Freelancers vs Nearshore partners: Cutting your IT costs

In nearly every large organization, they’re around: flexible workers, often referred to as freelancers or independent contractors (also known as ZZP’ers in the Netherlands). They’re not on your payroll but invoice their work monthly, often at rates between €70 and €150 per hour. Initially, they may be brought in for a limited period, but in practice they often stay in the same role for years. The differences between permanent employees and freelancers quickly blur, they’re just like regular colleagues; they speak the same language and frequently come to the office. Completely integrated. It seems like an ideal solution to team shortages, but is it really? It’s important to examine the comparison between freelancers and nearshore partners.

Hourly billing: The hidden costs of freelancers

Your freelance staff might indeed be putting in that extra effort, perhaps more willing to work a few additional hours. There’s no concept of overtime, the clock keeps ticking, and every hour worked translates into the monthly invoice, which at standard hourly rates can range from €12,000 to €25,000 per month. For such expenses on external vendors, companies often set strict quality and quantity requirements for delivered services. Spending over €200,000 annually on a vendor typically prompts a return-on-investment (ROI) analysis. But not for freelancers. They integrate seamlessly with the team, and their tasks are often not evaluated independently for effectiveness. After all, you don’t conduct monthly evaluations for your permanent employees either.

Vendor lock-in, but one-sided

A familiar term: vendor lock-in. Essentially, it’s a form of dependency where an organization relies heavily on a supplier, making it challenging (or costly and time-consuming) to replace them with an alternative. Many freelancers, particularly in IT, are specialists with specific skill sets combined with knowledge of certain processes within your organization. A certain level of mutual dependency between client and vendor is not uncommon. But it’s different with freelancers. As independent contractors they need multiple clients, and before you know it they’re off to a new one (often with slightly better terms), leaving you with a problem. Documentation of what’s been built and onboarding guidance for a successor? Unfortunately, that wasn’t a priority in recent years. And if they stay longer, you risk facing issues of false self-employment, something the DBA Act now enforces more strictly in the Netherlands.

Freelancers vs. nearshore partners: Quality and strategic continuity

It sounds so logical: flexible workers you can easily part ways with, without complicated termination procedures or severance pay. This is often referred to as agility. In recent years, they’ve increasingly worked remotely rather than on-site, as freelancers practically have the same rights as permanent employees. However, the job market has radically transformed over the past decade. Permanent employees are no longer a necessary evil but a scarce commodity of inestimate value. An organization’s ability to attract, retain, and commit talent for the long term in an intensely competitive labor market is now a critical success factor. On top of that, IT landscapes are becoming increasingly complex and therefore more knowledge-intensive. The need for flexibility is being replaced by more relevant factors, such as quality and continuity.

Why choose nearshore partners instead of freelancers?

Providers of IT nearshore – offshore services but within a similar time zone and with limited cultural distance – services (including NetRom Software) have made significant advancements in professionalization over the past few decades. Although this sector remains quite diverse, there are an increasing number of more professional providers with proven, so-called “vertical-specific capabilities.” These suppliers possess the knowledge and expertise relevant to your industry. They contribute to product development and maintenance and operate at an equal level alongside your own departments and teams. In addition, the leading service providers simply take responsibility for the quality and continuity of their services. When your nearshore partner goes beyond merely following instructions and can collaborate on an equal level in product development and ensure continuity, this offers an alternative to local freelancers at literally half the cost, with the same or even better results.

Apples and oranges

The comparison between freelancers and nearshore services isn’t entirely one-to-one, it’s distorted in several ways. When it comes to aspects like access to a knowledge base, accountability, cost-effectiveness, and knowledge retention, nearshoring tends to have an advantage. In terms of language, cultural differences, and frequent on-site presence, local freelancers may perform better. However, this comparison becomes less distorted. Especially since COVID-19, which has led many freelancers to work more from home. Thus, they are operating remotely as well, similar to a nearshore team.

Freelancers vs nearshore partners: A cost analysis

When comparing freelancers with a nearshore partner like NetRom, the hourly rate is often the first consideration. However, hidden costs and indirect benefits reveal the full story. Let’s break this down into an annual cost overview:

Freelance/Independent contractor (ZZP developer)

1. Efficiency and Productivity Loss: Freelancers are often less integrated into teams and may work less efficiently, especially on larger, more complex projects. This can result in a productivity loss of 10-20%.
2. Continuity and Replacement Costs: There’s a risk that freelancers may leave in the middle of a project, leading to additional costs for recruiting and onboarding replacements. This is estimated to add 5-10% to overall costs.
3. Recruitment and Management Costs: Hiring a freelancer often results in high recruitment costs, including screening candidates and managing contracts and payments. This can amount to 10-20% of total costs.
   
   Total Overhead Percentage for Freelancers: Consequently, the overall percentage of management costs and inefficiencies associated with freelancers can reach 25-40% of total costs.

Nearshore development partner

1. Efficient Teams: A development partner like NetRom provides well-coordinated teams that collaborate more effectively, resulting in a reduced need for intensive management. This leads to lower overhead costs, with estimated management expenses of 10-15% of the total costs.
2. Continuity: A development partner guarantees continuity, which minimizes the risk of costly interruptions due to personnel changes. This eliminates costs for replacement and training, as is often the case with freelancers..
3. Quality Assurance and Risk Management:A partner like NetRom often takes responsibility for compliance, security, and quality assurance, reducing the need for additional management.
   
   Total Overhead Percentage for a Development Partner: The overhead percentage for a development partner is typically lower, around 10-15% of total costs.

Comparison

Freelancers: 25-40% overhead costs.
Development Partner: 10-15% costs.

This difference highlights the financial efficiency of working with a development partner like NetRom, especially for projects that require long-term stability and high quality.

NetRom – Discover the ease of innovating with a stable team that truly understands your domain

NetRom Software offers nearshore software development services where relevant domain knowledge is of essential added value. With an average client loyalty of 11 years, continuity is ensured. This is reinforced by our philosophy of “Employee First = Customer First”: by prioritizing our employees, we guarantee satisfaction. Since our founding, NetRom has maintained an average turnover rate of just 6-7%, ensuring stability and continuity in the teams we activate for you.

Looking to gain a competitive advantage in both the short and long term? Consider a development partner as a viable alternative to local (IT) freelancers.

In today’s landscape, continuity and quality provide strategic benefits. NetRom is ready to assist you. Contact us to explore the possibilities of remote software development.

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