Outsourcing vs. Outstaffing Models: What is the Difference and Their Pros & Cons

What could this choice mean for your IT operation and your business?

When it comes to extending the capabilities of your IT staff, there are many ways to define the choices before you. In the United States, they call it hiring a contractor. In Europe, many try subcontracting or offshoring. In Australia, it’s talent outsourcing.

But no matter what term you use to define it when you have more IT development needs than your current staff can handle, you need to hire more help. And this is when knowing what is outsourced product development and how it differs from “outstaffing” comes in handy.

Increasingly, companies are turning to outside vendors both at home and abroad. And when you consider outsourcing or outstaffing, you’re considering improving the technical capacity of your project, adding more third-party expertise, and ensuring that all deadlines will be met.

Consider these recent statistics from Grand View Research, Inc. The company’s market analysis concluded that the global expenditures for outsourcing and outstaff will reach $936.6 billion by 2027 – a rate that is expected to grow by 7.7 percent year over year until then.

So, let’s overview both models, outsourcing and outstaffing advantages and disadvantages, and more to help you make the right choice!

What is an IT Outsourcing Model?

IT outsourcing can be complex, but it is also one of your company’s most important decisions. While you may know what you want to accomplish, deciding how to get it done is difficult.

In general, outsourcing is when you have an idea, but there is no way to implement it on your own. You don’t want to bother and establish a whole IT department; instead, you just want to come to another company with your idea and get an application or website ready, paying a certain amount for it.

This scheme of work is suitable for everyone:

• For start-up owners. For example, you need to file an MVP to receive investments, or you just received investments and want to spend them wisely to make an application, website, or other product.
  
  Outsourcing is a perfect option for startup founders who don’t want to dive deep into the technical details of the projects and start the software development process as soon as possible. It’s a good option for those who don’t have enough time to spend on their project development and those who don’t want to lose control over their business. Outsourcing is also useful for small companies that just want to try out new ideas because, with outsourcing, you can simply test your idea and later decide whether it should be developed further or not.
• For owners of a business that already works and brings you money but you want to make it more digital. ProCoders has one of very good outsourcing examples in our case studies: RLM Jobs. Before COVID, the guys were running an offline transportation business. However, after the covid hit, they had to make a website where drivers could fill out all the forms and upload their documents to avoid going to the office. They used our outsource UI/UX design services as well as Discovery phase service and dedicated team.

If you already have a business, hiring web developers outside the company for a one-time project or task can be more cost-effective than hiring an entire IT department for ongoing support.

What is an IT Outstaffing Model?

Have you ever wondered about “outstaff” meaning? Usually, IT specialists and businessmen use the word “outstaffing” meaning that it is a type of remote employment where a company is responsible for all, or nearly all, of an outstaffed employee’s time. So, the definition suggests that an outstaff team member would be dedicated to one client rather than working from project to project.

This allows a client to “employ” a dedicated IT outstaff team member. At the same time, the IT services provider acts as the official employer that pays benefits, bonuses, equipment, holiday pay, and employer taxes.

When you compare outstaffing vs. outsourcing, you’ll find that outstaffing can feel like you’ve expanded your staff without the headaches of taking on long-term employees.

So, what does this type of work arrangement mean to your business, and how your outstaff project is handled?

There are two outstaffing models for paying for and managing your outstaff team. First is the “cost model” and then the “cost plus” model. We’ll discuss both here.

In a “cost” outstaffing model, the client pays one flat fee to an IT services company to get a part- or full-time member for their company’s outstaff team. With that fee, the informational technology services company pays the team member’s salary, benefits, bonuses, equipment expenses, etc. It’s all rolled into one.

The amount an employee gets paid either for salary or any benefit extras, is usually not disclosed to the client, as the information technology services provider can disburse that money as it sees fit. The benefit is that you always know the exact amount you will pay monthly, and you’re spared the management hassles of administrating your outstaff team.

If you’re looking to do the cost-plus model for outstaffing development, you’ll get more say over how your outstaff team members are paid, but you may see more ups and downs in your expenses.

Under this model, you pay for your outstaff team members’ salaries, buy their computer equipment, pay bonuses and overtime, and pay cost benefits. You don’t do this directly, as the outstaff team member is still an employee of your IT outstaffing provider.

However, they will bill you for these things, and you will be responsible for paying them. It’s an arrangement that can work smoothly, but you must keep your HR department apprised of your outstaffing development plan and ensure the engagement rules are clearly defined.

