A Guide To Pricing Tech Projects Across Europee_darrellj | Apr 13, 2015
Occasionally we ask Elance clients and freelancers to discuss their experiences working online. Here’s a quick case study from the team at Yalantis.
Price is such an obscure aspect when it comes to 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 its scope to the European market.
Presumably, development services in Switzerland are more expensive than in Romania, while in Denmark and in Norway the costs are thought to be pretty similar. The post-soviet world, is considered, among other things, to be the perfect destination for software development outsourcing, since prices are reasonable and quality of services is better than in many other outsourcing destinations.
Instead of dwelling on assumptions, though, let’s try to test these hypotheses with real data. The following research was done with the purpose of helping those looking for development services in Europe come to well-grounded conclusions.
Our research is premised on the tacit assumption that the cost of service is directly related to its quality.
We based our observations on the following suggestions:
· A low-priced service is unlikely to result in high quality deliverables.
· The average price in a given market corresponds to a level of quality deemed sufficient by purchasers. In the case of software development, though, a product owner may be left with the feeling that ‘it could have been done better’.
· A price “above average” is what a product owner should be looking for, since higher rates generally indicate higher quality.
· Very high prices are simply not affordable for many.
Another issue we’d like to raise is the degree by which the quality of a delivery can be estimated prior to it’s being made. To paraphrase the old parable about the three stonecutters, one IT developer can write code, another one can make a website or an app, and the third one can actually make a successful product.
Which of those software developers do you want to cooperate with?
We did this research to show how price, one of the most important criteria used by companies to select development resources, is distributed across European countries.
We chose Elance as the most suitable platform for retrieving and comparing the hourly rates of individual freelancers offering IT services around Europe. For this survey, we considered only the countries with at least 200 representatives in the category ‘IT & Programming’ and divided these countries into regions.
1. Post-Soviet states
The region we call “post-Soviet” includes five states – Belarus, Ukraine, Russia, Armenia, and Moldova, and contains 15,250 individuals and 2,328 companies, registered on Elance. This is the largest IT market in Europe.
Ukraine alone has the second largest number of IT specialists in Europe after the United Kingdom. The country is home to 9,272 freelancers, or 16% of the total European developer population.
Why is this information so important?
While making this report we came to a conclusion that the more developers there are in a particular country or region, the better the value for money of the service found there. This can be explained by the economic concept of emulative consumption, or the struggle to possess and outdo your neighbor.
One of our first observations about the post-Soviet region is that prices are distributed unevenly across the constituent countries. The chart below shows how exactly the pricing landscape specific to how a particular country looks.
We can see that the most popular price for IT services in post-Soviet countries is in the $20/hour range, whereas the highest cost, over $100, is charged by only 0.3% of the respondents. Russia is the only country in the region with more than 1% of companies and individuals (2,2%) charging $51-$100 per hour of work. At the same time, a vast majority of the region’s representatives, about 90%, charge $30/hour or less per hour of work.
In order to calculate the average price for IT services in these countries, we took the following steps:
· Excluded extreme prices (both the lowest and the highest)
· Distinguished the middle-value for price ranges (for example, for the $31-$40 category the mid-value is $35/hour)
· Multiplied the mid-value by the total number of representatives of a particular pricing category
· Summed up all the results and divided them by the total number of IT companies and individuals
· Deducted/added 20% from/to a given average price in order to have a price interval, specific to a particular region.
You can see the results of these calculations in the chart below:
We can see from Chart 2 that the average price for IT services in post-Soviet countries ranges from between $25/hour and $35/hour. The blue line on the graph corresponds to a supposedly moderate quality of IT services, whereas the upper red line reflects a price “above average”, which relates to higher-quality services.
If you are looking to outsource software development to post-Soviet states, we strongly recommend you work with individuals who charge within or above the $31-$40 an hour price range.
2. The Baltics
It is worth mentioning that the Baltics is the smallest IT region we considered in this report, with only 1,162 outsourcing companies and freelancers from this bloc registered on Elance. The breakdown of pricing categories for IT services in the Baltic states is shown below.
Latvia, Lithuania, and Estonia were part of the Soviet Union, but they did not become members of the CIS after its collapse. Proximity to Europe might have played a role in the economics of these counties. They appear to be more expensive than post-Soviet states in terms of IT & programming outsourcing services. Thus, almost 1% of the respondents charge over $100 per hour of work. The number of freelancers setting an hourly rate of $51-$100 amounts to 6% (15% in Estonia), while slightly more than a half, some 55%, works for the comparatively low price of up to $20/hour.
The average price for IT services in the Baltics comes close to $31-$44 per hour.
The recommended pricing category is $41-$50 per hour ($50+ for Estonia).
3. Eastern Europe
In terms of the average price for IT services, Eastern Europe can be placed somewhere between post-Soviet and Baltic countries. However, there is a significant difference between the countries of this region.
In Poland, for example, only 40% of IT specialists charge $20/hour or less, whereas in Romania this percentage is approximately 67%. This can possibly be explained by the fact that Romania takes 4th place after the UK, Ukraine, and Russia in the number of companies and freelancers engaged in IT (5,238 Romanian companies and individuals are registered on Elance), which creates a more competitive environment for Romanian developers compared with neighboring countries.
The average price for IT services in Eastern Europe comes out to approximately $28-$40 per hour.
The recommended pricing category is about $40 per hour (in the Czech Republic $41-$50).
