Cost of Offshore Software Development: Find Your Best Option

When companies explore the offshore option, it is undeniable that the concern over cost of offshore software development is overwhelming. One vendor quotes $2,500 as the cost of offshore software development per month per engineer, another asks for $4,500. Based on price alone, the former is obviously better. But is that true?  Which one is the actual better deal?

The lowest price tag doesn’t always mean the lowest total cost. And the cheaper one may not be a bad deal. 

Understanding the cost of offshore software development requires looking beyond surface-level pricing. Whether you’re planning to hire offshore software developers for the first time or reassessing your current partnerships, knowing how to evaluate true costs will save you from expensive mistakes.

In addition to advice on choosing your pricing mode and calculating TCO (Total Cost of Ownership), this guide will help you understand what truly costs your business, the labor cost benchmark for popular markets like Vietnam, and other relevant best practices for your project.

How Offshore Development Costs Are Actually Built?

What’s “Man-Month Rate”? The Unit of Offshore Software Development cost

A man-month rate (also called “monthly rate”) is what you pay for one engineer to work for one full month. Think of it like a monthly subscription, but for human expertise.

This rate typically includes:

• Engineer’s salary – their actual take-home pay
• Social benefits – health insurance, retirement contributions, and other legal requirements
• Office overhead – workspace, electricity, internet, and equipment
• Company profit margin – the vendor’s business sustainability cost
• Management layer – administrative support and supervision

In other words, a reputable vendor’s rate reflects not only the engineer’s skill but also their entire support system, quality control processes, backup resources, and organizational maturity.

What Factor Affects the Cost of Offshore Software Development?

Several factors can determine the final man-month proposal. Here are the 4 main elements that you should pay attention to:

1. Contract Structure

Depending on your requirements, vendors can suggest different types of teams and pricing models (i.e., Dedicated Team, Fixed-Price, Time & Materials)

Each will have different rates and be suitable for various types of projects. The next section will analyze them in detail.

2. Skill Level and Experience

The same as your enterprise structure, not all engineers cost the same:

• Junior Engineer (1-3 years): Handles straightforward tasks under supervision
• Mid-Level Engineer (3-7 years): Works independently on standard features
• Senior Engineer (7+ years): Solves complex problems, mentors others, and makes architectural decisions
• BridgeSE: A bilingual professional who translates not just language but cultural context and technical concepts between your team and offshore engineers. Their language competence also determines the cost of offshore software development. 

3. Technology Specialization

Common technologies like creating business websites using established platforms (PHP, Java, React) have stable, competitive pricing because many engineers know them.

Yet, there will be projects in need of specialized skills, leading to more premium rates, such as:

Artificial Intelligence (AI) & Machine Learning (ML): high demand, limited talent pool

• AWS certified Cloud Engineer
• Blockchain
• Embedded systems (software that runs in physical devices like cars or medical equipment) require both software and hardware knowledge
• DevOps (Automating software deployment and infrastructure) – critical for modern applications, but requires broad expertise

4. Currency Fluctuation and Inflation

Your contract might be in USD, but engineers are paid in local currency (VND, Rupee, etc.). When these currencies strengthen against the dollar, your vendor’s costs rise even if local wages stay flat.

Similarly, rapid tech growth is increasing salaries in emerging hubs (e.g., 10%+ year-over-year growth in Vietnam), meaning multi-year contracts need adjustment clauses to remain fair to both parties.

What can be the Hidden Costs?

Here’s the thing about offshore software development rates: the aforementioned ones are just the beginning. Real projects pile on hidden costs depending on how complex your build is, how clear your requirements are, and what compliance hoops you need to jump through.

The good news? Trustworthy vendors lay all this out from the start – that’s how you know they’re being straight with you. Still, for the most accurate pricing (and to understand why their proposal might look different from your back-of-napkin math), it’s worth having a direct conversation with your vendor.

