Some businesses plan to do all the work in-house. Others think about outsourcing SaaS development. Both approaches have their pros and cons. As a company that’s been building custom SaaS apps for the past 10 years, MindK knows everything there is to know about outsourcing. So here’s our straightforward guide to outsourcing your SaaS project.
Table of contents:
- Why do SaaS companies outsource product development?
- Project outsourcing vs staff augmentation
- SaaS outsourcing costs and popular destinations
- How to choose a trustworthy SaaS outsourcing partner
- Shortlist potential vendors
- Check the vendor’s reviews
- Learn about the vendor’s services and approaches to development
- Note their communication style
- Understand how much does outsourcing SaaS development cost
- Create a Request for Proposal (RFP)
- Ask for a Non-Disclosure Agreement (NDA)
- Sign a SaaS outsourcing contract
- Work together with your outsourced team
There’s a rising demand for outsourcing of all kinds. According to Computer Economics research, market leaders increased their IT budget spend on outsourcing by 38% in 2021.
The only certainty as we enter 2023 is economic uncertainty. A June 2022 survey of economists by the Wall Street Journal puts the likelihood of a recession in the US at 44%. Shrinking budgets, rising inflation, and interest rates – we all feel the fallout.
Regardless, investment in the IT sector remains relatively strong. Researchers at Forrester predict the sector to grow at a healthy 10.5% in 2023. Downscaling and outsourcing have helped many leading companies survive and thrive through past recessions. While the COVID-related talent shortage contributed to rising rates all over the world, this trend is expected to slow in the coming years. All these facts make outsourcing an attractive option for all types of SaaS companies. It will therefore offer multiple benefits for businesses.
Developing a product in-house is expensive. You not only have to pay for staffing costs, but you must also invest in recruiting, educating, managing, and retaining your engineering talent. Access a global tech pool and hire more experienced engineers at lower rates, all without additional operational costs.
No recruiting pains
Hiring qualified engineers in 2022 became a major problem for 61% of recruiters. The average time to hire is 49 days and rising. According to LinkedIn, a software engineer is America’s #1 most in-demand position along with four other development roles in the top 10 list. With an unemployment rate of just 2.3%, simple math shows that there is only one available engineer per 7.4 open positions.
Sadly, the supply of qualified SaaS engineers is lagging behind rising demand. About 60,000 tech university and 20,000 programming boot camp graduates join the US labor market annually, clearly insufficient to fill almost 190,000 annual developer vacancies. The US Bureau of Labor Statistics estimates a shortage of 1.2M software engineers by 2026.
SaaS outsourcing companies offer relief from the crippling shortage of engineering talent. Within a short few weeks, they can provide experienced specialists that have already worked together as a team on multiple projects. This allows you to save time and money compared to recruiting, training, and retaining your own high-quality in-house specialists.
Access to a rare combination of skills
SaaS developers must have a rare combination of technical skills and a well-rounded product mindset to build modern cloud-based apps. SaaS outsourcing companies like MindK focus on hiring the top 4% of engineering talent that understands:
- Modern architectural patterns like microservices and monolithic apps, their benefits, and use cases.
- Cutting-edge front-end frameworks like React, Vue, and Angular.
- Highly accessible and available applications.
- Application Programming Interfaces (API) and backend development.
- Application security and quality assurance best practices like test-driven development (TDD).
- Cloud computing. AWS alone offers over 300 services you can use in a SaaS app. Choosing the wrong service can make a difference between paying $20K and $6K a month on cloud costs.
How we saved $14K/month on infrastructure costs for a major SaaS company from the US [read the case study]
SaaS software development companies also look for engineers with what I call a product mindset. Above all, it’s about working in fast-paced Agile and Lean environments. To succeed, developers need to embrace a wide range of duties. They need to help their teammates test the application, tweak its UX, and talk to stakeholders.
That’s why SaaS developers must have excellent soft skills. The entire team should be able to talk with the client and manage their workload. Great SaaS developers are proactive and responsible workers, great communicators, and technical advisors to business stakeholders.
Time-to-market is one of the most important metrics for SaaS companies. Your product roadmap might have the release date set in stone. There’s no time to waste in these types of circumstances on recruiting the necessary specialists, making them work as a team, training, or retaining them in your company.
