What Does MVP Development Cost in 2021: Inhouse Vs. Outsourcing

Calculating the costs of MVP can be quite tricky due to multiple factors involved. For a new tech venture, or startup, these can vary from €100.000 to €250.000 when considering inhouse development. Whereas, outsourcing to an agency can lower this cost significantly to somewhere between €20.000 and €75.000.

Classic battle of in-house vs. outsourcing

Are you an entrepreneur thinking of launching your next multi-million dollar startup idea? Are you also struggling to estimate whether your budget can afford inhouse software development of your MVP? Or should you consider outsourcing it to an agency? We have been in the same boat and went through all those challenges. In this article, you will learn how to choose the right method for your MVP development based on how much they cost in terms of $$$ and time, even if you don’t have a technical background. So let’s get started!

Tooltip Box: What is Minimum Viable Product even?

Eric Ries, in Lean Startup, defines MVP as a version of your (new) product which allows your team to collect the maximum amount of validated learning about customers with the least effort (in terms of time and money). The intention of using an MVP approach is to lower the risks of new entrepreneurs by validating the value offering of your product through actual customers, without actually building a final version of it.

“If you are not embarrassed by the first version of your product, you’ve launched too late” — Ried Hoffman (co-founder LinkedIn)

MVP Development Cost Calculations: An Overview

Three main factors contributing to the cost: Scope, Time & Resources. There is usually a trade-off involved here where either the Scope remains fixed and time & resources are variables, and vice-versa (the classic-triangle).

1. Scope: Defines the overall work to be done — including features and functionalities — that acts as the final deliverables of the project .
2. Time: Defines when the project (scope) will be delivered to the market and usually consists of multiple releases and milestones
3. Resources: Mainly includes the budget and the number of team members required to complete the project and execute it.

For many new startups, they have limited resources and time since the priority is faster market entry. This is where the MVP approach comes into play. Using the bare minimum scope of the entire application, release the product to end users and validate each feature before investing more money and time into it.

For the sake of simplicity, let’s firstly define the type and size of MVP or — software development — project, which would make the comparison much easier. Since we are talking in the context of MVP, it should qualify as a “new project” where the final product type will be a web application. The overall project size will be medium-to-large as it does not make much sense to have an MVP for a small sized project.

MVP Development: Inhouse

Costs Break-down

Development Team Size: Almost every project requires a minimum of three roles: Project Manager/Owner, Developer & QA Tester. This is absolutely the bare minimum since all these three roles are mutually exclusive. You can however also require a few more roles such as UI/UX, Cloud Architect (DevOps) and a Business Analyst. But let’s keep this simple and focus on the first three roles.

1. Developer: On average, the starting salary of a Full-stack developer in the Netherlands is €62732 /yr (Source: Glassdoor).
2. Project Manager/Owner: This role is very crucial and quite different from a usual project manager. Technical projects require having a project owner who at least is familiar with agile product development and can translate your business requirements into technical requirements. Average base salary: €45055 /yr (Source: SalaryExpert)
3. QA Tester: Average Base Salary = €70416 /yr (Source: SalaryExpert)

Project Timeline: Most medium sized MVP projects can have a time frame of 8–12 weeks depending on the complexity of the project. For example, a web application for Content Management can take up to a minimum of 8 weeks. In case of inhouse development for MVP projects, you need to add a minimum of one extra month for their recruitment.

Other Costs (Licenses, Hosting, etc.);

Hosting (and Web Services) : €50–150 /mo

Tools (such as JIRA, UI/UX Designing, APIs): €50 /mo

Database: €60–100 /mo

Pros of inhouse development:

1. Ease of communication: No language or cultural barriers. If you recruit your own team locally, you will certainly have a much smoother communication process where it is easier to convey expectations and responsibilities.
2. More control (and transparency): Your personal deep involvement with the project means you can have more control over the process. We advise you to be cautionary here. More often than not, an excessive control over the deliverables can backfire as non-technical personnel usually do not have full understanding of the time and effort involved in a certain task. Whereas, the technical personnel usually don't focus on the business implications of their deliverables.
3. Security: It is more likely that your in-house software development team transitions to your core management team. That can ensure a higher level of security and certainty when you need to scale the product further.