1. Communication and Coordination Costs

Distance creates friction, plain and simple. Smooth coordination isn’t about avoiding inefficiencies; it’s about budgeting for these essentials:

• Requirement examination: Expect your product manager to spend 5-10 hours weekly ironing out details with vendors. Annoying? Maybe. But it saves you serious money later (fixing bugs after launch costs up to 15 times more than catching them early).
• Time zone management: Those 6 AM or 10 PM meetings aren’t just inconvenient – they eat into productivity far beyond the actual call time.
• Language and cultural gaps: Even small misunderstandings snowball into extra meetings, beefier documentation, rework, and additional review rounds. Worth planning for.
• Knowledge transfer: If your current system documentation is a mess (think: scattered records, unclear version control), you’re making life harder for future outsourcing partners or internal teams. Investing in proper documentation now pays dividends later.

2. Project Management Overhead

Keeping quality high means paying for proper oversight:

• Quality assurance infrastructure: The best vendors don’t just say, they actually invest a lot in training and certifications (SOC2, ISO) to deliver consistently solid work.
• Enhanced oversight: Outsourced projects need more check-ins, status updates, and quality reviews than when everyone’s in the same office.
• Compliance monitoring: Making sure vendors follow your security policies, coding standards, and regulations means regular audits, access reviews, and ongoing training sessions.

3. Infrastructure and Tools

Building professional software remotely requires real investment in technical setup, environments, and security:

• Development tools and access: Collaboration platforms (Figma, BrowserStack, Jira, Zoom…) plus secure system access add up fast.
• Cloud infrastructure: Staging environments, databases, and CI/CD pipelines can cost hundreds monthly. But they catch expensive problems before your users ever see them.
• Security and compliance: A GDPR compliance review runs $1,000-100,000. Sounds steep until you compare it to fines starting at €20 million or 4% of global revenue – suddenly it’s a steal.

Understanding Total Cost of Ownership (TCO)

The formula is simple:

A Real-World Comparison:

Let’s say you’re choosing between two vendors.

Vendor A charges $3,000/month. Sounds great, right? But their English isn’t strong, so every month you’re spending 20 hours clarifying what they mean and fixing misunderstandings. If your senior engineer makes $60/hour, that’s an extra $1,200 of your money each month.

Real cost: $4,200/month

Vendor B charges $4,000/month upfront – but they include an experienced Bridge SE who keeps communication crystal clear. Now you only spend 5 hours monthly on oversight (costing you $300).

Real cost: $4,300/month

The difference? Just $100/month more for Vendor B, but you get way fewer headaches, fewer mistakes, and better results. Sometimes the “cheaper” option costs you more in the end.

How Pricing Models Shape Your Real Cost for Offshore Developers

While unit costs tell you the baseline expense, the pricing model determines how the cost of offshore software development behaves during actual work. Choosing the right model can matter more than a 10-20% difference in hourly rates.

1. Fixed-Price: Predictable but Often More Expensive

The fixed-price model is straightforward: the vendor quotes one price for the entire project upfront. 

You know exactly what you’ll pay from day one, and they deliver within that budget and timeline. 

This might cover a set number of support hours, server resources, or data transfer limits – pricing is based on what’s delivered, not the hours spent building it.

Why Companies Choose It:

• You know what you’re spending: No surprises. You can budget accurately and plan resources with confidence.
• Everyone’s on the same page: Requirements and deliverables are hammered out upfront, so both sides know exactly what success looks like.
• Financial peace of mind: You can sleep easily knowing your cost for offshore developers won’t balloon unexpectedly.

The Downsides:

• Zero wiggle room: Once scope and price are locked in, changes become expensive and complicated. If your needs are unpredictable, you might pay for services you never use.
• Vendors pad their quotes: Because they’re absorbing all the risk, they often build in a cushion for unknowns – meaning you might overpay.
• Hard to pivot: If your project needs to evolve (and they usually do), this model struggles to keep up. That can lead to delays, frustration, or a final product that doesn’t quite fit anymore.

Best for: Short, well-defined projects that won’t change. For example: “Turn this paper form into a digital version with identical fields.”