Outsourced teams are ready to begin working on your project as soon as possible. With the experience of completing multiple SaaS projects, outsourced teams know how to follow deadlines and manage their time.
A simple pre-sales roadmap for one of the projects at MindK
No need to micromanage the team
Retaining control over the project is one of the top reasons for having an in-house team. To benefit from this approach, the company must oversee each step in the development workflow, control the application quality, and assess the team’s performance. All of these tasks require a lot of time and effort from stakeholders who already can’t spare a minute in their packed schedules.
Outsourcing SaaS development frees you of this burden. High-quality IT vendors aim for long-term partnerships. The success of your project forms the backbone of their reputation. So, if you need help in succeeding, they have a team of experienced Business Analysts and Project Managers to assist you. They also help analyze requirements, turn them into user stories, and oversee the project so that it’s completed on time and strictly within budget.
Now that you understand why companies consider outsourcing SaaS development, let’s take a look at the main types of outsourcing and their cost.
There are two main types of outsourcing services you can use as a SaaS company:
- Project-based outsourcing (also known as managed services); and
- Staff augmentation (or outstaffing, dedicated team).
Managed project outsourcing
The goal of managed services is to complete a project on time and within budget. The outsourcing vendor provides a complete team of software engineers, UX/UI designers, Business Analysts, and Project Managers.
On Agile projects, the client typically plays the role of a Product Owner. Together with the team, they analyze user needs, set priorities, and provide long-term objectives for the project.
- Less stress, more results. Outsourcing vendors who specialize in SaaS projects provide all the necessary specialists to complete your project. There’s no necessity to micromanage the team or stress about results. Meanwhile, you are free to focus on running your core business.
- No tech skills are needed from the client side. You can start project-based outsourcing with minimal knowledge of the IT industry. The vendor contributes all the necessary expertise.
- Clear goals. The contract you sign has a clearly defined outcome and success conditions. It also specifies the duties and responsibilities of all parties along with the project’s deadlines, budget, and scope.
- Less flexible. You sign an agreement to reach specific project goals. Canceling the contract or making drastic changes will often require an advanced warning.
- More expensive. The vendor takes on more responsibilities like Project Management and Quality Assurance, which results in additional costs.
- Can’t hand-pick all the team members. The vendor will typically provide you with an optimal team composition for your task based on their expertise in building SaaS apps. Nevertheless, this can be a bit of a cold shower for executives that want to retain complete control over the staffing process.
Perfect-fit when you:
- Don’t have an internal IT department or lack technical expertise.
- Have an internal team but lack the resources to build additional modules or products.
- Don’t want to micromanage the team.
IT staff augmentation
Outstaffing allows hiring the specific professionals you lack from the vendor’s talent pool. They adopt your company’s culture, tools, and engineering approaches. You provide the daily tasks and manage the engineers while they work as a remote extension of your team.
The pricing is incredibly transparent – you pay the developer’s hourly rate plus a small vendor’s fee.
Some outstaffing firms act more as recruiting companies that can identify a suitable specialist in the global market. SaaS outsourcing companies like MindK, on the other hand, only offer pre-vetted specialists that have been with us for many years. Each has progressed the long way, from candidate vetting and hiring to internship, personalized mentorship, and education programs, before becoming the Senior-level engineer that’s ready to join your team.
- Retain 100% control over the project. You’ll get to hand-pick all the candidates, have as many interview rounds as you need, and oversee their daily activities.
- Quick scale-up. You can start working with an extended team in less than 2 weeks. Swap specialists, expand the team, or cancel services on short notice.
- Save money. The payment model is more transparent and includes no additional fees.
- Requires tech expertise to interview candidates, check test assignments, and manage their tasks.
- More responsibilities for the client. You’ll have to onboard and manage developers, budgets, scope, and project timelines.
- Requires well-established development processes.
Perfect-fit when you:
- Need to rapidly scale up your team while building your SaaS product.
- Want to save money as a series A/B startup.
- Have a project with an unusual tech stack.
- Want to avoid putting all your eggs in one basket. Outstaffing allows you to diversify risks by working with several outsourcing vendors.
