Why Agencies Are More Affordable Than Hiring Developers In-House

The following is a guest post by ChopDawg.com, an award-winning app development company that has worked with over 180+ startups and companies from all around the globe, helping them bring their web apps, mobile apps, wearable apps and software ideas to life.

Follow ChopDawg.com on Twitter at @ChopDawgStudios.


If you think that app design and development agencies are too expensive, that they aren’t worth the money, or you don’t think they will get anything done for you that you can’t do better by hiring your own talent internally, in some cases you’re absolutely right.

If you already have a team of designers and developers that you can trust, make payroll, and feel like you have a path to launch, then go for it on your own.

There are too many agencies that are bad to work with, or at best, make you feel a little hollow inside, but…

I’d like to make the case on why hiring the correct agency can save your business a lot of money in the long run, especially if you don’t have the built-in infrastructure ready to go.

One cost that can result in an entirely busted budget? Training.

The lofty expectations you have when hiring developers and designers can quickly lead to disappointment. You think suddenly, everything will be the way you want it and they’ll just know what to do.

But it doesn’t work that way if you don’t have the communication process down, the visions aligned, and if your hires need extensive training. I’ve seen developers who have the same problem as agencies; the technical competency may be there, but they just don’t get it done the way you want.

Without understanding your vision, even good developers can leave a big hole in your pocket. Experience certainly helps, but experience costs money. Then there’s making sure you can get things done on time, so you’ll need a project manager…

To take a digital product from design to launch requires at least three people: the designer, the developer, and the person to guide the vision to execution. That person needs to be able to communicate with the designer, the developer, and speak their language.

When factoring in the designer, the developer, and the project manager, let’s take a look at average costs:

These are not exact numbers, but they’re rough estimates.

An average developer will cost you between $80,000 to $120,000 a year (depending on the market and how good they are)

Yeah, sure, you can get someone cheaper, but they are most likely going to be just out of college or relatively inexperienced. This isn’t bad, but you’re training period will be more prolonged the less experienced they are. What it does mean is that you’ll need to communicate in the developer’s language to get anything done the way you want it and in the time you want it. Experienced developers give you the freedom to be fewer hands on.

An average designer will cost you between $60,000 to $90,000 a year (again, depending on market and how good they are). You can get really cheap here, but if they don’t understand your vision and on how to execute on it, you’ll be spending a lot of time and money just getting the designer up to speed. Many people who can play around in photoshop also call themselves designers. You really need someone who can use the tools but also understands the principles behind layout, color, shapes and other graphic effects. That doesn’t include the science behind conversions, engagement, etc.

Here are our current costs:

Our average projects include 1-2 designers, 2-4 developers, and one project manager who admittedly is more part-time on each project which is primarily due to us having more experienced designers and developers who don’t require as much oversight. These designers and developers are working on multiple projects throughout the year, but are focused on primarily one project at a time. But since they are working together through Chop Dawg, these costs are split into multiple projects.

2 Developers at only $80,000/yr = $160,000
2 Designers at only $60,000/yr = $120,000
1 Project Manager at $50,000/yr = $50,000

That right there is $330,000.

We are then factoring in those savings and pass it back to the client.

Taxes and insurances can add an additional $20,000 to the bottom line.

Payroll taxes, social security, medicare, federal unemployment, hardware, software licenses… the list goes on if you are hiring your own in-house team.

In the case of the project manager, I would say that a workaround here would be to either learn project management yourself or take advantage of the current talents of your team. However, even if you use someone already on your team or yourself, think about what you are spending in time that you could use for other things.

When you add up the taxes and the extra time spent, this could be at least another $10-$20K. Those numbers alone add up to a conservative figure of what, $350,000?

We provide our clients with the same thing except for $50K – $75K without the need for training; versus the $350K that you could have spent.

…and what about the process? Our project managers have that down, can speak the languages of our developers, and coordinate with the designers. The workflow has already been set, because even though the project may be new, we’ve been down this road time and time again. A lot of people write this off as just part of a project, but you could easily ballpark that knowing the right process can save days and in some projects, we have seen it save months which eventually ties back to money in your pocket.

And here’s an additional ~$5K in savings – don’t forget about server space.

Startups don’t need a lot – certainly not as much as many of the entrepreneurs think. To get started, I honestly think that no more than 10GB of hard disk space and 100GB of bandwidth (monthly) – which usually costs ~$2500-$5000 a year; is necessary.

