April 22, 2024

Outsourced Software Product Development: Pros and Cons

Elena Pashkovskaya

Technical copywriter


Outsourced Product Development: Win-Win Scenario For Your Business

Elena Pashkovskaya

Technical copywriter


Outsourced Product Development: Win-Win Scenario For Your Business

Outsourced software product development has gained popularity in recent years, and for good reason. The vigorous combination of its benefits and a small number of potential pitfalls enables businesses to build a wide range of quality products for reasonable prices. It also allows companies to concentrate on the core tasks without making efforts for development team assembling, onboarding, and management. That is why outsourced product development has earned businesses' trust all around the world.

Today, we are examining outsourced software product development to determine its other benefits.

Key Takeaway

  • Software product outsourcing differs from software project outsourcing in terms of lifecycle, goals, duration, and stage of implementation. Product development starts at early stages, covers the whole lifecycle, is customer-oriented, and implies long-term engagement. Project development can start at any stage, involves partial areas, and has a limited duration.
  • Outsourced software product development helps businesses of all sizes build great products for their customers at reasonable prices and in a short time. It carries relevant technical expertise and development process optimization and removes the need for micromanagement.
  • Your company may need outsourced development services when your in-house team lacks experience or technical expertise, you have tight deadlines to deliver the product, you want to overcome market barriers quickly, or you just do not specialize in software development.
  • Potential risks associated with outsourced product development include different work cultures, language barriers, hidden costs, poor product management, and vague requirements. However, these obstacles can be addressed through careful planning and clear communication.
  • When hiring an outsourced custom software development vendor, consider their reputation, expertise, and clients' reviews, look at the portfolio, compare prices, and consider English proficiency, potential cultural differences, and the availability of technical support after product launch.

What Is Outsource Product Development?

Outsourced product development means hiring an external company to build your software product.

Let's assume you have a brilliant business idea for an app. Still, you do not operate in precisely the software development domain. You do not want to miss the opportunity but have no in-house resources to bring it to life. That is when outsourcing product development will come in handy.

When discussing outsourced software product development services, some confusion may arise between project and product development. How can we distinguish between software product development and outsourced projects? Let's clarify this.

Outsourced Product Development vs Project Outsourcing

The main difference between product and project development lies in customers' presence. For the product, it is vital to fulfill customers' needs and bring revenue to the business. The product's life cycle is longer and goes through continuous transformation. The project fulfills a specific goal or objective. It has defined timeframes, budgets, and lifespans.

Product Outsourcing:

  • Covers full life cycle — planning, design, implementation
  • Starts at early stages
  • Implies long-term engagement — one team implements and supports product
  • Engagement models include dedicated team or staff augmentation
  • Broadly defined objectives
  • More open-ended business model

Software Project Outsourcing:

  • Involves partial areas, defined scope within a project
  • Can be at any stage 
  • Well-defined beginning and end
  • No specific duration — from short to long-term
  • Engagement models can vary, fixed price to time and material or dedicated team
  • More clearly-defined objectives
  • Business model is more closed-ended

Why Outsourced Product Development?

Outsourced product development benefits: access to advanced technologies and professionals around the world, reduction of development cost and time, and IT process optimization.

Outsourced product development combines many benefits not only for startups but also for established companies. It helps to quickly organize the development process and make it run like clockwork. The main pros and reasons to start product development outsourcing include:

Technical expertise

Product development outsourcing lets you hire specialists of different profiles and vast experiences around the world, making the development team really strong and well-versed. Picking professionals already experienced in a particular domain with solid stack knowledge will significantly contribute to your product's quality.

Cost reduction

Perhaps one of the major reasons to start looking for outsourced software product development services is the reduced cost compared to in-house development teams. No expenses on hiring, hardware, workspace, software licenses, perks, and bonuses significantly lower development costs and allow for more efficient resource utilization.

Outsourced product development is also a lucrative option in terms of developer's hourly rates. As they can significantly vary globally, you can find the best cost-quality ratio without running out of budget.