You can outsource SaaS product development that costs $100 an hour in the US to other countries for under $55 per hour while maintaining the same standard of quality. Startups on tighter budgets can find even cheaper vendors. However, the lower the rates go, the faster quality drops. Experience shows that depending on your location the sweet spot for cost/quality ratio is between $40–$90 per hour.
Selecting a SaaS product development partner is an important decision. Your main task is to ensure the vendor has the required technical skills and experience to build a complex SaaS product. You should also ensure the developers use a proven methodology and have good communication skills. So here are the 9 crucial steps to succeeding with SaaS outsourcing.
The first step to choosing a trustworthy partner is learning as much as you can about outsourcing. Study the market. Consider the risks. Understand the SaaS development process. More research lessens the chance of selecting an unreliable vendor.
Have at least some of your goals defined before the start of the project. Not everyone can come up with complete requirements, but a high-level product vision will help you select an optimal tech partner. But where should you search for SaaS outsourcing companies? For starters, try Googling or looking at independent vendor listings like Clutch.co, GoodFirms, DesignRush, or G2. And as you’re currently browsing the MindK blog, add us to your vendor list.
Look at each company’s website and case studies. Note their industry expertise, types of projects, their size, and so on. Choose at least five high-potential vendors that show the required expertise for your project.
While exploring the vendor’s website, check their reviews and client testimonials. While the reviews themselves can be faked, you can easily Google the person who gave the testimonial. Just contact them via LinkedIn or email and ask for feedback. People are especially eager to share any negative experiences they had with outsourcing vendors.
Another goldmine for feedback are independent review aggregators like Clutch.co. Each testimonial there is written as a result of an interview taken by the platform’s staff. So expect brutal honesty.
Now that you have a list of potential vendors, it’s time to fill out the contact us form. In most cases, this will provide a meeting with their salesperson. During the call, try to learn as much as you can about the company:
- What is their size?
- How long have they been in the market?
- What are their technical competencies and certifications?
- What is their approach to development?
- Do they have relevant industry-specific expertise?
- Do they work in Agile or Waterfall fashion?
Intro calls are usually short and there are many questions to ask. Don’t be afraid to mail some of those questions you didn’t have time to discuss during the first meeting.
Good communication is key to building long-term partnerships and delivering great SaaS products. An intro call is a good time to learn about the vendor’s approach to communication.
- How do they deal with differences in time zones?
- Do they have experience working with Western companies?
- What steps do they take to break through the cultural barrier?
MindK, for instance, likes to use the so-called ‘golden hours’ when working with clients overseas. It’s the time when one team has just started working while the other hasn’t yet left the office. We also send our clients weekly progress reports, invite them to daily stand-up meetings with the entire team, and run Sprint retrospectives/demos together. It’s notable that more than 95% of our clients are from Western countries.
Most outsourcing companies work on a contract basis, as you should already be aware. SaaS application development costs vary greatly depending on the vendor’s geography, size, project complexity, choice of technology, your functional and non-functional requirements, as well as the type of outsourcing contract:
- Non-fixed price.
Fixed price contracts
This type of engagement model requires freezing the project scope and budgets before the start of cooperation. To this end, the team has to carefully document all the requirements and create a detailed project roadmap with major milestones.
To succeed, a fixed-price project has to go through an extremely thorough discovery phase. At MindK, it usually starts with several workshops with the team and client representatives. We discuss your intended audience, their needs, and the different ways to fulfill them inside your SaaS app. After the workshops, the team estimates the project to give you a detailed cost breakdown.
- Predictable and transparent pricing.
- Well-defined project outcomes and milestones.
- Needs minimal management and oversight from the client.
- The vendor takes on all the risks.
- Can be costlier as the development partner has to account for all the possible risks.
- Slow start-up. The discovery phase that’s necessary for fixed-price projects can take anywhere from a few weeks for a small MVP up to a couple of months for larger projects.
- Less flexibility. The project scope, timelines, and budgets are all set in stone. Significant alterations should go through a rigorous change control process.
- Building trust with a new partner by creating a small MVP or a Proof of Concept (PoC).
- Small and mid-size projects that last up to a few months.
- Projects with known requirements that are unlikely to change in the future.
- Works great with the Waterfall methodology.