Why Businesses Prefer Outsourcing and Outstaffing

There are many reasons for the trend “outsource vs outstaff” growth: the expense of hiring permanent IT staff and a shortage of qualified workers.

Why do companies look for IT talent outside their own organizations? The cost of outsourcing and outstaffing, primarily. Using an outside vendor saves not only benefits and overhead on employees but base salaries for IT workers when you combine outsourcing with offshoring to countries with a low cost of living.

When companies were asked why they were using outstaffing or outsourcing for their IT talent, they responded:

• Expertise. You may need specialized expertise that your company doesn’t possess in-house, such as knowledge of decentralized finance, which becomes more popular daily. When you outsource those tasks, you get access to skilled professionals who can do the work quickly and efficiently so you can focus on other aspects of your business.
• Fresh ideas. Companies are increasingly looking for ways to improve their performance in terms of quality and efficiency. They want to find new ways to do things better and faster than they have been doing before. Usually, companies choose outsourcing or outstaffing software development, but many other spheres are also popular for this, such as marketing and recruiting.
• Deadlines. One reason why businesses prefer outsourcing and outstaffing is that they need someone who can meet deadlines and deliver on time. If there is a project that needs to be done by tomorrow morning, then it would be better to hire someone else who can get it done overnight than waste time trying to do it yourself. This way, your company will not lose money due to missed deadlines.
• Fast scaling. Businesses are always in a race to scale their operations, expand their market share, and grow their customer base. They want to do this as quickly as possible without compromising quality, which is one reason they outsource or outstaff their IT needs.

Difference Between Outsourcing and Outstaffing

It can be hard for a company to weigh its IT project options. To outstaff vs outsource – which path should you choose?

At ProCoders, we usually ask our clients to think hard about the kind of outstaff projects needed. Will you truly have enough work to keep one or more people occupied full-time, year-round? Do you have the capacity to bring that person in as a “vendor worker” or “contract worker” within your company? Do you want access to this worker as a manager, working with them and controlling their workflow daily as if they were a member of your ongoing IT staff? Then the outstaffing model might be for you.

Sometimes, when deciding between outsource or outstaff, outsourcing will be the clear winner. Outsourcing will be the right option if you have occasional bursts of IT needs, whether to build a new app or shepherd the company through major software outsourcing and outstaffing transitions.

In this case, your IT services vendor can quote you what it will cost to work with their IT resources for the duration of your project. They handle all the management of their team resources, with a client liaison that helps work with you on a business plan.

However, we want to share a secret with you: in 80% of cases of the fight between outsourcing vs outstaffing vs working with ProCoders, the latter will always win. The reason is that we always provide our clients with the best outstaffing development team! Everything brilliant is simple.

Outsourcing Example:

ProCoders do not outsource, but we have our own service that can fit your business requirement better: discovery phase + dedicated development team.

The discovery phase is a critical step in your process. At this stage, ProCoders are making a development plan. We help to estimate your project as accurately as possible, but you should understand that even in the most accurate measurements, there are errors. And even more so in development – details and nuances can emerge that were impossible to foresee. But we plan to aim for 100% accuracy as much as possible.

After compiling a discovery phase, we can select a team for you that will work under your supervision. ProCoders teams manage themselves, but you, as a client, still control the process: you have clear prescribed metrics for success, deadlines, and budget, so unlike classic outsourcing of software development, you have guarantees written in an official document.

One of the most prominent examples ProCoders has in our experience is the software development for Dryft. For the Discovery Phase, ProCoders worked with Dryft’s management for 4 weeks to conduct an extensive survey of requirements needed for each of the app’s functions, and weigh options for programming languages, plugins, platforms, and widgets. The team considered options for their versatility, interoperability, cost, and function. Once the right tools were identified, a work plan was assembled with an eye to speed and maximizing the budget.

After creating a favorable impression with their initial Discovery phase of Dryft’s app, ProCoders was hired for an additional activation. The ProCoders team worked seamlessly with the UX/UI designers at Dryft to create an app that delivered on the user experience they were trying to achieve. The arrangement allowed ProCoders staffers to augment the Dryft staff for as long as they were needed.