Since we have purchased a super server, we can save you money with our 100TB server, since 10GB is a lot cheaper since you buy in bulk. Most startups don’t do this, so they need to fork out much more for server space.

Our clients only need to migrate to their own setup when they’re taking up more than ~$1000/mo worth of resources, which is good as we can theoretically save clients $12K a year.

The bottom line is we can save money by having several clients on a super server. They can migrate away from the server anytime they want, but we like to offer that courtesy. Eventually, if the required server space gets too large, they’ll need to move on, but by that point, having to get more server space means that you’re doing something right and users are responding to your app.

Most startups don’t need that, but they still pay more for less since they don’t get a bulk discount.

For context, one of our recently completed projects had 2 designers, 4 developers, me, and a PM they paid $65,000

If they hired internally, it would have been a $490K investment on iOS and $370K on Android. Sounds ridiculous, right? But hear me out…

Had these 3 developers been hired internally, it would have cost ~$240K + 2 designers = $120K + $10K in taxes + $2.5K in server infrastructure

That is a little over ~$370,000.

This app project was 10 months which = 43 weeks (going to round up to 45 here)

  • 3 Developers at average 20 hours
  • 2 Designers at average 20 hours
  • (Again, ignoring me here)
  • 4,500 hours divided by $65,000 = ~$14.44 hour
  • Let’s add infrastructure again (let’s say $4,000)
  • Taxes again (let’s say $15,000)

Real hourly cost once you take out the expenses we saved you? ~$10.22 per hour.

And iOS is more expensive, so let’s say this app needed two iOS developers instead.

  • $120k + $120k + $80K + $60K +$60k = $440k (being conservative)
  • Add in $4,000 for servers + $15,000 for taxes
  • That is ~$459,000 (we can round to $460,000 since I am low balling this)

That means our client would have saved $395,000 (estimated) vs. hiring internally. And this doesn’t even factor in the time spent having to train, build processes and methodologies, etc.

Let’s go through one more example.

Another app of ours that we’ve been wrapping up has been a one year project, and it’s been substantial.

3 Designers and 3 Developers for one year = 52 weeks

And it’s been an $80,000 project.

Again, using 20 hours per week spent as the baseline number here, so that would come out to 6,240 total work hours.

So…

  • 6,240 hours of work in project total
  • Divided by $80,000
  • = $12.82 an hour (estimated)

They would have easily spent $20K in taxes and spent $5K in server space.

So now when we factor in those saved costs, it’s really like our client is paying ~$8.81 per hour.

REAL HOURS: ~$8.81/hour

Now, again, if they hired internally:

  • $100K + $120k +$120K + $60K + $60K + $60K = $520,000
  • + $20K in taxes
  • + $5K servers
  • ~$545,000 investment to hire internally

Versus our $80,000. They literally saved themselves ~$465K by working with Chop Dawg. Again, this isn’t factoring in the cost of time, developing processes, and methodologies.

You get the picture… or rather the numbers. They don’t lie, and as I mentioned earlier, there are at last a dozen other things that you pay for to have an employee that we didn’t cover. The fact is that you actually can have the best of both worlds, which doesn’t happen often. You can get the knowledge and expertise of people who have completed project after project, AND you can save hundreds of thousands of dollars. A better result with less money? Find us a business owner that doesn’t want that!

We’ve emphasized the money a lot since that is the lifeblood of any business, but there is another more altruistic reason as well. By being able to offer these kinds of savings, more people have access to making their dream app’n (as we like to say).

And it’s not just the money – there’s also time involved.

If you can do it yourself, you’re paying in time. The markets don’t wait for you.

You can outsource the work to somewhere on the other side of the world. But the communication barriers do hurt, so it’ll take longer to get to what you want. So you pay more as a result of increased time in going back and forth. Errors are more likely to be made, so that adds even more time.

Training takes a lot of time if hiring internally. And it’s your responsibility to make sure that your employees are well-trained and well-paid.

Automation is not widespread enough where everyone can have an app built for $500, it only takes a week to launch, and it happens to be a great app.

And finally – the less room for error, the better

A lot of people like the idea of hiring internally, but in reality, the agency approach is worth your serious attention if you want to make sure that there are fewer errors in launching a product. We vigorously make sure that apps are bug-free before launching.

Your launch is protected on our server, and then we help you migrate to your own once you’re ready for the big time traffic.

I wish you luck on your journey no matter what you decide to do! And if you have a great idea you’d like to share, send me over an email at Joshua@ChopDawg.com.

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