4. The Balkans (Greece included)
68% of companies and individuals in the Balkans charge less, than $20/hour for IT services, the highest percentage in Europe. However, there is a formidable gap in pricing structures between Greece, Croatia, Slovenia, Albania, Bosnia, and Macedonia. The former are closer to Eastern Europe and the Baltics in terms of pricing rates, while the latter are the cheapest countries in Europe for software development, along with Armenia and Moldova.
Interestingly enough, Serbia with a population of only about 7 million people, takes the 5th place in Europe for number of freelancers engaged in IT, with 3,282 companies and individuals registered on Elance. This is the largest proportion of IT specialists per capita on the continent.
The average price for IT services in the Balkans comes close to $27-$40 per hour.
The recommended pricing category is $31-$40 per hour for Albania, Bosnia & Herzegovina, Serbia, and Macedonia, and $41-$50 per hour in Croatia, Greece, and Slovenia.
The second smallest IT region on the continent after the Baltics, Scandinavia is the most expensive in terms of IT outsourcing and consulting services.
Less than a third of respondents in Northern Europe charge $20/hour or less, whereas almost 10% set rates of $100/hour or more. The second most popular pricing category is $51-$100, which represents a solid one fifth of all the IT specialists in the region.
The average price for IT services in Scandinavia comes close to $39-$55 per hour.
The recommended pricing category is $51-$100 per hour.
6. Central and Western Europe
The number of companies and individuals charging $20/hour or less, some 30%, is even smaller in this region than in Scandinavia. However, Scandinavia has almost twice as many IT specialists charging over $100/hour than in Central and Western Europe. Switzerland is an exception, though, being the only European country where a rate of +$20/hour or less is not the most popular category, and applies to only $16% of respondents.
Belgium is the only country in Europe where the second most expensive price range, $51-$100, is represented by more than a quarter (28%) of all IT companies and freelancers. This makes it the most expensive country for IT services in Europe if we judge by the average prices for software development services.
The average price for IT services in Central and Western Europe comes close to $39-$57 per hour.
The recommended pricing category is $51-$100 per hour and $60+ per hour for Belgium.
7. Southern Europe and the UK (Ireland included)
Southern Europe (Italy, Spain and Portugal) is between Eastern Europe and Western Europe (not geographically, of course, but in terms of prices for IT services).
The number of IT specialists in Southern Europe charging $100+ an hour is only 1% with an additional 10% of developers falling into the neighboring pricing category of $51-$100 an hour. Portugal stands out as the cheapest country in the region for IT services, with prices similar to countries in Eastern Europe and the Baltics.
The UK, including Ireland, is close to Southern Europe in terms of prices. If we take the average figures, however, we’ll see that software development is more expensive in the UK. As mentioned above, the UK is the largest European country by number of individuals and companies engaged in IT & programming (9,393 respondents registered on Elance). This results in a very competitive environment in ‘Foggy Albion’.
The average price for IT services in the UK (+Ireland) $36-$52 per hour.
The recommended pricing category in the UK (+Ireland) is $51-$100 per hour.
Interestingly enough, prices in the UK are lower than in Scandinavia or Central and Western Europe. In our opinion, this can be explained by the economic concept of emulative consumption. Located in the most competitive IT market in Europe, companies and individuals are forced to find ways to reduce prices for their services. That’s why many of them hire outsourcing companies in India or Eastern Europe which helps them compete.
Companies, head-quartered in Baltics and post-Soviet states tend to open offices in the largest tech hubs in Europe, such as London or Berlin, in order to raise their status, which in turn allows them to charge more for their services.
Overall, the cheapest regions in Europe in terms of software development services are post-Soviet countries and the Balkans, while the most expensive are Scandinavia, Central and Western Europe, and the UK.
For now, the post-Soviet area is the most competitive market for companies and individuals engaged in outsourcing, since there are almost twice as many representatives of the IT sphere there as in any other region.
The fact that there are so many specialists in the region is partially a result of its large number of technical universities, most of which were inherited from the Soviet Union, and partially because of the unsatisfactory conditions of the labor market. The current problems in heavy industry, metallurgy, and other technical sectors in post-Soviet states has freed many qualified engineers who can easily learn programming and become part of a competitive work force.
It’s notable that Estonia, Poland and the UK are the only countries where companies amount to over 20% of the total number of ‘freelancers’, while the average proportion of IT companies to IT individual specialists in Europe is 14 to 86.
It is important to highlight that top-level companies, including those from the top of Google’s search list, can charge twice or even three times as much as the average price for the IT services we calculated in this report. At the same time, it’s always possible to find a developer, who will agree to charge less for his work than the average price in a given market.
Another important factor to consider when looking for software development services is whether you’d like to work with a company or an individual freelancer. In relation to that question we should keep in mind the following:
· The development services of an individual freelancer will almost certainly be cheaper than those of a company (not a group of individuals, but a company), but not always as effective. A freelancer can hardly possess all the competencies necessary to make a successful product.
· The number of individual freelancers that were considered in this report is almost six times larger than the number of companies. This makes individuals somewhat overrepresented in this report. However, our survey could also be useful for those looking for outsourcing companies.
· The prices charged by companies and individuals in developed European countries are higher than those charged by companies and individuals in developing ones. This is due to higher administrative costs, taxes, and other expenses.
Taking all this into account the above-mentioned, we recommend looking for a company or an individual in a competitive market, since the average price for a quality service tends to be comparatively lower there than in less-competitive ones.
The Yalantis team provides world-class native iOS and Android mobile app development services.
Money photo courtesy of Giovanna Baldini