How Much Does Software Development Cost in Europe Compared to the US? [Market Research]

Price is such an obscure aspect when it comes to software development services. The answer to the question How much does it cost to develop an app or a website? is as relative as Einstein’s theory, even if we limit ourselves to software companies in Europe. 

Still, we can take advantage of reputable data sources and studies to identify the average cost of software development in a country of interest. We started our research by looking at the 2019 Kearney Global Services Location Index (GSLI). Let’s see how it helped us.

GSLI as the point of departure for our research

The Global Services Location Index is an annual report by Kearney. It helps organizations see factors that impact the attractiveness of countries as potential providers of outsourcing services and compare countries based on those factors. These factors are:

Financial attractiveness. The costs for employee compensation, infrastructure, taxes, and regulatory compliance dictate a country’s financial attractiveness.

Individuals’ skills and availability. This category measures people’s skills and experience in IT outsourcing and business process outsourcing, the ability to learn quickly, proficiency in foreign languages, and availability for work.  

Business environment. The business environment is about how a country contributes to mutually beneficial and safe outsourcing partnerships. Cultural adaptability and the security of intellectual property are also included in this category.

Digital resonance. This factor was added to the index in 2019. It evaluates the ability of a country to provide software development services based on metrics including:

  • IT workers’ digital skills
  • technology outputs
  • ability to ensure cybersecurity
  • amount of capital invested in startups
  • number of deals made by venture capitalists

Let’s see the countries we consider in the offshore developer rates guide you’re reading.

Direction of our study

We took the top 20 countries in the Global Services Location Index and picked out all those entirely situated in Europe to compile a list of the most preferable European outsourcing destinations. 

The European countries that managed to make their way into the top 20 are:

  • The United Kingdom
  • Estonia
  • Germany
  • Lithuania
  • Bulgaria
  • Ukraine

We also decided to add the US to our research, as it sticks to a balanced approach between producing knowledge, providing a favorable environment for technological development, and adopting innovation. 

The US held a position of leadership in the IMD World Digital Competitiveness Ranking 2019.  And in 2019, the US broke into the top ten in the GLSI for the first time. Currently, the country holds the sixth position. Exploring US software development rates will contribute to more global market research and make the differences between software development rates worldwide more evident. 

Central European countries such as the Czech Republic, Poland, and Hungary fell in their index rankings in 2019, mainly due to increasing IT services costs. Since these three countries didn’t manage to get in the top 20, we didn’t include them in our research. 

Consequently, we had seven outsourcing destinations to research. Throughout this article, we’ll look at each of them to see what makes them so attractive for the outsourcing of IT services and what issues they face. 

us and europe gsli rankings top 20

#6 USA: An uneven battle for new tech talent

In the 2019 GSLI, the US jumped up 16 spots to get into the top 20. This was possible due to best-in-index performance in the new digital resonance factor. Technologies such as robotic process automation are being widely adopted by US companies. 

But despite automation, the country still doesn't have enough software developers. An arm-twisting immigration policy on par with the high cost of local specialists complicates US employers’ efforts to find the right (and affordable) tech professionals. Let’s look at more facts proving the US talent shortage:

  • According to ManpowerGroup research, 69 percent of US companies are struggling to find experienced employees. And it turns out that software development skills are the second hardest to find.
  • University World News predicts that more than half a million information and communication technologies jobs will be created in the US within this decade. 
  • Fewer than three percent of US college students graduate with a degree in computer science. Additionally, US primary and secondary education systems haven’t been upgraded to satisfy the demand for technical skills.

Such a huge gap between supply and demand for IT skills makes US companies seek workers elsewhere. The European software outsourcing market is a promising place to turn. However, this market is enormous and differs depending on the region. All European countries have their own trends in terms of software outsourcing. Let’s start by checking how things stand in the United Kingdom, ranked the most attractive  European outsourcing destination.

us talent shortages by manpowergroup

#8 United Kingdom: Fighting the same battle as the US 

The UK ran up 11 steps in the 2019 index due to its second-best (after the US) performance in digital resonance. But the situation with labor force shortages in the UK has been tough since Brexit. 