Cons of inhouse development:

1. Extremely expensive: Remember the three variables that form the basis of your MVP costs? When releasing your new idea, it is hard to control both the time and resources if you choose inhouse development. It takes a LONG time to recruit the relevant talent before you find the ideal candidate. On the other hand, finding the relevant talent, locally, does not come CHEAP.
2. Staff dismissal: You spent months and a large amount recruiting the right talent. Now you face a big risk if your personnel decide to take another job. You have to repeat the whole process of hiring again which increases your risks while draining your budget. On the contrary, your developer may not turn out to be the right fit for your project, however, you still need to retain them for at least the entire duration of their contract (usually 8–12 months).
3. Lack of expertise: Whenever you decide to create an inhouse team, you will always run into the classic problem of lack of knowledge within the field of tech. How would you know whether a developer is a good candidate if you don’t have an in-depth knowledge of their field? You can expect to face two major challenges here: hire, fire, hire, fire (and over time learn from your mistakes), or, find a tech recruitment agency to bring in the right talent. Both options cost time and money.

Key Takeaways

To conclude this section, let’s take the above examples and put them into numbers. Hiring inhouse developers means you have to retain them for at least the duration of their contract. This translates into: €62732 + €45055 + €70416 = €178203 (on average).

If you have the flexibility in your budget or if you can attract the right investors earlier on who can back you financially, then it might be a better option to start building your inhouse team. You will not face any cross-cultural challenges and communicating within the team will be much more efficient. However, if you have a fixed budget and timeframe, consider outsourcing it to the right software development agency.

Continue reading to learn more about Outsourcing software development.

MVP Development: Outsourcing to an agency

Costs Break-down

1. Fixed-cost project: Taking the same example as above, you will require a minimum of three roles to get your MVP development started. Most software development agencies that work with a fixed-cost project will put a price on their resources (per month). For example, at Seanode Technologies, you can hire a developer or a QA tester for a month for a fixed price of €3500. Learn more about our pricing here.
   In the above example, the total costs for three roles would be (3 x 3500) x 2 = €21000
2. Hourly based project: Price ranges per hour (depending on the required seniority of developers) = €35 –€100

Pricing structure = (required no. of developers + QA tester + UI/UX) x no. of hours

We recommend that for MVP projects, work with fixed-cost projects so you can maximize the output within your budget. Hourly based projects are more appropriate for scaling businesses as they have an ongoing development need, for which they can afford hourly billings.

Pros of outsourcing development:

1. Cost Effective: It’s no hidden fact that hiring developers in most Western countries does not come cheap. You can reap the benefits of outsourcing your development to an agency that has its development team based in countries where the salaries are considerably low while the quality of their work is high.
2. Time Effective (Faster Time-to-Market): Another significant advantage of outsourcing MVP projects is much faster time-to-market. Software development agencies are experienced in this field and can understand your requirements much faster. With a time bounded project, you can have your MVP launched on-budget and on-time.
3. Access to Large Pool of (Tech) Experts: As mentioned above, most MVP projects require a minimum of three roles, where at least two are quite technical. How do you decide what tech stack (programming language & environment) to choose from? This is where outsourcing pays off big-time! Not only can they recommend the right set of technological stack for your project but can also provide the experts to execute it.

Cons of outsourcing development:

1. Lack of complete control: Outsourcing the development of your MVP means that the team will not be exclusively working on your project on your premise. This means your control over the project development may be limited.
2. Lack of trust: If you are working with a completely new outsourcing agency, it may take a while before you can establish a trustworthy relationship with them. Unfortunately, due to the time and budget restrictions, you may not always have the luxury to first establish mutual trust, which can cause conflicts at times. We strongly suggest you sign an extensive NDA with any outsourcing agency you may choose to work with.
3. Communication barrier: Most of the time, new startup founders choose to work with a freelancer or an agency that is located across the continent. This means it becomes difficult to schedule meetings due to different time zones. It becomes even more difficult if they cannot communicate efficiently in your language, ultimately failing to understand your concerns or requirements.

Some software development agencies, including Seanode Technologies, offer the best of both worlds. For example, Seanode Technologies, being based in Rotterdam, can easily overcome cross-cultural communication barriers, while having most of our developers in Pakistan, we can ensure the most competitive rates in the market.

Summary

So who wins the battle of inhouse vs. outsourcing? Well there really isn’t a winner take-all scenario here. For some, inhouse works much better than outsourcing and for others outsourcing may be the best option. At the end of the day, it boils down to your own constraints. If you are an established business and would like to experiment with a new line of product, developing its MVP may be best achieved in-house since you already have the resources. However, if you are a new startup without any tech experience or background, it may be best to seek external options such as outsourcing to a software development agency.

Last, but not the least…

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