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How to Outsource Product Development: A Complete Guide With Tips Outsourcing your product development requires various considerations, including requirement analysis, selecting the suitable cooperation model, hiring an agency or freelancer and avoiding a few mistakes when hiring a contractor. Follow these tips and decide if outsourcing product development is the right fit for your company.

By Asim Rais Siddiqui Edited by Micah Zimmerman

Opinions expressed by Entrepreneur contributors are their own.

According to Statista, around 74% of businesses outsource IT services, and 87% have stated their desire to maintain or increase their IT spending.

The trend of working with remote development teams, which companies often use to outsource their product development, is prospering and will continue to do so in the future.

Let's discuss the significance of outsourcing your enterprise product development, compare it with an in-house team and discuss the considerations to understand the outsourcing model.

How does outsourced product development help?

When companies opt to outsource their product development, they're looking for opportunities for various tech solutions and speeding up development at a lesser cost.

Moreover, companies get access to modern tools and tech stacks, new resources, and top talent, optimize their IT processes, reduce costs, and make reliable forecasting regarding their short- and long-term IT objectives.

Related: 3 Strategies to Optimize Innovative Product Development

Outsourced product development vs. an in-house team


In-house teams are created from the ground up. You'll fill the positions based on the talent and expertise needed for product development. Building an in-house team is comparable to hiring permanent employees for your business. You'll shortlist candidates, conduct interviews, and onboard them through typical on-prem proceedings.

The benefits of hiring an in-house team are that they're in direct communication with the team, offer immediate support and, most importantly, are aligned with the company's goals and vision.

On the downside, in-house teams:

  • Are costly prospects with high turnover rates
  • They lack versatile expertise and problem-solving depth
  • Are not easily scalable for team upskilling


Outsourced teams offer many benefits for businesses by providing a vast talent pool and no technology limitations, allowing businesses to exercise more control over budgeting and acquire better expertise.

The only cons are the communication barrier and trust issues in the team. Moreover, legal issues regarding the hiring process, regulatory compliance issues, information exchange before and after the project completion, cultural intricacies and time-zone differences can cause a problem.

The following are four things to consider when outsourcing product development.

1. Analyze your problems and requirements

Start by analyzing your problems, requests and requirements.

Without a clear understanding of your requirements, you gain nothing from the contractor's team.

Create a to-do list of items and activities you need to be done, state your budget, and set approximate deadlines for all the milestones, for example, UI/UX design delivery, development, app testing, etc.

Related: What Not to Do When Outsourcing

2. Select the suitable cooperation model

The most popular cooperation models are the fixed price and time and material models. Each has its characteristics and requirements; select the one that best fits your project.

- Fixed price model

As the name suggests, the fixed price model works through the fixed budget, timelines, and scope of work and is mainly preferred for small projects with highly limited functionality. Furthermore, the model doesn't allow for catering to additional changes and iterations, is expensive, and there is a probability of possible tradeoffs concerning product quality.

- Time & material model

The time and material model is a flexible counterpart that infuses nicely with the agile principles. Unlike the fixed model, the T&M model allows teams to start development quickly. The flexible developer hourly rate allows teams to manage tasks and set deadlines and budgets. The agile approach benefits teams in determining the result or progress at each development stage.

3. Select an agency or freelancer

Deciding whether you need an agency or a freelancer isn't as simple as people often think—if it's a small project, hire a freelancer; if it's a large, complex project, hire an agency. In my experience, there is always more to the story in most cases. You need to clarify you need specialists for which particular processes. Business owners often struggle with the prospect of how and from where to land the right contractor for their outsourced product development.

Here are some of the best sources to find a reliable contractor:

Social channels. Use social channels like LinkedIn to hunt full-fledged development companies or freelancers for your next project. Check out their social posts, read reviews from previous customers, see team ratings, and more to check their business credibility and trustworthiness.

Business review websites. See platforms like Clutch, Trustpilot, GoodFirms, etc., to inspect agencies and freelancers and review their ratings, customer reviews, and other metrics to understand better their credibility and what their clients say about them.

4. Create a design and software specification document

Write a design and software specification document that describes your product (at least an MVP), how it will perform, and how you want the end users to interact with it.

Despite being a laborious job, it is one of the essential things you'll do in product design and development.

The design and software document will contain the following elements—a comprehensive project overview, problem statement, project goals, target audience, functional requirements, intended features, aesthetic details, non-functional parts, suggestions and restrictions, and questions.

Mistakes to avoid when outsourcing development

1. Selecting a misfit contractor

Business owners often mistake hiring the first contractor or agency they come across in their search. Hence, they hire a contractor whose location, experience, expertise and skills aren't suited for their particular project. Take your time when organizing your search and starting the hiring process. The more detailed your analysis is, the better the chances for you to hire the right company and a responsible partner.

2. Not familiar with the cost of your product development

One of the most common mistakes businesses make is not examining the cost of outsourcing product development. The estimate might look reasonable on paper, but several underlying essentials might not have been included in the quote. Request the development agency to create and send a complete quote. Ask the right questions from the development team alongside the timelines that should help you analyze the actual project cost.

3. Lack of a strategic action plan

Having a sound strategic action plan is crucial when outsourcing your project. The inability to clearly outline your requirements and state deadlines of your deliverables isn't something you want to experience.

Ask yourself the following questions:

  • What are your project's core goals?
  • When do you expect to complete your product development?
  • What are the developers' working hours?
  • How many remote developers do you want to work with you?
  • Is your hired team experienced enough to cater to your custom project?

Related: 3 Mistakes (Nearly) Every Tech Startup Makes -- and How to Avoid Them

Final thoughts

No matter your requirements and project specifications, there are always pros and cons of working with an in-house team and outsourcing your product development. However, take your time to weigh the considerations by analyzing your problem and requirements, selecting a suitable cooperation model, choosing an agency or freelancer, and creating a design and software requirement document. Last, avoid mistakes when outsourcing product development, including selecting a misfit contractor, inadequate cost estimation, and lack of a strategic action plan.

Asim Rais Siddiqui

Entrepreneur Leadership Network® Contributor

Co Founder & CTO at TekRevol

An expert in next-generation technology and software solutions, Asim Rais Siddiqui has over a decade’s worth of experience in development and enterprise digitalization. Asim uses his skills to scale businesses, capitalize on new market opportunities, and facilitate growth through calculated risks.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

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