Outstaffing Example:

One of the perfect outstaffing examples is ProCoders’ collaboration with AxisPoint/VSimple. When AxisPoint could not find enough local engineers in their home state of Kentucky, they reached out to ProCoders for help. ProCoders answered the call with an IT Staff Augmentation Services proposal that allowed the CTO management team at AxisPoint to manage the programmers ProCoders provided directly. This way, AxisPoint/VSimple saved both money and time on hiring.

Outsourcing Pros and Cons

Like any business strategy, there are key differences between software outsourcing and outstaffing. And there are pros and cons to be considered talking about outstaffing vs outsourcing, too. Here are what we consider to be some of the key benefits of outsourcing, as well as drawbacks of working with an IT outsourcing model. Other than that, you’re more than welcome to check all the outsourcing software development pros and cons.

Advantages of Outsourcing:

• Code quality is the vendor’s responsibility. Vendors should be responsible for quality assurance and ensuring the coding fits your project parameters. No daily management outputs are necessary from you at a client level. And that’s a big plus.
• Day-to-day management is not needed. Vendors provide you with turnkey service. They coordinate resources between all the IT talent working on your project, from your internal staff to their outsourced team. They manage schedules, quality assurance, deliverables, and communication.
• Your vendor handles HR. Need more people? Or less? They handle scheduling and recruitment, as well as employee taxes, payroll, benefits, and so much more. Get only the help you need when you need it.
• No hardware/software purchases are needed. Your outsourced IT team will need hardware and software to complete your projects, but those expenses will not be directly on your expense ledger. Your vendor will be responsible for all the costs of those expenses, and this will most likely be factored into the estimate for their work with you.

• A wider, more interchangeable variety of resources is available. When you work on an outsourcing basis, it is easier for your vendor to bring in various specialists to your project for just an hour or two. When you outstaff, the vendors you choose are tied to your company’s work similarly to a full or part-time employee, so you have to stick with your resources. The flexibility that outsourcing offers can be a key deciding point for many clients.
• Faster turnaround times. With more resources available at lower rates, it’s easier for outsourced developers to meet deadlines that might be impossible for your existing team to meet without overtime pay or sacrificing quality assurance procedures during crunch periods when a lot is going on in multiple projects at once.

When you outsource software development, you can be sure that only professionals work on your project. This ensures that they are experienced in what they do and they have all the necessary skills to complete any task accurately and timely.

Disadvantages of Outsourcing:

• Control is with the vendor. This is the flip side of our “pro” listed earlier. If you are a client who likes to have a hand in the day-to-day activities of coding, planning, and scheduling, outsourcing may not be for you.
• Outsourcing is more expensive than outstaffing. All that management and turnkey service comes at a price. In an outsourcing agreement, you must pay by the hour for the help of the workers and the outstaffing project management team assigned to coordinate your account. Many vendors may charge you a higher hourly rate for a simple project but may lower their rate when they know you are staying around for greater projects in the future.
  
  So, before choosing between outsourcing and outstaffing (for example, in terms of software development), compare their different pricing models.
• Reliability. you never know the company’s proficiency level until you start working with it. You can only trust an outsourced developer if they have a solid reputation and good reviews from other clients. If your outsourced company has no reviews or poor ones, then there is no way for you to judge their quality.

• You don’t have direct contact with all members of the team, which increases the probability of being cheated. This is because there is no direct communication between you and your outsourced developer or designer, so it becomes difficult for you to know exactly what they are doing or how much time they are spending on your project.
• It’s hard to keep an eye on all the processes involved in your project. You may find that your contractor is not doing what he promised, or worse, he might be overcharging for his services.

Outstaffing Pros and Cons

Considering information technology outstaffing services, it’s important to understand the ins and outs, as well as benefits of outstaffing model and how to manage your outstaffing team.

Advantages of Outstaffing:

• Flexible hiring model. Outstaffing is the next best thing to having your own auxiliary staff. Staff resources are dedicated to you and your IT needs, while the vendor handles payroll.
  
  When you outstaff your work, you can easily add employees to your project and as easily disconnect them. For example, if you need a designer for a month, you are given one for a month; if you need an additional developer until the end of the project, you are given a developer. Everything is solved within the framework of cooperation with one IT outstaffing company very simply and quickly.
  
  Besides, it is possible to choose from many specialists in various fields of activity — from front-end developers to crypto specialists. Such flexibility allows ProCoders to find exactly what you need regarding quality, cost, and deadlines.
  
  You do not have to hire an employee or engage in internal training — our specialists will solve all these problems for you at once!
  
