In-House vs Agency vs Offshore: The Real Cost

The True Cost of an In-House Engineer

A mid-level software engineer in London earns £65,000–£85,000 in base salary. But the total cost to your business is significantly higher. Employer National Insurance contributions add approximately 13.8% of salary.

Pension contributions add another 3–5%. Recruitment fees — whether agency or in-house recruiter cost — typically run 15–25% of first-year salary for a specialist hire. Onboarding and ramp time: most engineers take three to six months to become fully productive in a new codebase.

Benefits (health, equipment, training allowances) add another £3,000–£8,000 per year. A fully loaded mid-level engineer in London costs £90,000–£130,000 per year. A senior engineer costs £120,000–£160,000.

These numbers are before management overhead — the time your technical leads spend interviewing, onboarding, reviewing work, and running one-on-ones.

The True Cost of an Agency

Agency day rates for a senior developer in the UK run £500–£900 per day, or £130,000–£225,000 annualised. For that price, you get speed (no recruitment delay), no employer overhead, and a team that (in theory) manages itself. What you do not get is ownership of the codebase knowledge — it stays with the agency.

You do not get continuity — agencies rotate staff between projects. And you do not get alignment — an agency is optimising for their margin, not your outcome. For short, well-defined projects, agencies offer genuine value.

For ongoing product work over twelve-plus months, you are paying premium prices for a team that will never know your product as well as a dedicated in-house or offshore team would.

The True Cost of Offshore Development

A dedicated senior engineer through a managed offshore partner in India typically costs £6,500–£9,500 per month, fully loaded — their salary, benefits, HR management, office or equipment, and the partner's management fee. That is £78,000–£114,000 per year for a senior engineer, compared to £120,000–£160,000 for the equivalent hire in London. The saving is real and compounding.

A team of five offshore engineers saves you £200,000–£300,000 per year compared to the equivalent London team. What offshore costs you that the other models do not: management time for timezone coordination, an initial three to six month period of onboarding before the team is fully productive in your codebase, and the discipline to communicate well across distance. These are manageable costs, not prohibitive ones — but they need to be planned for.

The Hidden Costs Nobody Talks About

Every model has hidden costs that rarely appear in the initial comparison. For in-house: the cost of a bad hire is enormous. Recruiting, onboarding, and then managing out a poor-fit engineer can cost £60,000–£100,000 in total, including the opportunity cost of what was not built during that period.

For agencies: scope creep. Fixed-price contracts have change request processes that add cost at every revision. For offshore: attrition.

High turnover in offshore teams — which happens when compensation or growth opportunities are below market — destroys the knowledge investment you have made. A 40% annual attrition rate in an offshore team effectively means you are re-onboarding the entire team every two and a half years.

When Each Model Makes Sense

In-house engineering is the right choice when you need people who live and breathe your product, who make dozens of daily decisions that require deep context, and where the equity and culture alignment of a permanent team compounds over years. It is not the right choice when you need to scale fast, fill specialist skill gaps, or manage project costs tightly. Agency is the right choice for short, well-defined work where speed matters more than cost and where you genuinely do not need the engagement to outlast the project.

Offshore dedicated teams are the right choice for ongoing product development, scaling up engineering capacity, and accessing specialist skills at a cost structure that is sustainable long-term.

The Hybrid Model Most Companies Land On

The most common structure for well-run product companies is a small, senior in-house core team — typically a CTO or technical lead plus one or two senior engineers — combined with a larger offshore or dedicated team that does the day-to-day product work. The in-house team provides strategic direction, architectural decisions, and client-facing communication. The offshore team provides scale, execution capacity, and specialist skills.

This hybrid captures the strengths of both models while minimising the weaknesses. It also means your offshore investment is protected by strong in-house leadership that can onboard new team members and maintain standards without the offshore team becoming rudderless.