According to the latest quarterly recruitment outlook from the British Chambers of Commerce, 55 percent of UK companies tried to recruit in the last quarter of 2019. However, 72 percent of them experienced difficulties finding the right talent. And of those companies that experienced hiring difficulties, 49 percent struggled to find a manual or technical specialist due to a lack of needed skills.   

#15 Germany: Added to the list of those struggling for software talent

Germany stepped up two positions in the 2019 index thanks to improvements in the workers’ skills and availability category. But even this didn’t help the country resolve its talent shortage. The German government has recently posted a list of job vacancies targeting non-EU citizens. Among other workers, German employers are looking for skilled specialists in IT services and robotics.  

According to the last economic survey by Eurochambres, a lack of skilled employees is one of the biggest problems facing the European Union.

Due to the lack of software developers in the US and Western Europe, many startups and organizations choose to outsource to Eastern Europe. The four most prominent Eastern European outsourcing destinations are on our list.

Outsourcing as the solution to lack of tech talent 

Some of the world’s recognized tech hubs are in Eastern Europe, and such giants as WhatsApp and Google have successfully outsourced development to this region, set up remote offices, and established IT service centers.  

These hubs keep developing their IT communities and have a capacity for an increasing number of clients. Such a favorable environment has attracted US and Western European companies to invest in outsourcing partnerships with Eastern European service providers. 

There’s also a common assumption that Eastern Europe’s development rates are relatively lower than in Western Europe and North America. That’s true, and we’ll show you the exact difference in numbers. But first, we need to figure out what influences the cost of development based on the example of creating a mobile app.

What factors impact the cost of mobile app development?

The cost of building a mobile application is not fixed and ranges significantly, from a few thousand dollars to millions of dollars. In general, the cost of an app depends on the number of specialists involved and their hourly rates. 

GoodFirms interviewed over 150 mobile app development firms around the globe and found that they charged between $5 to $150 per hour. They also discovered that the average hourly rate for IT services was $65 and that it takes from 382 to 910 hours to build an app with a minimal set of features. Based on these numbers, the average cost for budget app development ranges from $24,830 to $59,150.

However, the total cost of a custom mobile app depends on lots of criteria including the required level of scalability, design complexity, and features. The more complex an app is to build, the more development effort is required, which adds to the final cost. 

On par with app complexity, the development cost also depends on the platform you choose to build your app for. 

Read also: Evaluating Your Budget: How Much Will It Cost to Build Your App? 

How the app platform impacts the project cost 

How much will it cost to create a hybrid app or a native app for Android or iOS? To answer this question, we took the average hourly rates for these three types of apps from the same survey by GoodFirms.

We separated out the UK and Ukraine, as these countries represent two extremes — the highest and the lowest app development rates in European countries. The other European countries we’re considering vary in cost less significantly. That’s why we grouped them into a single third category: Europe. 

hourly rates for app development by platform and region

We can see that app development in Ukraine is cheaper than in the UK and especially than in the US. This suggests we should go east to check the state of software development and its cost in Eastern European countries in the GSLI top 20. 

Eastern Europe is considered a golden middle for hiring offshore developers, as they build high-quality software and a developer rate per hour is affordable. This means you can pay less for great product quality. 

Read also: How Much Does It Cost to Make an iOS or Android App?

Is Eastern Europe an outsourcing sweet spot?

In recent decades, Eastern Europe has managed to become one of the top outsourcing destinations in the world. Technological development began with tech giants like Microsoft, IBM, Apple, and Google opening branches in Eastern Europe. 

Their promising results inspired other tech firms to take advantage of outsourcing to Eastern Europe. Clutch counted more than 2,000 software development providers in the region as of March 2020. Estonia, Lithuania, Bulgaria, and Ukraine are the four European countries that have managed to get into the top 20 on the GSLI.

#12 Estonia: Exciting technological breakthroughs 

In 2019, Estonia flew ahead 13 spots in the GSLI mainly thanks to the appearance of the digital resonance category. It did a great job in the digital skills improvement and legal adaptability factors.