Non-fixed price contracts
Non-fixed price contracts shine when you have requirements that are likely to change in the future or need to hire several specialists using the outstaffing model. This makes non-fixed price contracts a perfect choice for large and highly dynamic Agile projects.
Time and Materials (T&M) is the simplest and most popular type of non-fixed price contract. It involves paying the IT vendor a fixed hourly rate plus a fixed vendor fee. It’s a great option for long-term projects as it allows you to bypass the contingency fees of fixed-price projects, potentially saving up to 30% of your bill.
Incentive-based contracts require the vendor to estimate your project based on the initial requirements. You can then add specific rewards for exceeding those original performance objectives. This is a hybrid approach between fixed– and non-fixed-price models that help motivate the IT vendor to overperform.
Shared risk-reward contracts are a variant of the incentive-based model. You can have a fixed budget with a percentage-based reward paid to the vendor once it reaches specific goals. In this model, partners fund the development together and share the rewards for a set period.
- Unmatched flexibility for the project scope. Can handle multiple change requests, even late in development.
- Benefits from the Agile methodology. Great for dynamic and unpredictable markets.
- Less expensive as the client doesn’t have to overpay for the possible risks.
- Quicker to start without the lengthy discovery phase.
- Requires more oversight from the client to keep the project within the budget.
- The risk of unmet deadlines increases with non-fixed price contracts.
- The final budget will likely differ from the estimate.
- You need to start the project as soon as possible.
- Your requirements are subject to change. You work with unproven technology and highly dynamic markets.
- Your project is large enough to last more than several months
- You need to continue development post-MVP that was completed using a fixed-price contract.
An RFP is a document that outlines your requirements for an outsourcing vendor and your project. It can take different forms. The most common variant includes the following:
- Project description & goals.
- Information about your company.
- Project requirements.
- Ballpark timeframes
- Your budget range, and so on.
You can use an RFP to ask vendors questions that interest your company and compare the answers to shortlist the best candidate.
Once you’ve selected the best outsourcing partner, it’s time to sign an NDA. This legal contract can protect your intellectual property and rights to the SaaS product. With MindK, you can sign an NDA even before revealing the first details about your future product. You can also include a non-compete clause that will prohibit us from working with your competitors and developing similar solutions for a set period.
Such a contract should secure your IP rights and set clear acceptance criteria – the project deliverables, major milestones, and their definition of done. A SaaS outsourcing contract should also come with the budget & timeline estimate for your project (its accuracy will depend on the exact type of contract).
To achieve the best results, treat the outsourced developers as a part of your team. Get to know them as people. Communicate regularly and early to solve any challenges before they turn into problems.
We’ve described all the technical aspects and choices in our detailed guide on SaaS application development, so check it out. Whatever your choice may be, it’s not recommended to build your SaaS app in one go. A much better approach is to start with a relatively small Minimum Viable Product (MVP). Releasing a product with just the core features will give you an opportunity to gather early feedback and raise funds. We opted for MVP development when partnering with Bridge – a Silicon Valley startup that’s building a custom SaaS application for the IT recruiting industry.
Any product is based on assumptions about technology, people, and markets. So it’s often impossible to validate them until you give users an actual product. With Bridge, it turned out that users needed quite a different solution to what we were initially building. Fortunately, the founders had a working MVP that allowed them to attract funding from multiple investors. The development continued after a small pivot to what is now a successful application.
Bridge – an operating system for global hiring [read the case study]
The main lesson for clients we can take from this case is to stay involved during the whole period of cooperation. Split your application into smaller parts, release them in sequence using the Agile methodology, collect feedback, and adjust your plans accordingly. And remember – a temporary setback can serve as a basis for a powerful pivot. After all, Slack first started as a video game called Glitch, YouTube was intended to be a dating website, and Twitter was a podcast platform.
Developing a SaaS product is a complex undertaking. Fortunately, companies that specialize in SaaS outsourcing can provide all the necessary expertise to succeed in this highly competitive market.
MindK has been building SaaS projects for a decade now. We have expertise in both horizontal and vertical SaaS for multiple industries like Recruiting, RealEstate, Insurance, eLearning, Energy & Sustainability. Our engineers will gladly help you in custom web development, API integrations, cloud engineering, scalability, and multi-tenancy. So don’t hesitate to drop us a line to arrange a free consultation with our SaaS experts.