both teams are highly scalable and adaptive to changes.

Long story short, any software team offers strong adaptability, being flexible and responsive.

However, while the in-house team is used only for dedicated project development, outsourced teams can be used for both developing from scratch and scaling existing teams.

So, there is a draw on these terms.

Risks and Challenges for Both Options

In-house and outsourcing software development share the most common risks and challenges:

• Lack of proven expertise in the niche
• Lack of the team’s dedication
• Unexpected challenges during the development

Thus, it is a draw once again.

When to Choose In-House Custom Software Development

Despite all the pros and cons, the on-premises team is a common choice for many businesses eager to design and develop their software products.

The reason is simple: in-house development is more beneficial in the long run.

Building and maintaining such a team is more complex and expensive, but it offers complete dedication to your project.

Such cooperation suggests engagement in post-launch support and maintenance beyond software development.

Custom software development outsourcing also offers post-launch support.

However, it is much more limited in terms of time and resources and is mainly focused on ensuring everything works as it should.

Usually, their engagement in software maintenance lasts a few months, and if you need new updates or feature integration, you will have to sign a new contract.

When to Choose Outsourcing Custom Software Development

Outsourced software development is an excellent model for:

• scaling and optimizing software products,
• automating business processes,
• creating new features,
• migrating to the cloud,
• and performing other similar part-time tasks.

It is also an excellent solution for companies with limited budgets, such as startups.

By choosing an outsourced team, they can test their ideas while staying within their budget.

However, they will also need to consider gathering an in-house team in case of success.

Summing up the above, combining both models is probably the ideal approach to custom software product development:

Engaging outsourced developers brings countless benefits during software development, while the in-house team ensures post-launch support and maintenance.

You can always contact us for more details.

We can answer your questions, discuss your ideas, and even provide a free project estimation. To examine our expertise, you can also check our recent case studies.