Hourly vs. Fixed Price Vs. Retainer – A quick guide on outsourcing agreements

Hourly-vs.-Fixed-Price.-Vs.-Retainer

The practice of IT outsourcing is increasing, with numerous organizations hiring offshore experts, both individuals, and companies, to help with their IT needs. According to statistics, the global market for outsourcing was worth $85.6 billion in 2018. 

Companies often outsource as a way to lower costs, increase efficiency, and gain speed. Outsourcing helps you gain access to world-class capabilities, frees up internal resources, and it improves a company’s focus on core business processes.

In this blog, we will be discussing outsourcing and the types of agreements it offers. We will be comparing hourly vs. Fixed Price vs. retainer agreements and helping you find the right choice for your business.

State Of Outsourcing 

Outsourcing is a business practice in which services or job functions are farmed out to a third party. According to statistics, outsourcing helps companies reduce costs by about 15%-60%. One of the reasons why companies outsource is to get access to additional IT specialists with the expertise and experience needed. According to a Deloitte report:

  • 63% of the companies outsource to reduce costs.
  • 65% do it to focus on business objectives.
  • 53% to solve capacity issues.
  • 28% to improve service quality.
  • 26% to take help from IT professionals.
  • 18% to manage their business environment.

With the rise of the IT industry, numerous companies are hiring external help for their own internal or client projects. These days you can outsource any services such as software development, content writing, and more. Due to its large scope, countries all over the world are encouraging their youth to explore this industry. As of right now, the best countries for outsourcing are India, China, Malaysia, the Philippines, Brazil, Mexico, and Pakistan. The benefits of information technology outsourcing are:

  • Outsourcing has lower costs.
  • Increased efficiency
  • Increased focus on strategy
  • Variable-capacity
  • Access to skills and resources
  • Increased flexibility to meet changing business conditions
  • Lower ongoing investment in internal infrastructure 
  • More time to focus on marketing
  • Access to creative and innovative ideas along with experienced execution
  • Outsourcing partners can also help with technical debt reduction.

Agreement Types 

When outsourcing work, you’d need a well-designed business agreement for the success of your project. This agreement specifies the scope of the project, knowledge transfer, and exit strategies and focuses on the business outcomes both sides want to achieve. Here we will be discussing the three most popular outsourcing agreement types. 

Hourly Agreement

In the hourly agreement, the customer pays the team for the time spent on the work and materials used. It means that the customer is paying you according to the prearranged hourly rate of each member of the hired team and on the basis of the software licenses purchased and other materials being used.

This agreement focuses on agility and provides flexibility during the software development process. During the contract, technical requirements and deliverables are discussed before every sprint or phase, and service is billed in relation to the hours worked. 

Fixed Price Agreement

A fixed price is a type of agreement where the customer and the service provider agree on a fixed price for the service provided. The service provider estimates the price on the basis of the scope of the project. Fixed price agreements are less flexible in contrast to other agreements, as the time, budget, and price of the project are all fixed beforehand. As a result, both parties have to think through all the details and specifications of the project before signing the contract.

These types of agreements are ideal for small-scale projects as it is easier to estimate the effort, time, and budget in small projects. Fixed price agreements are also suitable when the client has a tight budget, as this agreement can ensure the project is delivered within the fixed budget.

Retainer Agreement

A retainer agreement is where the customer signs a contract with an offshore company and hires the company’s individual or team of professionals for their project. Retainer agreements usually last for a year and have a predetermined fee divided into monthly payments. In these agreements, the service provider is usually responsible for providing infrastructure, salary, and other perks to the retainer in the company that is hired by the client. These agreements are suitable when the customer has a big project and scope, as these agreements usually last for about a year.

Retainer agreements are becoming more popular as they are beneficial for the clients as well as the service provider. With retainer agreements, a service provider creates a consistent income while a client can rest assured they have a dedicated team working on their project.