2. Time & Materials: Flexible and Transparent

With time and materials, you pay for actual hours worked and resources used – nothing more, nothing less. The vendor provides a team that works hourly or daily, and you can adjust the project scope whenever needed.

Why Companies Choose It:

• Roll with the punches: Need to add features or change direction mid-project? No problem. No contract renegotiations required.
• Perfect for the unknown: This model thrives on uncertainty. Great for R&D projects or anything where you’re figuring things out as you go.
• Complete transparency: You see exactly where every dollar goes – hours logged, materials used, the works.

The Downsides:

• Costs can spiral: Without close monitoring, bills can balloon past your initial estimates fast.
• You need to stay involved: This model demands active oversight – tracking progress, managing resources, and constant communication.
• No final price tag: Unlike fixed-price deals, you won’t know the total cost of offshore software development until the work’s done. You’ll need a flexible budget.

Best for: Most custom software projects where requirements aren’t 100% clear upfront (which is most of them).

3. Dedicated Team: The Long-Term Value Play

The vendor builds a team specifically for your project, and they work exclusively for you for a fixed monthly fee. You control who’s on the team and what they work on – they become an extension of your in-house staff.

Why Companies Choose It:

• Your team, your rules: You pick the people, direct their work, and they’re invested in your success like real employees.
• Scales with you: Need more developers this month? Fewer next quarter? Easy to adjust as your needs change.
• They learn your business: Over time, they understand your industry, challenges, and goals deeply – leading to smarter solutions and proactive suggestions.

The Downsides:

• Overkill for short projects: The overhead of maintaining a dedicated team only makes sense for long-term work, not one-off projects.
• You’re the manager: Full control means full responsibility. You’ll handle prioritization, tracking progress, and clearing roadblocks.
• Risky if someone leaves: When team members become experts in your systems, losing them can hurt. Continuity matters.

The hidden benefit: Replacing an employee costs 1.5-2x their annual salary (per Gallup). Dedicated teams skip these “ramp-up costs” by keeping the same people.

Best for: Ongoing product development, system maintenance, or any partnership lasting 6+ months.

4. Value-Based: Pay for Results, Not Hours

Instead of charging for time or effort, the vendor prices based on the actual value delivered to your business – usually tied to ROI or specific KPIs you care about.

Why Companies Choose It:

• Everyone wins bigger: When pricing reflects real value, you’re happy to pay more because you’re getting more. Vendors are motivated to deliver real impact.
• Builds strong relationships: When clients see genuine results, they stick around, refer others, and become advocates.
• Adapts to reality: As market conditions or customer needs shift, pricing can flex accordingly.

The Downsides:

• Requires deep research: Figuring out “value” takes serious market research, customer interviews, and data analysis. Not every company has the resources.
• Hard to price right: Different customers perceive value differently, making it tough to find one price that works for everyone.
• Doesn’t work for commodities: If customers can easily compare your product to competitors on specs and price alone, you can’t justify premium pricing.

Best for: Projects with clear, measurable business outcomes where success can be tied to specific ROI or KPIs.

Quick Comparison

What are the Offshore Software Development Rates by Country?

The global offshore development landscape offers diverse options, each with distinct advantages suited to different business needs.

Vietnam has emerged as a highly attractive destination, combining competitive pricing with strong technical capabilities. The country’s government-backed IT education initiatives produce thousands of skilled graduates annually from prestigious institutions. With only a 2-hour time difference from major Asian markets and growing Japanese language proficiency, Vietnamese developers offer smooth collaboration alongside solid technical foundations. Recent market data shows Vietnam maintaining stable, below-average pricing while consistently delivering quality outcomes.

India brings unmatched scale and specialization – the world’s largest IT workforce with deep expertise in complex domains like AI/ML, fintech, and enterprise systems. Ranked first globally for digital innovation, India excels at handling large-scale projects that require advanced technical capabilities, albeit at premium rates reflecting this expertise.

