Andrew Kwak
Last week we met a CEO who came in to talk about outsourcing some development. Twenty minutes in, it was clear that what the company needed was a developer on staff, not us. We said so. Hiring was going to serve them better over time than a contract with an outside team, and they left to write a job ad.
That conversation happens more often than you would think, in both directions. This piece sets the two options side by side with Australian numbers, and ends with the shape most businesses actually settle into.
Two ways it goes wrong
An online retailer in Sydney outsourced a site rebuild. The quote was around $6,000 and three months. It took six, bugs kept surfacing after launch, and every fix was a new invoice. By the time they moved to a second vendor the total was past $20,000. The first vendor was cheap, and that was the problem.
A founder in Adelaide running an on-demand app hired a developer in the first year. Salary, superannuation and equipment came to about $120,000. During busy periods it worked. During quiet ones there was not enough for the developer to do, and the founder was paying a full salary for part-time output. Project-by-project outsourcing would have cost less than half.
Neither decision was wrong on its own. Each was wrong for that business at that moment.
What each option costs over three years
Outsourcing
A defined project, a company website, a booking system, an internal tool, typically costs $5,000 to $15,000 to build, and larger apps or platforms run from $20,000 to $60,000. Ongoing maintenance is usually 15 to 20 percent of the build cost a year. Add $1,000 to $5,000 a year for changes nobody planned. Over three years a website-scale project lands somewhere between $10,000 and $30,000 all up.
A developer on staff
In Australia a junior developer costs $70,000 to $90,000 in salary, mid-level $100,000 to $130,000, senior $140,000 and up. Add superannuation at 12 percent, leave, insurance and equipment, and the real cost of a mid-level hire is roughly $140,000 to $170,000 a year. Recruiting adds a one-off 15 to 20 percent of salary if you use an agency, or several weeks of your own time if you do not. Three years of one mid-level developer comes to $450,000 or more.
So for a defined project, outsourcing is cheaper by an order of magnitude. That is not the end of the comparison. It only tells you which option is cheaper for work that has an end. The real question is whether your development work has an end.
When outsourcing is the right answer
The work has a start and a finish. A website, an app launch, replacing a spreadsheet with a proper system. A company website takes about two months to build and then needs a couple of small updates a quarter. Nobody should be on payroll for that.
The work needs a specialist. Payment integrations, security work, anything involving machine learning. An experienced specialist is faster and safer than training a generalist on your time, and you only pay for the weeks you need them.
You are a small team. With ten or fewer staff, a developer's salary is a large share of payroll and there is rarely a full-time job for them to do.
Technology supports the business but is not the business. A cafe that wants an ordering app, a tutoring centre that needs an enrolment system. The software is a tool. Keep your attention on the business and let someone else maintain the tool.
What to check before you sign
Make sure the contract says you own the source code and the accounts, so changing vendors later is a handover rather than a rebuild. Get the maintenance scope in writing. Bug fixes and security patches are usually included, new features and design changes usually are not, and both sides should know which is which before the first invoice. Pay in stages, commonly a deposit of around 30 percent, a payment at a mid-point milestone and the balance on completion. Ask for two or three references and actually call them. And treat a quote that is half the price of the others as a warning rather than a bargain. The cheap quote in the Sydney story above was the most expensive decision that business made that year.
When a developer on staff makes sense
Development never stops. If you ship features weekly, react to user feedback the same day and run experiments on the product, you need someone whose whole job that is. A typical software product adds several features a month and handles a couple of bug reports a week. Outsourcing each one means a quote, a wait and a scheduling call. An internal developer ships it that afternoon.
Downtime costs real money. When an outsourced system goes down, the first hour usually goes on reaching someone and handing over context. A developer who already knows the system is fixing it in that hour. If your revenue arrives on evenings and weekends, that difference is worth a salary.
The software is the product. A SaaS company, a marketplace, an app-based business. If customers pay you for the software, the people who build it should be yours.
You are large enough to carry it. A $150,000 all-in developer is about 3 percent of revenue for a $5 million business and 15 percent for a $1 million one. Below a couple of million in revenue, the maths usually favours outsourcing unless the software is the product.
What to watch when you hire
Do not advertise for one person who can do the website, the mobile app, the servers and the AI. That person does not exist at the salary you have in mind. One developer means a generalist, two means a front-end and a back-end split, and specialisation starts at three. If nobody on the leadership team is technical, bring in a fractional CTO for a few hours a month or have an outside team review the code quarterly. Leaving every engineering decision to a single engineer with no second opinion is how businesses end up with a system only one person understands. And if the workload is uneven, use outside help for peaks and give quiet periods to cleanup and refactoring.
Most businesses end up with a mix
The pattern we see most often has three stages, and the stages are set by the business rather than the calendar.
First, outsource. The fastest way to find out whether customers want the thing is to have it built, put it in front of them and watch. A first version with the core features, built by an outside team, typically costs $10,000 to $30,000 and takes two to four months. Spend this stage learning whether the market responds and whether real revenue follows.
Then go hybrid. Once there is a steady stream of small changes and the occasional emergency, hire one developer to own day-to-day work and manage outside teams for anything large or specialised. A common shape is one salary plus $10,000 to $20,000 a year of outsourced project work.
Then build the team. When development is continuous, revenue is past a few million and funding is stable, a team of two or three with outside specialists on call is the right structure. Outsourcing does not disappear. It changes from doing the work to extending the team.
A quick self-check
Lean towards hiring if most of these are true. Thirty or more staff. Revenue in the millions. Features or changes shipping at least weekly. Bugs that need a fix within hours. Software that customers pay for directly. Technology as your competitive advantage.
Lean towards outsourcing if most of these are true instead. Projects with a clear end. Little ongoing work after launch. Specialist requirements like payments or security. Time-limited initiatives. Technology as a supporting tool. Ten or fewer staff.
If neither list wins clearly, outsource first and reassess in six months. If a backlog of continuous internal work has appeared by then, that is your signal to hire.
Three examples
A small cafe needed a mobile ordering app. An outside team built it for about $15,000 in two months. Orders rose after launch, the build paid for itself within a few months, and the cafe still runs it with no developer on staff.
A delivery platform doing around $10 million a year needed to move faster than its vendor could. It hired three developers, roughly $400,000 a year all-in. Feature throughput went up several times over, incident response dropped from hours to minutes, and the operating record helped the company raise its next round.
A fashion retailer at about $5 million a year had both large projects and constant small changes. One developer on staff at around $110,000 plus about $10,000 a year of outsourced work covered both. Small fixes happen the same day, and large projects go outside and ship faster than a one-person team could carry them.
Outsourcing and hiring each have honest trade-offs. For most businesses the realistic path is to outsource a first version, prove the market, add one developer when the work becomes continuous, and build a team when the business can carry one. The worst outcome is waiting for the perfect choice and building nothing.