IT process optimization

Outsourced software product development eliminates the need for HR activities, such as hiring, onboarding, and team assembling — everything is already done for you, and the team is ready to take off quickly. Additionally, there is no need for many management levels from your side: you can control the process at the higher level, while all micromanagement activities will fall on the development services provider's shoulders. Voila! You can entirely concentrate on your core business processes.

Faster time-to-market

Removing the need to hire and assemble a team, which may take months, frees valuable time that can be spent on product development. If you have a strict schedule and require the final product without delay, outsourced software product development suits your needs.

Best option for small businesses and startups

Startups can benefit from outsourced product development by receiving high-quality products quickly and at an affordable price. Startups value fast and high-class product development, as innovative ideas must be presented to the world as quickly as possible. Outsourced teams comply with these requirements, bringing fresh and original ideas to life.

Keeping control over development process

As a business owner, you remain in control over the outsourced development team during product development. You will receive reports, participate in meetings, and make final decision over the product design and feature set. The outsourced product development provider can offer flexible engagement models and ensure top-notch communication.

What Companies Use Outsourced Product Development and When?

Referring to outsourced software product development services providers has become a global trend in recent years. Both startups and businesses of every size and industry may profit from outsourcing talents.

The projected revenue in the application outsourcing market 2024 is $121.60 billion, with the United States generating the most revenue. Now, we'll keep a close eye on the conditions when referring to the development services provider may be necessary.

  • Software development is not your business specialization: hiring an outsourced software product development services provider is beneficial when your business lacks expertise in the development field. While third-party vendors build your software, you can prioritize time with more relevant tasks.
  • No in-house team or lack of proficiency: even when you have an in-house team to tackle daily activities, the software development process may require narrowly focused specialists or rare expertise your internal team may lack.
  • Tight deadlines: software development project outsourcing accelerates app building, saving precious time and being invaluable help in times of tight timelines.
  • Market barriers: launching products on the market may become an uneasy endeavor, especially in a foreign market. Choosing a team that can navigate you through market barriers and regulatory compliance issues is as valuable as gold. That is why outsourced software product development may suit this scenario best.

Companies by Industry:

  1. Software/Tech Startups: Outsourcing is a widespread practice across the tech industry and offers advantages for companies of all sizes. The key areas of expertise include software development, such as web and mobile apps, educational platforms, full-scale feature-rich products, and MVPs.
  2. E-commerce: Outsourced development can be advantageous due to the fast-paced and tech-driven nature of online sales. The main services include e-commerce store development, testing, quality assurance, integrations and features implementation, and mobile app development.
  3. Healthcare: Leveraging external expertise through outsourcing can significantly enhance healthcare product development, ensuring not just regulatory compliance but also the highest standards of quality. This includes healthcare software development, Machine Learning and AI Integration, and security audits.
  4. FinTech: Financial companies constantly innovate and create new financial tools and services. Outsourcing aspects such as app development, integration with third-party services, introduction of blockchain technology, and development of cloud infrastructure can bring significant advantages for the business.
  5. Retail: Outsourced product development can be a valuable tool for retailers looking to bring new products to market quickly, efficiently, and cost-effectively. The key activities to outsource are product design and development, sourcing, manufacturing, and quality control.

Types of Software Products Typically Outsourced

Software products include building apps within various domains, requirements, and scopes. We can find large-scale healthcare software development products, FinTech solutions, web stores, and more here. They come in different forms, such as Minimum viable product (MVP), Minimum marketable product (MMP), and Minimum loveable product (MLP). Discover the primary software product types you can delegate to outsourced product development.

Custom software development

When you need more than out-of-the-box solutions to reach your goals, be sure that custom software development has your back. It allows you to create tailored solutions that meet your and your client's needs without compromise.

From startups emerging with innovative ideas to established companies with no significant expertise in software development — outsourced software product development allows your business ideas to come true without redirecting many resources toward hiring and management.

