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Why Do Engineering Rates Change and What Does It Influence?

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The software industry keeps evolving, providing new specialists, and positions, while retaining the common engineers we know. The appearance of new professions and demand for “old” ones causes the raise in hourly rates to supply the team with competitive compensation and keep the business afloat. We wouldn’t differentiate the IT industry by Electronics, F&B, Textiles & Apparel, Manufacturing, Cosmetics, Beauty, Healthcare, Electricity, Oil & Gas, and other business specifics and services companies provide. Basically, the core reasons for growing rates are quite similar for the aforementioned and all other business niched. 

We all witness news reporters who tell us about rising prices for products and services in various life spheres, not only in software development. Global inflation rates in the US and EU countries have risen by at least 7% since 2020. Further, we would like to take a closer look at the main reasons that cause the increase in hourly rates, based on long-term Altamira experience working with clients from various business spheres.

Reasons why software houses raise the engineering rates

Due to many years of working with clients from different business niches, we have determined the main reason why engineering rates are changing and growing and what influence this process actually has on building various software projects. 

reasons why rates are growing

Labor cost and inflation

Like any other niche, software companies are willing to grow and expand their businesses gradually. The key to the successful scale of the business is expanding the staff with new employees, as well as retaining the high-quality specialists that have been working with them for many years. For example, if a front-end developer works with a certain company for over five years, this company needs to consider personal development and payroll increase to retain this engineer.

 A rise in the payroll means even more than providing the employees with more monthly compensation. It is actually an effective method to show their employees that they are valued, appreciated, promoted, trusted, involved, empowered, mentored, challenged, etc.

For instance, when we hire new employees in Altamira, they commonly request higher compensation compared with current employees in the same position. The reason for this tendency is that high-grade specialists are interested in reaching the next level in their careers when they are hired by a new company. 

This is a very interesting fact that in 2021, the year of completely remote work, the US-based software engineering salaries increased by 20-50% which eventually caused US companies to consider the increase of offshore outsourcing in their technology sourcing portfolio. Nevertheless, rates of offshore developers remain significantly lower even under the process of rising prices in general. 

Hiring challenge

Due to the fact that technology continues to drive digital change across all industries, many software houses struggle with numerous challenges in searches for top-notch tech talents that are in demand. The majority of companies are moving the initiative for making their businesses more innovative, competitive, and resilient, looking for brilliant engineers for their teams. Due to our hiring experience, we reported that recruiters face issues with hiring certain specialists while the recruiting process requires much time and budget expenses. 

This problem also leads to the rates rising for two main reasons we already mentioned – increasing compensation to retain high-grade engineers and hiring new required employees who require higher salaries, thereby increasing the hourly rates.

Quality vs cost

Talking about the US hourly rates, the average hourly rate of middle engineers equals $100 while the same category and developing skills can cost 40-60% less if outsourcing the software development process. However, despite the princess of outsourcing teams being much lower, it has no impact on the quality of development services they provide. If we talk about the offshore development teams, the average hourly rates of these engineers equal $40-$60 depending on the required technical knowledge and skills.

It is also pivotal to understand the correlation between the quality and cost of high-performance software solution development. For example, if you are looking for development teams with rates much lower than $40 per hour, then the quality of the project and coding are at a high risk of failure. The results of such an approach are often sacrificing the level of core competency, timely delivery, and probability of the software scaling.

How can Altamira fix rates for current clients?

Due to rapid changes in the software world and development rates, Altamira still can provide fixed rates during the development process of projects under certain conditions of cooperation. 

For instance, if your software project and its requirements entail long-term cooperation with our development team, meaning we sign the contract for 12+ months of partnership, we include the current hourly rates in the contract and maintain them during the end of our cooperation according to this contract. Committing to longer business terms will provide you with the right to pay at lower rates without sacrificing engineering quality.

Challenges and solutions with rising rates in Altamira

At Altamira, we encourage the personal and professional growth of our employees, and we invest much in it. We believe that our clients are interested and will benefit if their team develops competencies, so they not only retain knowledge but manage the team properly. The specification writing and approval process takes less time than at the beginning of the project. Moreover, developers that are familiar with the project work effectively. 

In order to retain our high-grade specialists, they should feel themselves as an irreplaceable part of the team, communication within the team as well as with clients should be on a highly professional level and their salaries should fit the market demand.