  It also means that you don’t have to worry about the legal issues associated with firing people — no employment contracts, benefits, or other obligations exist. You can just tell someone they’re no longer needed without consequences or obligations.

• You have daily control over the development process. The decision to outsource vs. outstaff often comes down to this. If you need more staff but can’t afford to hire them into your organization, outstaff development is the next best thing. You’ll be able to work with your vendor resources as if they are your own team, giving them daily interaction and instruction and hardwiring them into your development process with your own employees.
• Full Access. When people wonder what outstaffing is and why they would choose to work this way, the answer lies in having more day-to-day, hands-on management. In this outstaffing model, you work as the project manager. You coordinate resources. You handle the quality assurance of the development process.
• Lower costs. Because the client is handling so much of the heavy lifting on management, the hourly rate of the outstaff team members is usually lower, and if you eliminate the hours of project management, your vendor usually adds the estimate. The savings can be significant if you’re up for the extra work.
  
  Outstaffing also helps you avoid hidden costs: instead of renting an office, hiring employees, paying for their insurance, bonuses, etc., you can organize everything remotely and pay only for the project development itself rather than for the employee themselves too.
• The work is done quickly. When you hire an expert to do your programming, you don’t have to wait for them to learn the ropes of your business and get up to speed. The developer will know how to create programs compatible with your system, so you won’t have problems integrating the new app into your website or other programs.

• Reliability. Finding a team that can be as reliable as a remote outsourcing company is hard. This is because the team you hire is not your employees but your contractors. As long as they are paid well and have incentives to work hard, they will never leave your side. They can set their own schedules and work from anywhere they want. You won’t have to worry about them leaving for another job or being too busy with other projects to finish yours on time or at all!
  
  This way, it’s much more profitable to hire a specialist provided by an outstaffing company rather than a simple freelancer from Upwork, Fiverr, etc.
• Search. You just need to send your requirements and get the CVs of those interested in your project. It wouldn’t be just freelancers you have found on the freelance platform, but real professionals who were already interviewed and tested by specialists.
  
  This way, you can save time searching for a specialist and focus on the development process.
• You can be sure of the technical expertise of your contractors. The quality of code you get from outsourced coders is much better than that from amateur developers. The reason for this is quite obvious – companies hire only experienced developers with good knowledge and skills as they are worried about their reputation. If something goes wrong with a particular person, you can just fire them. However, in terms of an outstaffing company, if such a situation happens, then it loses its reputation, trust among clients, and, this way, the whole business. So, you get much more guarantees.

Disadvantages of Outstaffing:

There are significant challenges to any outstaffing model. The most common ones ProCoders can see are:

• Failure to provide good communication channels. With vendor staff often working remotely, or at least separately from the rest of your team, communication channels are important. As the client, you’ll have to ensure your outstaff team is fully part of your project management software system and their reporting is transparent to the rest of your corporate team. It is also key to setting clear expectations and staying involved daily, just like your corporate-based IT team. At ProCoders, we work hard to develop a direct communication system with our clients, using tools like Zoom, Slack, Skype, Google Meets, or even the company’s own project management systems to ensure quick access to our team.
  
  Besides, specialists at ProCoders always reply to you within 15 minutes during working hours any time you write them. Even if you’re located in a different time zone, we always try to discuss when you’re comfortable being in touch with our developers, so the communication goes smoothly and everyone feels well about the work done.

• Project responsibility lies with the client. Depending on the time you have to manage your IT outstaffing services, this can be a pro or a con. It’s up to you to decide—what’s easier to invest, your budget or your time?
• Price. It can be higher if you want to collaborate with a company with lots of good feedback and a high reputation. This is because these companies have more customers than smaller ones and can afford to hire more qualified developers.
• Hidden costs. To hidden costs, we can include:
  
  – Overtime work. Usually, you sign a contract or a particular amount of hours. However, if you need your developers to work overtime, you will need to pay for it additionally;
  
  – Rate change. If you work with an outstaffing company for a more or less long period of time, mind that the rates may be changed. Nowadays, the economy is unstable, so rate change is common;
  
  – Employee change. Some outstaffing companies may change an employee for your project without even informing you. Of course, it’s not common, but we decided that you should know that such situations may also appear;
  
  – Senior = middle and middle = junior. This is the worst case that any client can imagine, but sometimes it happens too. Some outstaffing companies may charge you for a middle developer while actually providing you with a junior one. For it not to happen, you should always look through the company reviews and don’t hesitate to contact their previous clients directly.
  
