Why the Cheapest Hourly Rate Often isn’t the Cheapest Option

When choosing an outsourcing partner for design and development, many decision-makers naturally start by comparing hourly rates. At first glance, it seems logical: a lower hourly rate means lower project costs, right?

The truth is, hourly rates can be a misleading metric. The actual cost of outsourcing is much more complex than the dollar amount tied to hourly rates. In this article, we’ll explore why focusing on hourly rates can obscure the true cost of a project and why it’s crucial to dig deeper when evaluating potential partners. I’ll end by suggesting a few things to focus on instead of or in addition to the hourly rate.

Efficiency vs. Hourly Rates

Imagine you have two outsourcing options for a specific task:

• Pat: A developer who charges $100/hour and takes 3 hours to complete the task. 
• Terry: A developer who charges $200/hour but only takes 2 hours to complete the same task.

Pat’s hourly rate is lower and Pat’s total cost looks cheaper. The total cost for Pat is $300, while for Terry, it's $400. But there's more at play than the hourly breakdown.

Terry may be faster because they are more skilled, experienced, or familiar with the problem. They produce a higher-quality output that might need little to no revision, while Pat may deliver work requiring additional oversight, rework, or fine-tuning.

This brings us to a crucial point: efficiency and expertise often outweigh raw hourly cost.

Hidden Costs of Oversight and Management

The cost of managing lower-cost teams can quickly add up. Inexperienced or less skilled developers often require more:

• Guidance and supervision: You or your in-house team may have to spend significant time managing or directing work, which adds hidden costs to the project.
• Rework and revisions: Less-experienced teams may not get it right the first time, and even small mistakes can snowball into major issues that need to be fixed later on.
• Communication barriers: Some outsourcing teams might not be as effective in communicating progress or roadblocks, which can slow down the entire project and lead to missed deadlines.

Each of these factors chips away at the apparent "savings" from choosing a lower hourly rate.

Quality: The Long-Term Investment

Design and development work (insourced or outsourced) is an investment, not just a cost. High-quality work may come with a higher hourly rate, but the long-term savings are substantial:

• Fewer bugs and technical debt: A more experienced development team will likely deliver better code, resulting in fewer bugs and long-term maintenance issues. A more experienced designer is more likely to think through and design for all edge cases, filling in all the gaps.
• Faster delivery: A skilled team is often more familiar with best practices, frameworks, and tools that allow them to complete tasks efficiently.
• Scalability: High-quality designers and developers think ahead and design systems that can scale with your needs, preventing costly future refactoring.

The Cost of "Cheap" Work

Sometimes, "cheap" work ends up being the most expensive in the long run. Lower-quality outsourcing might require you to:

• Hire another team to fix or rebuild the work.
• Delay product launches due to unanticipated project overruns.
• Damage customer trust by releasing subpar products riddled with bugs or poor design.

In some cases, teams that seem "affordable" may not have the expertise to foresee potential pitfalls, which means costly issues arise later in the process.

Calculating the Total Cost of Ownership

To truly compare outsourcing options, decision-makers should consider the total cost of ownership (TCO), not just the hourly rate. TCO includes:

• Efficiency: How quickly and effectively can the team complete the work?
• Oversight: How much management and guidance will the team require?
• Quality: Will the output meet your expectations, or will it need significant revisions or rework?
• Maintenance: What will it cost to maintain or scale the system after the initial work is done?

A team with a higher hourly rate but lower total costs in these areas may be the more cost-effective choice in the long run. For a more complete example:

• Pat: Your $100/hr developer completes a task in 3 hours ($300), requires 1 hour of oversight from an in-house Senior Developer ($150), and eventually needs to be refactored or rebuilt entirely ($1,000).
• Terry: Your $200/hr developer completed a task in 2 hours ($400) based on a 10-minute overview from an in-house Senior Developer ($15), and makes an above-and-beyond measurable impact on page performance (priceless).

The best long-term investment becomes more clear when you consider all the variables. 

Conclusion: Think Beyond Hourly Rates

When investing in design or development, your goal should be to maximize ROI, not minimize hourly rates. When comparing outsourcing options, focus on the bigger picture—their efficiency, quality, and the hidden costs of oversight and management. Consider how your prospective partners measure up in terms of:

• Results: can they point to clear results of their work in which they played some critical role?
• References: would previous clients choose to hire them again (indicating they are worth their cost)?
• Communication: do they respond quickly and with clarity?
• Expertise: do they provide opinions and advice or are they simply order takers?
• Relevance: is their prior experience directly relevant to your needs? 
• If not, do they have a track record for navigating novelty well?

The right team might not always be the cheapest on paper, but they’ll deliver the greatest long-term value. Outsourcing isn’t about getting work done cheaply—it’s about getting it done right, and more often than not, the old mantra “you get what you pay for” holds.