In this digital transformation, the understanding of the IT outsourcing models is a must, as the demand for IT solutions is on the rise now.
According to stats provided by Statista, in 2019, the global market of outsourced services grew by $92.5 billion.
Businesses in the USA and Europe prefer to go for offshore options while planning to outsource. That said, the global market of IT outsourcing will keep on increasing in the coming years.
Shopify development companies are not out of the game. It doesn’t have to be a budget concern, sometimes deciding to work with an outsourced company is strategic. Outsourcing partners apply their unique expertise to project and hand over the valuable support to their clients.
As a client, choosing the right cooperation model requires you to understand the possibilities and limitations of each one. That’s why we’re going to explore frequently used IT outsourcing models, their pros and cons, and the typical projects they fit in via this article.
Here’s what we’ll cover in this blog post:
What is outsourcing?
Outsourcing is using external vendors to provide IT-based services like a website, software, applications…
In this case, when you don’t have an in-house Shopify team, you will need to look into outsourcing. Of course, there are factors to consider when outsourcing: costs, geographic, and your quality criteria.
Typical IT outsourcing models
In this post, we’ll consider 3 models for general software development outsourcing, that are: Time & materials, Hiring a dedicated team, and Fixed-price.
A fixed-price is an outsourcing model that you agree to pay a fixed amount of money for a specific project.
At first, you might think this model is ideal as you’re guaranteed to meet your budget. Here comes the catch, though. A fixed price option only works for projects with fixed and precise requirements. That said, it won’t be a good fit to develop agile-based product principles, the flexibility is prioritized. If your project is short and well-defined, fixed-price would be perfect for you.
- Predictable for financial decisions.
- Low risk for clients.
- Low level of control needed.
- Very little flexibility.
- Projects need to be carefully and precisely planned.
- Tech used in projects should be chosen and tested before the estimated budget.
- Short projects.
- One-time and well-defined projects.
Time & Materials (T&M)
In concise, T&M means you pay for the number of labor hours and material costs.
This outsourcing model prioritizes the end product’s quality. There would be changes throughout the development process. In other words, the final version of the product might look slightly-to-totally different from your initial sketches. That said, the development team that works based on Agile principles prefers this collaboration method as they’re not bound by the fixed plan.
- High flexibility.
- Transparent progress.
- Client acts as a PO and takes an active part in shaping the end product.
- Client can play different roles in projects and only pay for what the outsource team actually does.
- Not easy to estimate the total price.
- Long projects.
- Projects with unclear requirements/requirements are likely to change.
In this model, the IT vendor provides you with a dedicated team of employees to work on your project.
This model could be an answer to the uncertainty that comes with T&M-based collaborations. Having a dedicated development team at your disposal is as close to having an in-house expert team as possible. It’s in the best interest of the outsourcing company to handpick a group of individuals that work well together and can successfully deliver your project. The team may include not only software development specialists but also testers, analysts, or project managers. The project budget is calculated based on the roles and expertise of people that are a part of your team.
- Client can work with people understand project well.
- The outsourced team may feel like an in-house team.
- High-transparent project-related activities.
- Not for very short projects.
- Client may need to wait for the outsourced partner to hire the right people.
- Long projects.
- Projects with initial requirements and assumptions.
- Agile development process.
To sum up, you can look at the following comparison to have a better understanding on each method:
Medium & Large
Project budget and timeframe
Control over the process
Full (personally/via dedicated PM)
Outsourcing models at HappyPoints
At HappyPoints, our collaboration models are similar to the ones mentioned above, but in a more specific way. After years of experience, we optimize these models to fit clients’ requirements and budget. Let me explain right below:
- Partly control over workforce.
- Milestone payment
- Fit one-time projects.
- Fit unpredictable workload.
- Defined working hours.
- Less supervision needed.
- 100% down payment.
- Valid within 1 month.
- Fit low but regular workload.
- Add more members based on needed skills.
- 160 working hours/month.
- High control over workforce.
- Split payments (based on agreement).
- Fit high & regular workload.
- Full team of specialists: Developers, Project manager, Testers, and Analysts.
- Proper control over workforce.
- Own development team remotely.
If you choose to follow the Project-based model, you may find it similar to the Fixed-price. However, our clients can still control the workforce somehow, because we know there would be changes in requirements over the development.
We divide the project timeline in milestones to make room for requirement variations, and the client can pay based on those milestones.
If you have one-time projects, but the workload is unpredictable, this would be a perfect fit for you.
Support package is somewhat similar to the T&M model. While discussing, a number of working hours will be defined based on your requirements and budget. This model is low risk for you as financial decisions and work requirements are predictable and clear.
Support package seems a good match to projects that have low but regular workload. That said, you won’t need to supervise the work a lot.
As this collaboration seems alike to the T&M model, then we will work on monthly purchase method.
We can’t deny the one of the advantages of Staffing is that you can add more members to your in-house team based on their skills. This may sound like the Dedicated team model above.
At HappyPoints, we commit 160 working hours per month for this collaboration method. As a client, you have proper control over the workforce as you’re managing your own team (and also our people). The payment is split based on a signed agreement we would discuss.
If your project has a high and regular workload, Staffing is worth considering.
ODC (Offshore Development Center)
At HappyPoints, we offer our clients ODC (Offshore Development Center) model, a more advanced form of Staffing.
With this model, we provide you a team of all kinds of specialists for a project: Project Manager, Developers, Testers, and Analysts, based on the project requirements. Its name tells everything, the offshore team can work from any country. In other words, if you choose to go with ODC, you can own your team remotely. That means, you have a high supervisor on the workforce as the outsourced team is yours.
Support package – Fixed price
A fixed price is decided between both the parties before the work commences and the work has to be delivered within the said fixed time.
Low but regular
Project-based – T&M
The software development project does not have a pre-set goal and the project needs to have a lot of flexibility. This model offers the needed flexibility to both the parties.
Staffing – Dedicated team
This kind of arrangement helps you hire a dedicated team for a specific period of time. You will be able to leverage their expertise in the best possible manner.
High & regular
ODC (Offshore Development center) – Dedicated team
A development company provides you a team of all kinds of specialists for a project: developers, testers, analysts, or project managers. They can work from any country. You can control your own development team remotely.
High & regular
I’ve just introduced to you the 3 typical outsourcing models in the IT industry. You don’t have to rely on a single outsourcing model, even if you’re working with one service provider. Most IT companies offer some flexibility when it comes to choosing a collaboration model, and HappyPoints is not an exception.
Your choice of which outsourcing model to go with will be influenced by the project’s budget. Apart from that, try to base your decision on the following factors:
- The project’s scope.
- The estimated duration of the project.
- Your preferred project management methodology.
- The level of technical innovation in the project.
When drawing up a contract with an outsourcing company, take all of these aspects into account. Ideally, you should get some support from your potential partner when making that decision.
If you need to discuss different approaches to Shopify outsourcing and get some advice as to which model is the best for your current needs, just drop us an email to schedule a meeting with one of our experts. Having delivered projects within all of these pricing models, we have lots of expertise when it comes to their strengths and weaknesses.