For a defined project such as an MVP or internal tool, an agency is usually cheapest overall because you pay only for the build and get design, testing and project management bundled in. Freelancers have the lowest hourly rate but shift management work onto you. In-house developers become the better deal once you have years of continuous work.
That is the short version. The longer version depends on numbers only you know: local salaries, how much work you really have, and who on your side can manage technical people. This post gives you a framework and a worksheet so you can price your own situation honestly. Budgeting and planning the build itself are covered in our custom software development guide.
Why is the hourly rate the wrong number to compare?
Because none of the three options delivers software by the hour. What you are really buying is a working product that someone can keep running, and each model hides different costs on the way there.
A freelancer at a modest hourly rate looks cheap next to an agency's blended rate. But the agency rate usually includes a designer, a tester, a project manager and someone who sets up hosting and deployments. The freelancer's rate includes one person. If you need those other skills, you either pay for them separately or do them yourself.
An in-house salary looks like the most predictable number of all, until you add recruitment, equipment, software licences, leave, employer contributions and the months when there is less to build.
Compare the cost of a finished, supported product, not the cost of an hour.
What does an in-house developer really cost?
Much more than the salary. Use this worksheet with your own local figures; we have deliberately left the numbers blank because they vary widely by country, city and seniority.
| Cost line | How to estimate it | Your figure |
|---|---|---|
| Base salary | Current local market rate for the seniority you need | |
| Employer on-costs | Retirement contributions, payroll taxes, insurance required in your country | |
| Recruitment | Agency fee or the time your team spends advertising and interviewing | |
| Equipment and software | Laptop, monitors, paid tools, cloud accounts for testing | |
| Leave and public holidays | Weeks per year the developer is paid but not building | |
| Management time | Hours per week someone senior spends directing and reviewing work | |
| Ramp-up | Weeks before a new hire is fully productive on your system | |
| Missing skills | Design, testing, DevOps or security you must buy elsewhere |
Add the lines up and divide by the number of weeks of genuinely productive building you expect. That is your true weekly cost per developer.
Then consider team size. One developer is rarely a team. Most business software needs some design, some backend and frontend work, testing and a person who owns hosting and security. A single hire either covers all of these less well, or you end up hiring two or three people.
What does an agency really cost?
An agency costs the quoted project price plus ongoing support, and usually far less management time from you. You are paying for a ready-made team that already works together.
Here is what agencies typically charge, as rough estimates in US dollars:
| Project type | Typical agency range (USD, estimate) | Typical timeline |
|---|---|---|
| Simple internal tool or automation | $6k–20k | A few weeks |
| MVP web app or SaaS | $15k–50k | 8–16 weeks |
| Mid-size web platform | $50k–150k | 4–9 months |
| Cross-platform mobile app (simple to mid) | $25k–90k | 10–20 weeks for an MVP |
After launch, plan for maintenance of roughly 15–25% of the build cost per year. That covers security updates, small fixes, dependency upgrades and minor changes.
The hidden agency costs are different from in-house ones. You pay a margin for the firm's overheads, you share the team with other clients, and knowledge about your system lives outside your business unless the contract requires documentation and handover. How the contract is structured changes the risk a lot, so check which contract model suits which project before you sign.
What does a freelancer really cost?
A freelancer costs their rate plus your time as project manager, quality checker and backup plan. For small, well-defined jobs that can be excellent value. For anything larger, those extra roles add up quickly.
The costs that do not appear on a freelancer's invoice:
- Your management hours. Someone has to write specifications, review progress, test features and make decisions.
- Continuity risk. If the freelancer becomes unavailable, nobody else knows the code. That is sometimes called the "bus factor": how many people could disappear before the project stalls. With one freelancer, it is one.
- Skill gaps. A strong backend developer may not be a good designer, and vice versa.
- Code quality you cannot judge. Without someone technical reviewing the work, shortcuts pile up unnoticed. Those shortcuts become technical debt that quietly costs your business every time you try to change something later.
How do the three options compare side by side?
Each model wins on different measures. The right one depends on how much work you have, how long it will last and who on your side can manage it.
| Factor | In-house team | Agency | Freelancer |
|---|---|---|---|
| Cost structure | Fixed salaries, paid whether or not there is work | Project or retainer price | Hourly or per task |
| Time to start | Slowest: recruiting and onboarding | Fast: team already exists | Fast for one person |
| Range of skills | Only the people you hire | Design, development, testing, DevOps bundled | Usually one specialism |
| Management load on you | High | Low to medium | High |
| Continuity if someone leaves | Medium: you can rehire, but knowledge leaves | Medium to high, if handover is in the contract | Low |
| Knowledge of your business over time | Highest | Grows with a long relationship | Varies |
| Best for | Software that is your core product with years of continuous work | Defined builds, MVPs, platforms, mixed skill needs | Small, clearly scoped tasks with internal review |
Which option should you choose?
Use these decision rules as a starting point:
- Choose in-house when the software is your product, you have a continuous backlog for the foreseeable future, and you can attract and manage developers. Plan to hire a small team, not one person.
- Choose an agency when you have a defined project, need several skills at once, want a fixed budget, or do not have a technical manager.
- Choose a freelancer when the task is small and well specified, and someone on your side can review the work technically.
- Combine them when it makes sense. A common path is an agency building version one, then supporting your first in-house hire through a documented handover. Another is an in-house lead directing freelancers for overflow work.
If you are looking further afield for lower costs, our playbook on outsourcing software development to India covers the offshore version of the agency model, including time zones and ownership terms.
How do we approach this ourselves?
As an agency we have an obvious bias, so here is our honest position: if a business has a long-running product and a technical founder, hiring in-house sooner usually makes sense, with outside help brought in for specific projects. For our own operations we built and run an Ops Console covering CRM, a lead centre that pulls in website and Meta lead-ad enquiries automatically, tasks, invoices, proposals and a client portal. That is a good example of a project an in-house team at a small business would struggle to staff, but which a mixed-skill team can deliver as a defined build.
Frequently asked questions
Is hiring one in-house developer cheaper than an agency?
Sometimes, over several years, if you have continuous work and can manage them well. For a single project, usually not, once you count recruitment, on-costs, management time and the skills one person lacks. Use the worksheet above with your real local numbers to compare.
Are freelancers good for building an MVP?
They can be, if the MVP is small and someone on your side can write clear specifications and review the code. For an MVP that needs design, backend, frontend and hosting set up properly, a small team usually finishes faster and with fewer gaps.
What hidden costs do agencies have?
Margin for their overheads, shared attention across clients, and the risk that knowledge stays with them. Reduce that last risk by requiring documentation, repository access and a handover plan in the contract.
Can I switch from an agency to an in-house team later?
Yes, and it is a common path. Make it easier by owning the code repository and hosting from the start, asking for documentation as part of the build, and budgeting for a few weeks of overlap where the agency supports your new hire.
How much should I budget for maintenance under each model?
For agency-built software, plan for roughly 15–25% of the build cost each year. With in-house staff, maintenance comes out of their time, so it reduces how much new work they can do. With freelancers, agree a support arrangement up front, because availability is not guaranteed.
Not sure which model fits?
Tell us what you are building, how long the work will last and who on your side can manage it, and we will give you a straight answer, even if that answer is "hire in-house". You can review what we build first, or request a fixed-price estimate for your project.