Estonia has given the world tech giants including Skype, TransferWise, and Bolt. Most Estonian citizens have been voting online for over a decade. The country has built a digital society in which almost all government services can be accessed on the internet.

According to the GSLI, Estonia has over 80 client-owned-and-operated service delivery centers and its business process outsourcing and IT outsourcing service providers have over 8,000 employees.      

#16 Lithuania: Advancing by leaps and bounds

Just like Estonia, Lithuania jumped up 13 steps in the GSLI in 2019 due to compensation costs, a favorable business environment, and great performance in the resonance category. Service centers of business giants including Barclays, Western Union, and IBM have appeared in Lithuania. 

According to Lithuania’s business services report 2019, IT workers dominate the global business services sector in Lithuania, with 32 percent of the total domain composed of IT specialists. 

In 2020, the country ranked 11th out of 190 countries in the World Bank’s Ease of Doing Business ranking, overtaking Estonia (18th) and Germany (22nd).

#17 Bulgaria: Trusted by the world’s leaders due to a stable business environment 

Bulgaria slid down two positions in the 2019 GSLI due to a rise in compensation costs and a decrease in IT skills. But the country has a solid infrastructure and a stable political and economic environment. 

In 2019, the World Bank opened an office in the Bulgarian capital of Sofia to provide corporate and tech support to the bank’s business operations internationally. Coca-Cola European Partners has also recently opened a finance office in the country.

According to the 2019 Southeast Europe Sourcing Industry Report by the Bulgarian Association of Outsourcing, Bulgaria has 487 outsourcing companies accounting for 61,860 employees. 

#20 Ukraine: A promising outsourcing location with flourishing software development providers

Ukraine has broken into the GSLI mainly thanks to improvements to the business environment.  According to the N-iX IT Industry in Ukraine. 2019 Market Report, there are 184,500 IT professionals working in over 4,000 tech companies in Ukraine. The country produces around 23,000 engineering graduates annually. 

Having looked at all the top outsourcing countries in Europe, let’s check the average salaries paid to IT specialists, as outsourcing rates directly impact the cost of software development. 

How much do the most needed IT professionals earn in the US and Europe?

To provide the most relevant IT market salaries in the countries we researched, we used Salary Explorer to define the average yearly salaries of the most required IT specialists. All the rates presented below are in US dollars.

it specialists average salaries usd

As we can see from the images above, the highest salaries are paid in Central and Western Europe (Germany and the UK). The US comes in second, paying IT employees handsomely. Then comes Estonia, which offers the most generous compensation outside of Western Europe. The most affordable are Ukrainian IT specialists.

Let’s now get to the heart of the matter – the hourly software development rates in all of these countries.  

Read also: Top 10 Programming Languages Going into 2020 According to GitHub

Moment of truth: How much do software development services cost in the US and Europe?

To provide you with the most common hourly rates for software development in US dollars, we researched the top software development companies in each of the countries in question. 

To get the necessary numbers, we used Clutch, a reputable online source of ratings and reviews of leading IT firms. As of March 2020, each country has the following number of top software development providers on Clutch:

US: 3,672
UK: 1,017
Ukraine: 706
Germany: 353
Bulgaria: 151
Estonia: 86
Lithuania: 55

As many companies don’t provide their rates on Clutch, the numbers of companies we could use for our study were 77 in Estonia, 52 in Lithuania, 143 in Bulgaria, and 192 in Germany. For the US, the UK, and Ukraine, we decided to study the top 200 companies in each of these countries to make the results more balanced.

software development hourly rates by region usd

In the image above, we can see that Ukraine stands out against other countries with a general hourly range of $25 to $49. For Bulgaria, Lithuania, and Estonia, the same price range dominates, although its dominance isn’t as evident as it is for Ukraine. The most common price range for the US, the UK, and Germany is $100 to $149 an hour. 

The numbers speak for themselves. Those we’ve provided in this post express the state of software pricing in Europe and the US. We hope the information we’ve shared will help you choose your offshore software development country.

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