Mobile app development

As the mobile app market continues to rise along with the number of smartphone users, you may consider developing mobile apps for your business. Mobile apps are not giving up ground. The market is expected to grow and be valued at $228.98 billion in 2023. Therefore, outsourcing mobile app development seems to be a reasonable investment.

Web app development

Building a website is another option for outsourced product development. Online store with fancy and engaging design, educational feature-rich platform, secure personal finance management web apps, and even more — entrust web app development to the professionals. The outsourced team will find the best ways to realize your idea.

Launching Outsourced Software Product Development Project

Outsourced software product development flow include defining business goals, choosing a reliable partner, considering budget, choosing a collaboration model, working out communication rules, and formalization of agreement.

How do you hire an outsourced software product development services provider? Follow these steps to find the best options for building your product.

  • Define business goals: determine where you are going and what you want to achieve. What do you want to create, and for what purpose? Software development project outsourcing can help you with organization and rearrangement of internal processes, while with customer-oriented outsourced product development, you need to know what value you bring to the customers and how you will reap the benefits from the product.
  • Choose a reliable partner: read the reviews on development companies, use particular rating and ranking websites, and look into outsourced software product development services provider's clientele and reputation. After choosing several options, schedule consultations to further discuss the issue and make sure that the company has the professionals with the tech stack and experience required for building your product.
  • Consider the budget: the product development budget influences the number of features you want to introduce, design, functionality, and more. Outsourced software product development allows you to find talents at more affordable prices without sacrificing quality and level of expertise. You will discuss the estimated price with the outsourcing service provider, or you can refer to IT consulting services to have a clear view of your future product and realistic price expectations.
  • Choose a collaboration model: time and material, fixed price, or a dedicated development team — select what suits you best. The fixed price model lets you determine the scope of work and price before kicking off. At the same time, in terms of time and material, you pay for time and effort spent on development. Hiring a dedicated team enables you to delegate product development to a team of professionals who will solely concentrate on it.
  • Work out communication rules: outsourced product development implies remote work, so set up an elaborate communication schedule, communication channels, and the number of meetings to keep in touch with the development team. Establish project management tools and development workflows for a smooth handover of project details.
  • Formalize the agreement: finalize a contract that outlines the project scope, deliverables, timelines, costs, payment terms, and Intellectual Property (IP) rights. Develop a security policy and have all potential partners sign an NDA to protect your confidential information during selection.

Overall, when choosing a reliable development company, prioritize research and communication with potential vendors. Keep in mind their reputation, look at their clients' reviews, and check the well-known software development companies ranking websites to get the whole picture.

Factors to Consider When Deciding Over an Outsourcing Company

To choose a reliable software product development partner, study their portfolio, discuss pricing, ensure there is no language barrier, check vendor's time zone and ask about post-launch support.

Expertise: Determine the expertise needed for your product and identify the business needs. What problems will your product solve, and what features are essential? If you do not have extensive experience in software development technologies, do not worry: service providers will quickly define the tech stack.

Portfolio: Examine the portfolio of your potential development services vendor. Look at the technologies they worked with and the domains in which products were developed, and check out for similar products the company has experience with.

Pricing: The cost of outsourced software product development services may vary depending on the region. Eastern Europe, Latin America, and Asia Pacific are the key regions to look for a provider. Eastern European developers are famous for their good English and have a working culture similar to the Western world.

Language: Good knowledge of English is one of the priorities when hiring outsourced product development teams. Look for a team with strong English language skills, especially if it's the project's primary communication language. Moreover, select a team that demonstrates cultural awareness and understands the potential for miscommunication due to language differences.

Time zone: The difference in time zones holds advantages and disadvantages, and it is up to you to decide which is preferable. Close time zones allow flawless communication and similar working schedules, while different time zones offer smooth workflow — in the morning you can contemplate the results your outsourced development team achieved in your out-of-office hours.

Tech support: Remember that each product has an extensive life cycle and may need improvements, updates, and maintenance. Determine whether the software development services vendor provides technical support after product launch.

