Pros and Cons of Software Consulting Firms vs Independent Contractors

Deciding Between Freelancers or Software Development Companies: What are The Pros and Cons of Each?

Pros and Cons of Software Consulting Firms vs Independent Contractors.jpgAfter coming up with a great product idea, the next step is to decide who will bring your idea to life. The two obvious options are a freelancer (or independent contractor) or a software development company. Which is the better option?

Below, we summarize the pros and cons of each option to help you make an informed decision.

The Financial Costs Will be Different

The cost of hiring a freelancer/contractor is very different from that of working with a software development firm. Here is how;

Financial Costs for Freelancers or Independent Contractors Will Be Lower

Most freelancers charge a lower fee. Different studies show different figures but the general consensus is that you’re likely to save 20 to 30 percent if you choose to work with a freelancer or independent contractor.

There are many reasons for this, the main one being the high levels of competition in the freelance market. Currently, platforms such as Freelancer boast tens of thousands of freelancers, all hoping to get as many projects as possible. This has forced individual freelancers to lower their hourly rates.

Companies Always Have an Overhead

When you’re paying a company, you’re not just paying the workers. You’ll also be paying for office space, insurance, related taxes and so on. For instance, if the company pays 20% tax, the additional cost will be passed to the client. The same applies to office costs and health insurance costs. Firms have no alternative but to charge clients a higher fee to cover these costs.

Independent contractors, meanwhile, won’t charge you extra for their health insurance, office supplies, etc.  This usually translates to lower rates. 

Independent Players Set Their Price By The Market and Their Personal Needs

Independent contractor rates are heavily dependent on personal needs and market trends. If the contractor feels like making $1,000 every month, they will adjust their rates to reflect those targets. If their personal needs (rent, cost of food, energy bills) go up, they can also readjust their rates accordingly.

With regards to market trends, independent contractors often compare their prices with those of close competitors to see whether they need to adjust. For instance, if a java developer is charging $100 per hour, a newcomer will look at that and feel they could charge somewhere close to that.

Firms don’t work the same way. Most firms have predetermined market-value prices for each product. Those prices rarely change, and if they do, it certainly won’t be because an employee’s rent went up. It will be because market values changed.

If the Freelancer Has a Truly Specific Niche, Their Hourly Rate May Still Be Higher

Interestingly, if you were to hire the best freelancer or independent contractor around, you’d actually pay more than if you hired a software development firm.

Pay Scale did an analysis some time back and found that hiring a top freelance software developer costs $60 to $100 per hour. Those with specialty skills could charge as much as $300 per hour.

The Opportunity Cost Will be Different

Whichever option you choose, there will also be an opportunity cost. Opportunity cost is the cost of what you might be doing as opposed to the direct financial cost. Below are some of the opportunity costs to consider;

Procuring a Freelancer or Independent Contractor Can be a More Involved Process

Procuring freelancers or independent contractors isn’t a simple task. Granted, the creation of freelancing platforms such as UpWork and Guru has made it a little easier to locate these professionals. However, even on Guru, you need to have a sharp eye for talent if you’re to identify a great freelancer.

But that’s not even the main problem. The main issues are;

If Multiple Developers are Needed, then Multiple Procurements Must Be Completed

Sometimes, like when you’re short on time, you may need more than one freelancer to work on the project. If that’s the case, you’ll need to plan for multiple procurements.

The same isn’t true when working with a software company. Since firms are usually large, comprising many professionals, you only need to find the right firm and everything will be taken care of. At no point will you need two firms to work on the same project.

Time Spent Recruiting Is Time Lost

Owing to the above point, you could end up losing a lot of time. Finding even one great freelancer can be a tedious job. Finding two or more could take you weeks; time that would be better spent elsewhere.

You May Not Be Well Equipped to Test on Coding Skill or Ability

Finally, how do you grade these freelancers? What criteria would you use to separate the good ones from the bad ones? On Guru alone, there are more than a hundred thousand people posing as professional software developers. They all have neat profiles with elaborate skills and experiences. Of course, some of these skills and experiences are made up. But how would you tell?

Firms, meanwhile, have experienced HR personnel who can conduct thorough interviews to determine who to employ.

When A Consulting Firm Has a Deadline They Can Throw More Resources at the Project

The truth is that even firms sometimes find themselves behind schedule. This can happen for various reasons. For instance, the lead developer might ask for a few days off for personal reasons. Or, one of the designers may fall sick. These things happen. After all, we are humans

The difference is that with a company even when one team member falls sick, someone else can step up and take over from where they left. This means it’s unlikely for a company to completely miss a deadline based on personnel. It happens, but not very often because there is generally someone available to step in and cover for their colleague.

Imagine if the same thing happened to your contractor/freelancer! You have a project that is due in a month, but the contractor/freelancer decides to take a short vacation without your knowledge? By the time they resume work, they could be behind schedule by several days. Since no one was covering for them while they were away, this increases chances that they will miss the initially set deadline.

Communication and Coordination in a Firm is Set By Process and Management

Processes and general flow of work within a firm is guided by laid down rules and policies within the company. In fact, when working with a firm, all you need to do is stay in touch with the project manager, go through reports of completed work, approve the work or request for adjustments, and then wait for the next part of the project to be developed.

For independent contractors, though, you will be forced to micro-manage the contractor/freelancer, otherwise two things could happen. One, the work won’t be completed in time. Since contractors/freelancers work on their own schedule and mostly don’t have policies or rules governing their work hours, they could easily fall behind schedule.

Two, quality may be compromised. We are all aware that where tight control is missing, anything can happen. This is not to say that all firms always deliver 100% quality work. However, owing to the tighter control in firms and the need to maintain a positive brand image, a firm is less likely to knowingly deliver poor quality work.

Firms Bring a Wider Degree of Skill Sets and Availability

Hiring a software development company means you’re hiring, not one person, but a whole team of professionals with different sets of skills. Within the group, there will be developers, designers, managers, and so on. So, even if you need a specific language for some part of the project, there will be someone within the group experienced in that area.  

Freelancers and independent contractors, meanwhile, are one-man teams. The individual does everything, from design to development and management. This means that should the individual encounter a challenge they can’t solve on their own, they may not be able to proceed with the project.

This is one of the reasons freelancers and independent contractors often disappear midway through projects. Since the same freelancer might be working on several projects, all of which he or she has to manage, they can be overwhelmed. And, since they are their own masters, they usually feel they can leave/disappear without your permission. When this happens, you’ll need to find a plan B.

In the End You Are Either Going to Opt for Structure and Stability, or Lower Rates

There is no doubt that opting for freelancers as opposed to a software development firm gives you a lower cost if you’re willing to be flexible. You only hire them when you have a project to work on and once the job is completed you can forget about them.

But, if you’re looking for structure and stability and if you’re focusing on the long-term and want to work with a partner that can help you grow over the years, then consulting firms are your best option.

Choosing the Right Custom Software Development Partner Ebook

References:

http://www.payscale.com/research/US/Job=Software_Engineer_%2F_Developer_%2F_Programmer/Salary

https://www.codementor.io/blog/cost-of-hiring-full-time-and-freelance-software-developers-1nqgg7b19d

 

 

Posted in Management, Business ROI, Custom Software Development