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Price is one of the most important decision factors when purchasing goods or services. No matter what your budget is, you always want to find a cheaper option without compromising quality. This is especially relevant for a service sector as costly as IT.
Developer prices can range from $10 to $100 per hour. Does this mean that a $100 developer is better for you? Or should you perhaps choose something in between, for example, a $50 developer?
This is a difficult question to which no one can give a direct answer; it’s up to you and your needs. What is important is to clearly understand them and have the required market information. That’s exactly what we’ll cover in this article.
We’ll walk through:
- How the software developer price is composed;
- Why these prices vary so much;
- Plus, we will give practical advice on how to strike the right balance between price and quality.
P.S. For the convenience of calculations, we use hourly rates rather than salaries. It also allows you to see the real cost of the developers.
How to calculate hourly rate
To do this, you need to determine the number of hours worked per day (8 for a full-time employee) and multiply them by the total number of working days per year (250 in 2021 in the United States).
Then, divide the annual salary by that number.
For example, based on Indeed’s annual salary data, the average developer hourly rate in the US is: $110,390 / (8 * 250) = $55 / hour.
How the software developer price is composed
Firstly, you should understand that the price must be considered within the context of the developer’s work.
By itself, the figure of $55 per hour does not mean anything. To understand the economy of software development, you need to look at the bigger picture and understand exactly what a developer does.
Your ultimate goal is not to hire a developer. It is about solving a certain problem with the help of software. And the developer, no matter who is engaged in solving this problem. For example, developing a mobile application.
The cost of any software development consists of only two components:
Developer’s hourly rate * total development time = application cost
The second variable completely changes the idea of price. Because a developer who initially seemed more expensive may spend less time developing an application. Therefore, his cost will ultimately be lower, not to mention the quality of the code.
40 ($ per hour) * 180 (hours) = $7200
50 ($ per hour) * 140 (hours) = $7000
A higher rate per hour does not always mean higher development costs.
In this article, we will talk about the first variable: what the rates are and on which factors they depend.
Factors affecting the developer’s cost
There are four factors that determine the cost of the software developer:
- Work format (hiring, contracting);
- Developer level (architect, senior, middle, junior);
- Technology (Java, JS, Android, iOS, etc.);
- Region (USA, UK, Germany, Australia, etc.)
Let’s consider each factor in more detail.
App developer cost by work form
So, you need a software developer. You have two options:
- You can hire a developer to your team;
- You can work with him/her as an independent contractor.
Difference between employees and independent contractors
An employee is a person on the staff of a company who works for an employer. The employer controls the employee’s work – what will be done and how.
An independent contractor is an individual (freelancer) or legal entity (agency) that provides services for another individual or legal entity in accordance with an agreement between them – which specifies responsibilities, payment terms, scope, type of work, and other issues. However, he/she is not part of the employer’s company.
As already mentioned, when calculating the cost of hiring an app developer, first you should understand the scope of the tasks that will need to be done.
If it’s a long-term project, then building an in-house team is imperative. It’s not even about money, it’s about building and maintaining expertise in the development process. This allows you to not be dependent on external factors.
If this is a short-term project, you need a developer for a couple of months to speed up development or temporarily plug the hole, so hiring an employee is simply inappropriate. In such cases, it is more profitable to work with independent contractors.
Is it possible to work with freelancers and agencies long-term? This option is also possible, and many companies do so. Here is why:
The price difference between hiring and contracting
Determining whether a person is an independent contractor or an employee is important because it determines whether payroll taxes are withheld. You must withhold payroll taxes from employee salaries, but you do not withhold taxes from payments to independent contractors (except VAT for contractors located in the same jurisdiction).
VAT varies from country to country, but on average is about 20%.
Let’s consider two options:
In the case of working with independent contractors, it’s simple – you pay them the agreed hourly rate or project amount.
In the case of hiring a full-time employee, besides the hourly rate you also pay additional costs:
- Bonuses;
- Taxes;
- Benefits;
- Training costs;
- Infrastructure costs.
Each country has its own legislation, but such costs, according to MIT, can reach on average from 25 to 40% in addition to the hourly rate.
Based on this, the developer’s annual salary turns from $110,390 to $110,390 + $44,156 (35% of 110 000) = $154,546 or $77 per hour.
You can determine the amount of additional costs by examining the legislation of your country.
Types of additional costs
The types of additional costs and amounts vary from country to country. However, we can distinguish two categories of costs: mandatory and optional.
Mandatory costs are those that you, as an employer, are required by law to pay to your employee. They include:
Payroll tax. This depends on the salary amount. Some of these taxes are withheld from employee salaries while others are your responsibility as the employer.
For example, in the United States you are required to pay Social Security and Health Care Taxes (FICA) and Unemployment Taxes (FUTA and SUTA), and you must withhold some of the employee’s income tax and transfer it to the appropriate tax agency.
Benefits are one of the biggest items of expenditure in the cost of hiring an employee. For example, federal benefits in the United States include:
- Medical insurance;
- Payment of overtime hours;
- Unemployment insurance;
- Unpaid family leave with job retention.
In addition, your state or city may require additional (optional) benefits, including:
- Teeth and vision insurance;
- Pension contributions;
- Paid weekend (including vacation, sick leave, etc.);
- Disability insurance.
While additional benefits are optional, many companies pay for them as it increases their attractiveness in the eyes of employees.
Also, when working with full-time employees, you can face the HR activities costs, infrastructure costs, ongoing training, and staff development costs.
We advise you to acquire software and an accounting specialist. In the end it will save you money, time, and nerves.
Are full-time employees always worth more than contractors?
It may seem like hiring an employee is always more expensive. But you should keep in mind that all independent contractors also pay self-employment taxes and fees. Therefore, they may include these costs in their hourly rate. This means that the hourly rate that you pay for their work may be higher than the hourly rate for an employee. However, do not forget the additional employee costs we discussed above.
Summary
If you only have a few projects to handle, a quality contractor will be cheaper than a hired employee. But if you have a lot of projects coming up, it will end up being more profitable to hire an employee. A mixed model seems to be the ideal combination – employees to deal with core tasks and contractors to speed up the development process when needed.
Read about app developer cost by level, technology and region in full article here: https://jaydevs.com/how-much-does-it-cost-to-hire-app-developer/
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