Common Risks and Challenges Associated With Outsourced Development

Knowing the potential pitfalls in working with an outsourced product development team can help you to evade them — awareness is the key. No hurdle cannot be overcome with careful planning and thoughtful communication. Consider the following:

Work culture differences

Culture directly influences the way we speak, behave, and work, which can cause tensions in terms of communication, punctuality, and discipline. Despite all differences, you have one goal with the outsourced development team: to deliver a top-notch product. Transparent methodologies that promote smooth collaboration are key to overcoming differences. However, mutual respect and understanding remain fundamental.


Transparent communication fosters a collaborative environment where parties work together seamlessly. It is not only about English proficiency but also about staying on track in the software development process. To strengthen communication, you can schedule consistent meetings (video calls are preferred) to discuss progress, address issues, and answer questions; develop well-documented product requirements that are unambiguous and easy to understand; and be mindful of cultural differences and communication patterns to avoid misunderstandings.

Hidden costs

Despite being a cost-effective solution, outsourced product development can involve hidden costs arising from additional development time, sudden changes in the development process, and legal fees. A comprehensive cost analysis may help you overcome these expenses. Conduct it before development launches and have a clear vision of the product you want to build to prevent change requests.

Unclear product objectives

Vague specifications are not suitable for product development. Laying a solid foundation is critical to a successful software project. Before development starts, ensure you deeply understand the product's purpose and how it benefits your target audience. Invest time in crafting high-quality requirements that prioritize user needs. Collaborate closely with the development team throughout this process. Their expertise can refine your vision and ensure the final product meets your quality standards.

Poor project management

Effective development project management is crucial for a successful outsourcing partnership. However, communication gaps, mismatched expectations, and unclear processes can hinder progress. Clearly define upcoming tasks for each sprint and establish acceptance criteria for completion. Consider utilizing central project management tools that facilitate communication and track progress for both teams and Agile methodologies.

Outsourced software product development services by NEKLO

If you are looking for an outsourced software development service provider, consider addressing NEKLO. With over a decade of experience in the software development market, we have sufficient resources and expertise to deliver a project of any scale and complexity.

Our approach

Building an outsourced development team involves careful planning. When the client comes up with a product idea, we first analyze their requirements to pick professionals with the right technical expertise. We prioritize data security and client needs throughout the process, tailoring the team structure to the project. Our outsourced product development services ensure successful, timely project delivery and comprehensive maintenance and support.

Why choose us for product outsourcing

  • Vast expertise in e-commerce, fintech, healthcare,  education, and other domains.
  • 300+ products developed and supported.
  • Low people turnover, meaning your team won't leave or considerably change.
  • 15+ years of experience in software development.
  • 100+ software development professionals.

NEKLO's Success Stories

Here at NEKLO, we have extensive experience in outsourced software product development. As a reliable and reputable partner, we develop software products that are gaining attention around the world. Today, we want to share some notable examples of our work as an outsourced software product development services vendor.


SkinConsult platform developed by NEKLO

SkinConsult platform was developed by NEKLO at the request of a US-based innovator, empowering healthcare providers to deliver a modern and streamlined healthcare experience to their patients. The main idea was to connect skincare experts with the customers through a specialized platform.

Our solution streamlines access to specialists by allowing customers to purchase any service offered directly, eliminating the need for separate appointment scheduling. It eliminates a significant hassle for patients and empowers them to manage their healthcare conveniently. The main features NEKLO presented include an AI-powered platform, various communication channels, and seamless appointment scheduling.

Latvijas Aptieka

Latvijas Aptieka project delivered by NEKLO as outsourced product development.

NEKLO was asked to develop a web application to enable customers of a Latvian pharmacy to make purchases online. We created a Magento-based store with a unique design, ERP integration, and a custom loyalty program.

With clear communication and no language or significant cultural differences, the NEKLO team delivered a competitive, tailored, and feature-rich solution. The web store seamlessly connects customers with nearby brick-and-mortar drugstores via an interactive map with automatic location detection.