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Types and benefits of Software Outsourcing

Updated on February 26, 2016

Software Outsourcing is an arrangement whereby a company contracts a software developer or software developing firm to develop software for its use as opposed to creating such softwares within the Company where it is to be used.. In modern corporate scenarios, outsourcing software development is the most ideal option for a firm that needs to create new softwares to optimize its operation. There are four types of Software Outsourcing Contracts, they include:

1. Time and Material Contracts:

The unique feature of a time and material contract is that the Client Company pays the software developing firm per hour and per material used in the process of developing the software. This type of contract is ideal for a situation when the software project is large and the time within which the project would be completed cannot be estimated.

2. Fixed Price Contracts:

Another type of software development contract is the fixed price contract. The unique feature of this type of software outsourcing contract is that the customer pays a fixed price for the entire project to be handled by the software developer. This type of contract tends to be favorable to the client company as such a company would only pay an agreed price irrespective of the time or material that would be expended on the project by the developer.

3. Revenue Share Contracts:

A revenue share contract is a type of software development contract that is most ideal in a case whereby the software to be developed is intended to be sold for profit. This contract usually allows the client company and software developer to reach an agreement in which no fees would be charged upfront by the developer in return for a percentage of the profit made from the sale of the software.

4. Hybrid Contracts:

An Hybrid Contract is a type of software outsourcing contract that combines features from any two of the aforementioned types of contract. Take for instance, when a client pays a fixed price for a software project whereby once the project is completed both the client and developer shares a percentage of revenue is a typical example of a hybrid contract.


1. It saves costs:

One of the benefits of software outsourcing is that it saves costs. When Software Development is outsourced to another company, it saves the client company the extra costs that would have been incurred if such software is to be developed by in-house staffs. When a company outsources software development, such a company does not have to incur the costs of hiring, training and maintaining expert employees for occasional software development projects.

2. It saves time:

Another benefit of software outsourcing is that it saves time. When expert software developers handle software development projects, they usually achieve the desired results faster compared to a situation whereby such a project is left in the hands of internal staffs they may be inexperienced.

3. Enhances accuracy and efficiency:

Software outsourcing enhances accuracy and efficiency which may not be attainable if software development projects are executed by internal staffs. Software development projects that are outsourced to credible IT-firms produces more efficient and accurate outcomes.

4. Reduces risk of failure:

When a company outsources software development to an experienced IT firm. It reduces the risk of project failure compared to a situation whereby such projects are undertaken by internal staffs of the client's firm who may not have previously attempted a similar project.


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