The hidden costs of software outsourcing are the costs that sit outside the supplier’s quote. The main ones are the time your own staff spend on the project, the items the quote excludes, changes made during the build, the upkeep of the system after launch and the cost of moving to another supplier if you ever need to. None of them is a trick. Most are simply things the supplier was not asked to price. All of them can be estimated before you sign, and that is the purpose of this article.
The costs outside the quote
| Cost | When it arises | What to ask the supplier |
|---|---|---|
| Your staff’s time | Throughout the project | How many hours a week will you need from us, and from whom? |
| Advice before signing | Before the contract | Nothing: this is advice you arrange for yourself |
| Exclusions | During the build and at launch | Which costs are not in your quote? |
| Changes | During the build | How is a change priced and approved? |
| Hosting and licences | Monthly, from launch | What will it cost to run, and in whose name are the accounts? |
| Maintenance and support | Monthly, from launch | What does support cover, and what does it cost? |
| Working at a distance | Throughout | Who will we speak to, and during which hours? |
| Leaving | If the relationship ends | What will you hand over, and at what rate will you help? |
The rest of this article takes the less obvious rows in turn.
Your own time, and advice before you sign
The cost most often left out of the budget is the time of people in your own business. Somebody has to explain how the work is done, answer the supplier’s questions, look at progress every week or two and test the result with real data. On a project of any size that is a regular commitment for one named person, with shorter calls on the people who will use the system. If that person is not given the time, questions wait for answers, and a project that waits costs more whoever is paying for the delay.
Ask the supplier to estimate the hours it will need from you, and treat that figure as part of the cost.
The second cost at this stage is advice. A development contract settles who owns the code, how changes are priced, what happens if the work is late and how either side can leave. If you have not bought software before, have a solicitor read it. It can also be worth paying someone technical and independent to read the proposal, because a non-specialist cannot easily tell whether a scope is complete. Both are small costs set against the project, and both are easier to justify before signing than after.
If the team is in another country
Outsourcing to a team in another country can lower the cost of each day of work, and that saving is real. The costs that offset it are less visible. If the working days barely overlap, a question asked in the afternoon is answered the next morning, and your staff spend more time writing things down precisely. The contract may fall under another country’s law, which changes what you can do if something goes wrong. If the team will see personal data, UK data protection law sets conditions on sending it abroad.
None of this rules an offshore team out. It does mean comparing the cost of the whole project, including your own time, and taking legal advice on the contract and on any transfer of personal data. Our comparison of a UK software company and an offshore team goes through the differences.
What the quote leaves out
A quote covers what it lists. The items below are commonly outside it, sometimes for good reasons, and you should know which apply.
- Data migration. Moving existing records into the new system, and cleaning them first. This is frequently larger than expected.
- Hosting. The servers or cloud services the system runs on, charged monthly.
- Third-party services. Payment processing, text messages, mapping, email delivery and similar, each with its own charges.
- Licences. Database or component licences, where the system uses any that are paid for.
- Training and documentation for users.
- Independent security testing. If your customers or your insurer expect a penetration test, an authorised attempt to break into the system, it is normally bought from a specialist firm.
- Content. Text, images and product data that you are expected to supply.
Ask every supplier the same question, in writing: which costs are not in your quote? Then ask for an estimate of each. A quote that looks cheaper than the others often turns out to exclude more.
Changes are the other gap. Under time and materials, where you pay for the hours worked, every change moves the total. Under a fixed price, the agreed scope costs what was quoted and each change is quoted separately before it is made. Neither is hidden if you know the rule in advance. Our comparison of fixed price and time and materials explains who carries which risk.
The costs that begin at launch
Software is not finished when it is delivered. From the first day of live use it has running costs, and across the life of a system they can come to more than the build did.
Maintenance. The platform underneath any system receives security updates that have to be applied, and platform versions reach the end of their vendor’s support. A system built on .NET 8, for example, needs moving to a later version because Microsoft’s support for .NET 8 ends on 10 November 2026. Faults also come to light in use and need fixing.
Support. Users have questions, and things go wrong at inconvenient times. How quickly the supplier must respond, and during which hours, is a matter for the support agreement, and faster response costs more.
Further development. A system that people use attracts requests. Budget for a steady flow of small changes, because a business that changes while its software stands still ends up back with spreadsheets.
Maintenance and support are usually charged as a monthly fee. Ask for that fee to be quoted alongside the build, so that you compare suppliers on the cost of owning the system and not on the build alone. Our answer on what software maintenance costs explains what moves the fee.
The cost of leaving
The largest hidden cost is the one you meet only if the relationship ends: through a dispute, a supplier that closes, or a project that has gone off course.
How much it costs depends almost entirely on what you hold. If the code is in a repository your organisation owns, the hosting accounts are in your name, the contract assigns the code to you and there is documentation of how the system is built and released, a new supplier can pick the system up. It will still need paid time to learn it. If you hold none of those things, the new supplier starts by recovering what it can, and in the worst case the work is done again.
A project in trouble does not always have to be restarted. An assessment of what has been built comes first, and our page on software project rescue describes how we approach one. The cheaper course, though, is to arrange a clean exit at the start, while everyone is on good terms.
Before you sign
Take the table at the top of this article and put a figure, or at least a range, against every row for each supplier you are considering. Where a supplier cannot give you a number, ask what the number depends on. Add the rows up over the period you expect to use the system, which for business software is usually several years, and compare suppliers on that total.
Our list of questions to ask a software supplier covers the same ground in more detail, with a note on what a good answer sounds like.