Custom Software Development: Internal Hiring or Outsourcing?

Choosing whether to build software in house or outsource the work to an external partner is a strategic decision for any business. Each option comes with advantages and drawbacks that impact costs, timelines and the overall quality of the final product. This article will help you better understand both approaches so you can make a choice aligned with your business goals and operational realities.

Understanding Your Options: Internal Hiring vs. Outsourcing

What is internal hiring?

Internal hiring means recruiting employees such as developers, project managers and analysts who work directly within your organization. This involves building a dedicated team that is integrated into your day-to-day operations.

What is outsourcing?

Outsourcing involves partnering with a specialized software development company, such as Exolnet, to handle all or part of the project. This approach allows you to delegate the work to external experts.

Benefits of Hiring an In-House Developer for Your Custom Software Project

Natural immersion in your culture and processes: An internal developer experiences your company’s daily dynamics. They naturally absorb your culture, workflows and priorities. This proximity supports decision-making that is aligned with your business objectives, internal constraints and operational realities.

Proximity-driven communication and collaboration: Having direct access to the team makes everyday exchanges and adjustments easier. This fluidity reduces friction and enables faster reactions to unexpected changes or shifting priorities.

Leveraging internal knowledge: Over time, internal developers build a strong understanding of your systems, industry and challenges. This allows them not only to maintain your software efficiently but also to propose relevant improvements, becoming true innovation partners.

Exclusive focus on your projects: An internal developer is fully dedicated to your needs and doesn’t juggle between multiple clients. That said, some custom software firms also offer full-time dedicated teams. If your project is strategic or large enough, you can achieve a similar level of priority.

Drawbacks of Hiring an In-House Developer

Higher costs: Custom software development often requires multiple skill sets: front-end and back-end developers, project manager, business analyst, designer, QA specialist, UX expert and more. Hiring all these roles internally represents significant costs related to salaries, benefits, tools, HR management and ongoing training.

For non-tech organizations, maintaining this structure long term can be difficult to justify.

Limited skill sets: No matter how strong your internal team is, it may lack certain specialized skills, especially if the project involves several technologies, domains or integrations.

On the other hand, a specialized software firm has typically worked on a large variety of projects. They can offer proven solutions, anticipate common pitfalls and quickly bring in the right experts when needed.

Slower team growth: Scaling an internal team takes time: posting job ads, selecting candidates, onboarding and training. This can slow project progress, particularly in tight timelines or MVP (minimum viable product) scenarios.

Vulnerability in small teams: If your development team is too small, you may lack redundancy for certain critical skills. Monitoring performance, workload and employee retention also requires ongoing oversight, which can be challenging without a strong technical structure in place.

Benefits of Working with an External Firm for Your Custom Software

Access to diverse expertise: Specialized partners bring experts in a wide range of technologies, methodologies and business domains. You benefit from knowledge gained across many projects without needing to hire or train an internal team.

Flexibility and scalability: Outsourcing allows you to adjust team size quickly based on project phases. Whether you need to ramp up during intensive development or maintain minimal support afterward, you gain agility without recruitment delays.

Reduced costs: Even if hourly rates may appear higher, the absence of HR overhead, social charges and long-term commitments can make outsourcing more cost effective. You only pay for the time actually worked.

Focus on your core business: By delegating custom development to a specialized firm, your internal team can focus on strategic activities. You combine your business expertise with their technical mastery to deliver a stronger, more coherent product.

Faster project kickoff: Since the team is already in place, you can start within weeks rather than waiting to recruit, onboard and train internal employees.

Fresh perspective and new ideas: An external viewpoint can challenge existing assumptions, suggest modern approaches and bring best practices observed in other industries. This fresh perspective can drive innovation.

Access to proven methodologies: Specialized firms often have well-established processes for development, quality assurance and project management. You benefit from these mature methods without having to build them internally.

Drawbacks of Working with an External Firm

Need for strong initial alignment: Working with an external team requires an upfront effort to establish clear communication channels, a solid follow-up cadence and strong documentation. With the right tools and management, collaboration can become as smooth as internal work.

Cultural or organizational distance: Even without language or time-zone barriers, an external firm may not initially know the nuances of your organization, internal policies, political dynamics or technical history. An alignment phase is essential to establish this shared context.

Dependency on the provider: Relying on a firm may create dependency, especially if they are the only ones who understand the codebase, application foundations or technology choices.

To mitigate this risk, it’s important to plan knowledge transfer, documentation, access to tools and, if needed, the upskilling of an internal resource. A good partner won’t try to lock you in but will aim for a transparent, healthy relationship.

Limited flexibility for quick changes: In some contexts, adding a “small feature” or adjusting requirements on the fly can take more time externally due to contractual validations, estimates and approvals. Without a strong collaboration structure, this can reduce agility.

Key Decision Factors for Custom Software Development

Before choosing between internal hiring and outsourcing, consider several factors.

The most important is the nature of your business. If you are a tech company and your main product is software, building an internal team is generally the best long-term strategy, either from the start or after an initial phase with an external firm. This ensures tight control over product evolution, continuous innovation and strategic in-house expertise.

For organizations where software is not core to the business model, such as an internal management tool or operational support system, outsourcing may be more advantageous. It allows you to deliver a well-defined project quickly without tying up permanent resources.

Your budget and timeline also matter: outsourcing often provides a better speed-to-cost ratio in the short term.

Finally, project longevity is critical. If the custom software will evolve for years, gradually bringing part of the expertise in house may ensure long-term sustainability.

Internal Hiring or Outsourcing: Two Real Examples

Example 1: Successful Internal Hiring

A tech company that sells licences for a SaaS product chose to build an internal team, since the product is part of their core business. Hiring software developers ensures they maintain full control over the evolution of their main offering.

The company also works with an external firm when its team is temporarily overloaded, lacks specific expertise or when a project falls outside the core product.

Example 2: Successful Outsourcing

A company needed a management software to support its operations. Requirements were clear and development was estimated to last a few months. By choosing the right partner, the company reduced costs while focusing on its core activities.

Conclusion: Making the Right Choice for Your Business

The choice between hiring internally or outsourcing depends on several factors: your business goals, budget, project longevity and the strategic importance of the custom software. By taking the time to evaluate your needs and priorities, you’ll be able to make an informed decision aligned with your business vision.

Considering outsourcing for custom software development? Check out our article “How to Choose the Right Partner to Build Custom Software?” to guide your decision.