European countries by average monthly net wage

The Freakonomics of IT Outsourcing: Is it really more cost effective than hiring in-house staff?

Back in 2014 Toptal’s VP of User Engagement Hyam Singer challenged the notion that in-house developers were always more cost effective than contractors, who on the surface charge higher hourly rates.

Hyam did this by unearthing all the hidden costs & overheads associated with employing in-house staff by providing a thorough, consistent and well-supported calculator for comparing the real costs of in-house staff to ‘external consultants’, in this case top-tier freelancers.

Under the calculator, Hyam clearly explained why the cost analyses being undertaken by Hiring Managers when comparing in-house staff to ‘external consultants’ were flawed. Rather than re-explaining his reasoning, I encourage you to check out his article ‘Don’t Be Fooled: Calculate the Real Cost of Employees and Consultants’.

In this article, we are undertaking the exact same exercise as Hyam Singer, but this time for:

Remote Full-Time Employed Contractors
(in Central or Eastern Europe)

vs

In-House Employees in the UK

The geographies & outsourcing models are different, however, the principles of the comparison calculators are more or less the same.

Geographical Focus Outsourcing Model Compared Against
Toptal Comparison Calculator United States Top-tier vetted freelancers In-house employees in the US
YouTeam Comparison Calculator United Kingdom, Western Europe & other geographies with comparable cost bases for IT Staff Remote, Full-Time Employed Contractors in Central or Eastern Europe In-house employees in the UK

 

The YouTeam comparison calculator was prepared by me in exact accordance with the Accounting Methodology utilised Accounting Services for Business UK in their True Cost of an Employee Calculator.

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Management Considerations

To develop a true and accurate comparison we also need to take into account extra effort required for communicating and managing the remote resources. Our calculator takes this into account by multiplying the salary paid to the Remote Full-Time Employed Contractors in Central or Eastern Europe by 1.2.

Summary of the Results

Based on the methodologies outlined above (and in more detail underneath the calculator itself), these were the potential saving calculated:

Level of expertise Mid Senior Super-Senior
Years of experience 3-4 4-7 7+
Potential Savings 32.50% 31.10% 34.10%

*The calculator can also be used for Northern & Western Europe, USA, Canada, Singapore, Australia & New Zealand

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Tristan Senycia

Tristan Senycia

Tristan Senycia is a Product Manager at YouTeam - a curated b2b marketplace that matches businesses with dedicated engineers from pre-vetted software development agencies.

He is also the founder of LeverPoint Advisory, which consults in the areas of commercialisation management, go-to-market strategy, High-Tech marketing strategy and customer development. 

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