Tips For Hiring A Talented Outsourcing Team 

According to statistics, about 300,000 jobs get outsourced from the U.S each year, this tells us the growth and potential of this business model. With so many outsourcing teams available, it can be challenging to choose the right one for your business. Here are some of the tips you can implement when hiring a software company to outsource.

Resources And Technology

One of the most critical factors when selecting a team for outsourcing is to make sure the team has access to the required resources and technology to carry out the development process. Ensure that the team you choose is talented, competent, technically trained, and has the relevant expertise to handle offshore operations smoothly.

After shortlisting 4-5 teams, evaluate the teams based on technical expertise, skill sets, access to the latest technology, bandwidth, experience in solving complex challenges, and passion for your project. A team equipped with the right skill set, work ethic, and the latest technologies will be able to complete your project efficiently.

Reputation

No organization can work with an offshore company that compromises on quality, is rude to its clients, and misses deadlines. Therefore, a background check is crucial before finalizing your offshore team. 

You can check the reputation and history of offshore teams on platforms like Clutch and Good Firms. These platforms enable you to check past reviews of the organization. You can also get in contact with past clients of the offshore firm to inquire about their work ethic.

Communication

Outsourcing means that you will have to face geographical and linguistic barriers, and sometimes it can be difficult to communicate with your offshore teams. Before selecting an offshore team, ensure that the team is fluent in English and is able to understand and communicate in the language effectively. 

As it is crucial to be constantly in touch with your team to explain the project’s scope, make sure to choose a team with working hours that somewhat overlap with yours for effective communication. Also, make sure the offshore team you choose is familiar with collaborative tools like Jira, Trello, and Asana and knows how to utilize them fully.

Choosing The Right Country For Outsourcing

With every country offering talented teams for outsourcing, narrowing down your choices can be a bit difficult. Countries like India, China, Malaysia, Brazil, Russia, and Pakistan are known for their outsourcing services. Pakistan is specifically known for its professionalism and intercultural awareness. With about 57% of Pakistanis being fluent in English, Pakistan is one of the hottest outsourcing destinations for outsourcing services

Tips On Scaling To A Proper Back-Office

The main purpose of the back office is to make sure all the operations of the company run smoothly and efficiently. Hiring a company to function as your back office involves the process of delegating business functions to a third-party service provider. Recently, it has become a trend for mid to large-sized companies as well as startups. HR, IT support, accounting, marketing, public relations, and more are all back-office functions that can be outsourced. 

Here are some of the tips on hiring an offshore back office.

Define Your Requirements

When deciding to send work offshore, you should be aware of which outsourcing services you need help with. Not all functions are equal, as each has a requirement of its own. For example, you might not need to outsource HR if you already have a sufficient team and infrastructure in place. Having a clear idea enables you to find a service that best suits your needs.

Study The Legal Requirements

A common concern of clients when it comes to establishing a back office is whether the outsourcing firm is following all the necessary laws. Figuring this out can be challenging when hiring an offshore company located in a different country where regulations are different. For this reason, it is essential to be knowledgeable about legal requirements like laws about employees’ minimum wage, tax conditions, and data security when hiring a company to manage your IT operations.

Understand How Costs Are Calculated

It can be a bit costly as numerous factors affect what an offshore partner will charge for this service. These factors are the scope of the service, talent requirements, reputation, credibility, level of skill, competence, and track record history. Keep these factors in mind when partnering with a outsource services company.

Conclusion 

Outsourcing has now become an essential part of business growth and has become the primary source for companies to hire external help for top-notch services at an affordable price. Our team, Genetech Solutions, has worked with numerous offshore clients over the years and has helped them create innovative projects. You can view our case studies here.

Our company is experienced in all three of the agreement models as we have worked with various clients over the years. At Genetech Solutions, we also always advise our clients to choose the most cost-effective and suitable outsourcing agreement.

I hope you enjoyed this article and it was helpful for you. Feel free to contact us if you have any queries.

Minahil Aijaz

I am a medical student and an avid fiction reader, with a penchant for travelling. I am currently working as a junior content writer at Genetech Solutions, one of Pakistan’s leading Software houses.

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