The Philippines offers exceptional English communication skills stemming from its American colonial history. Filipino developers excel in customer-facing applications and roles requiring seamless English interaction. Manila ranks as the world’s second digital supercity, with the Philippines placing fifth among top digital nations.

China provides a mature technology ecosystem backed by decades of development experience. Its geographic proximity to Japan and similar time zones facilitate real-time collaboration, though rising domestic wages and geopolitical considerations affect market dynamics.

Bangladesh represents the most budget-conscious option, particularly for straightforward development tasks. While programmer rates remain competitive, companies should expect to invest more in project management oversight as the market continues building its offshore delivery maturity.

Myanmar, dubbed “Post-Vietnam” by industry observers, offers the lowest rates globally. However, infrastructure challenges and political instability since 2021 require careful risk assessment, despite improvements in major cities like Yangon and Mandalay.

Rate Comparison Table

According to offshore-kaihatsu.com, a specialized Japanese site gathering information about offshore development, here is the typical monthly labor rate in the popular offshore markets

Note: Bangladesh Bridge SE rates show pricing inconsistency in market data.

Source: Japanese offshore development market research (2024), converted at ¥150/$1

Key takeaways: 

The optimal choice doesn’t depend solely on price, but your specific requirements: technical complexity, communication needs, budget constraints, and project scale. 

Companies are increasingly finding that established markets with stable pricing and proven track records (i.e., Vietnam or India) offer the best long-term value, delivering professional quality, reliable infrastructure, and cultural compatibility for sustainable partnerships.

What are the Best Practices to Control Risk for an Offshore Project?

1. Avoid the Danger of “Too Cheap”

If a vendor’s price seems remarkably low compared to market rates, ask yourself: What are they cutting?

Common problems with unrealistically cheap vendors:

• Inexperienced engineers who create buggy code requiring expensive fixes later
• Poor project management leading to missed deadlines and scope confusion
• High turnover – they can’t retain good people, so you constantly train new team members
• Lack of transparency – vague progress reports hiding problems until it’s too late

Poor code quality or miscommunication about requirements can lead to significant rework, and the cost of fixing bad work often exceeds what you “saved” by choosing the cheapest option.

2. Invest in Clear Requirements Early

The single biggest cost inflator is scope creep – when project requirements keep expanding or changing without proper control. Spending an extra 2-3 weeks documenting requirements clearly before development starts can save months of confusion and rework later.

3. Standardize Your Communication Infrastructure

Choose collaboration tools (like Slack for messaging, Jira for task tracking, and Confluence for documentation) and stick with them. Train both your team and the offshore team to use them consistently. This reduces the “translation overhead” where information gets lost between different platforms.

4. Evaluate Vendor Maturity, Not Just Engineer CVs

Ask potential vendors about:

• Their quality assurance process (how do they catch mistakes before you see them?)
• Privacy Mark, ISO certifications, or other process standards
• Average team member tenure (high turnover is a red flag)
• How do they handle knowledge transfer when someone leaves

5. Start Small, Then Scale

Begin with a small pilot project – maybe 2-3 months with a small team. This lets you evaluate their actual working style, communication quality, and technical capability before committing to a large-scale engagement.

Conclusion: Choosing Partners, Not Just Vendors

Successful offshore development isn’t about finding the absolute cheapest option – it’s about selecting a partner who delivers reliable value aligned with your business objectives.

By thinking in terms of Total Cost of Ownership rather than just monthly rates, you’ll make decisions that consider:

• Communication efficiency and the time your team saves
• Quality, consistency, and reduced rework costs
• Long-term efficiency gains from stable teams
• Risk management and project predictability

Use the frameworks in this guide to compare vendors not just on their quotes, but on their complete value proposition. Request detailed cost of offshore software development breakdowns, understand which pricing model fits your project type, and choose a partner who optimizes the entire cost structure – not just the number on the first page of the proposal.

The difference between a good offshore partnership and a frustrating one often comes down to this single decision: looking beyond the visible price to understand the true cost.