Commonly, we review our hourly rates every 6 months in Altamira, but other software houses may conduct this process more often. At the same time, we fix the rates for clients who sign the contract for long-term cooperation with our company, including the minimal percentage of rate growth. Frankly speaking, neither we nor our client enjoy the discussion of the rate hikes. Even so, from the very beginning of cooperation, we’re fair with our partners, and we discuss terms and conditions transparently. 

We’re more than 11 years on the market already, so we know this is the regular and normal process for every industry. So if you still think about whether it makes sense to wait more before starting or proceeding with the development, the right moment for the cost-effectiveness point of view is today. Tomorrow it will cost you more.  

In-house developers vs outsourcing team: what to choose for your project?

So, when it comes to the selection of software development services provider for your company, you may hesitate whether you need to supply your in-house development team or dedicate the software development to outsourcing developers. Even if the hourly rates will not be significantly different, there is still a wide range of challenges and disadvantages of having a full-scale in-house development team that needs to be supplied with tasks and salaries all year round:

  • This is not cost-efficient, as your inner developers may not have enough scope of work on a monthly basis, but the payrolls are required to pay anyway;
  • The in-house team may lack the technical expertise, but you will not be capable of hiring outstaff developers due to restraints in the budget;
  • Your employees also expect personal development plans and rising salaries, even if the skills and expertise don’t change a lot as the market demands change.

How To Choose An IT Outsourcing Partner?

In Altamira, we have created an outsourcing development team for the needs of our client’s thousands of times. So we precisely know how to build the team with the suitable structure and members in order to divide the software development services you require and expect. Thus, we will gladly share the indicators and pro-tips based on our experience relating to how to choose a reliable outsourcing development partner for your software project. 

Provide a comparison of the hourly rates

As you listed the top software development providers you could possibly partner with, the first indicator you need to consider and compare between different companies is their hourly rates, which primarily define the general project estimate. Outsourcing type of cooperation with software suppliers is always less costly than in-house software developers or even offshore engineers. 

Outsourcing provides you with access to a scalable pool of tech talent, and you are to choose the country and the company you want, with no limits and restraints. So, you can boldly request the hourly rates and approximate estimates of your software project to decide what suits your business best at the moment. If you are not aware of the average hourly rates in the country you picked, you can also check the reports from credible resources on the web like LinkedIn, Garner, Forbes, etc. 

Explore the level of technical training in the region

Commonly, the hourly rates depend on the level of technical training of engineers within a certain area or country. The technical training includes education, specializations, skill level, range of knowledge in different spheres, etc. For example, European outsourcing developers get the height training preparation as the majority of them study in universities and also take additional technical courses regularly to improve their technical expertise and skills. 

This indicator is pivotal when selecting a software development partner, as you need to ensure that the team that will work on your project is capable of finishing it successfully and can supply you with the required engineers with acceptable categories and levels of technical knowledge. 

Consider the acceptable time zone

Basically, your company location and the region of your outsourcing development team can be significantly different, but thunder conditioning that both sides have several working hours that coincide. You surely need enough time for smooth communication, being aware of the project and any new changes that were applied to your software solution, and ensuring the development process flows according to the initially made roadmap and deadlines. 

The success of cooperation with an outsourcing team located in a different time zone highly depends on the inner structure of your development partner. It means every team member is aware of the role, duties, and tasks on the project, the team communicates all changes with the client in the communication tools that are convenient for the client side, and the involved developers are working directly on your project with no other occupations. 

Cultural fit is pivotal

The key to successful cooperation with outsourcing development partners is the fit in all processes and policies. When we say cultural fit, we usually consider the things that are quite complex to assess. They commonly include the tax collection process, company policies toward employees and inner processes, task management processes, according to legal systems and security laws, etc.

These processes are important, and they need to align with your expectations and needs. In another case, you will have tons of confusion and misunderstanding with your software provider, which will cost you the success of the software solution launch. 

To sum up

Taking everything into account, the engineering hourly rates are regularly updated due to the increasing market demands. However, it is essential to consider that development rates are determined by the level of skills and knowledge of specialists, meaning if you are to pay more for developers within your outsourcing team, that is caused by increasing the expertise and category of these developers. Overall, engineers are growing their skills to execute their software tasks better and more qualitatively.

At Altamira, we also follow the latest market demands according to the hourly rates for our developers, as we care much about the professional growth and development of your employees. However, if you are committed to long-term cooperation with our outsourcing development team, we can discuss the fixed rates for the entire period of our partnership.

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