  In the case of ProCoders, we don’t hide our clients, and you can look at some of the projects we have already done.

Outstaffing vs Outsourcing: What Would Be Best for Your Project?

Resources. When you decide between outsourcing or outstaffing or comparing IT-managed services vs. staff augmentation, it’s the only criteria that matters. Do you have the internal resources for the daily management of a team of vendor-employed programmers? Do you have good internal processes for assigning and following up on projects?

Is it easy to loop outsiders into your project management software systems? Can your staff work with outside developers seamlessly? If the answer to all these questions is no, you should seriously consider outsourcing instead of outstaffing. You’ll need the turnkey convenience that outsourcing provides.

However, if you are considering outsourcing, you’ll need to ask yourself different questions. Do you have the extra budget outsourcing will require? Do you have the flexibility to let an outside vendor take the daily reins of your IT development, even if it is just for a project? If the answer to either of these questions is no, you should probably consider the long-term control you’ll get with outstaffing.

There are many options to consider in the outsourcing vs outstaffing debate. But truly, all the pros and cons boil down to this. Outstaffing is better for clients with significant, long-term needs that need day-to-day control of their vendor team. Outsourcing is better for clients with shorter-term needs that necessitate turnkey service from their vendors.

Outsourcing pros	Outsourcing cons	Outstaffing pros	Outstaffing cons
100% responsibility on the developer’s side	Poor quality of the final product is possible	Customer control the quality of a product	100% responsibility for a result is on a customer
(Almost) no management work	Less control	High control	Additional management efforts
	Higher costs than with outstaffing	Lower costs than with outsourcing

How to Find an Outstaffing or Outsourcing Partner

Working with an international outsourced or outstaffed vendor team can mean huge savings for your business – in time, money, and headaches. However, how to manage your outstaff team? It’s quite easy: the key is to find the right team.

If you’re looking for a partner for outsourcing or outstaffing, Central Europe, Estonia, Croatia, Portugal, and Albania can be good directions for this. A quick internet search can find any number of companies that are more than willing to work with your company. Many of them, especially those in lower-cost countries like Estonia, Albania, and India, can offer you enormous IT outsourcing capacity at a fraction of the cost of working in the US or even much of the main part of Western Europe. The key is to ask the right questions, such as:

• Does your team have a fluent command of English? This is the key to avoiding important miscommunications. At ProCoders, all of our developers are language-tested, as we only hire people who speak English. If a specialist is technically very good, but their English level needs to be higher, we hire them, but before putting him on a project, we provide them with English language courses.

• How many time zones separate you? To ensure you can talk to your team during reasonable work hours, your team should be no farther away than seven to eight hours. At ProCoders, we take that extra step, often starting our official workday for that client at 12 p.m., ensuring more hours are available for our team to work directly with a client’s staff.
• Can you provide references? Don’t let your vendor plead “client non-disclosure.” They should be able to send you a portfolio of their work and have clients who are ready to speak with you directly if need be. You can look through the ProCoders cases here.
  
  Moreover, we give our previous clients’ contact details, so you don’t have to rely on online reviews. You can talk to a live person or even meet them – we have partners from the USA, Sweden, Britain, and other countries.
• How do you handle billing and record-keeping? Your vendor should be able to work seamlessly with your accounting department and comply with all your country’s accounting laws.

Software Development Outsourcing and Outstaffing with ProCoders

If you’re on the fence about your ability to outsource vs outstaff, ProCoders can help you choose the information technology outsourcing services. We can work with your team as an outsourced or outstaffed resource. We’d love to talk to you about your needs today and create a proposal specifically for your business needs.

Whether you need to create your project from scratch or give a boost to your existing product – ProCoders is always here to help. With our outstanding discovery phase service, which will help you find out all the issues before you will face them, optimize the budget and plan further steps, we have already saved a lot of businesses from failure.

However, you also have another option: even if you feel that you don’t need any discovery phase, ProCodes is always happy to provide you with a dedicated team that will meet all the deadlines, improve your business from the technological side, introduce fresh ideas basing on their expertise and give a fast scaling to your pet project.

As an IT vendor based in Central Europe, Estonia, Croatia, Portugal, and Albania, we have access to a deep well of programming talent in various specialties and expertise levels. The balance between quality and costs is the philosophy that ProCoders follow.

We’d love to talk to you about your digital needs!