What does a dedicated development team cost?
The rate you are quoted is not the cost of the engagement, and the salary you would pay in-house is not the cost of hiring. Almost every disappointing comparison in this market comes from putting those two wrong numbers next to each other. A dedicated team is priced as a fully loaded capability, so the only fair comparison is against the fully loaded cost of the same capability employed directly, which is a larger number than the payroll line suggests.
What is actually inside the rate?
A blended engineer rate is a salary plus everything an employer pays on top of a salary, plus the supplier's cost of keeping that person available to you, plus margin. The salary is the largest single component and it is usually a minority of the total.
The additions are unglamorous and real: employer social contributions and payroll taxes, paid leave and public holidays, equipment, office or remote allowance, health cover, recruitment cost amortised over an expected tenure, and the cost of bench time between engagements. Then the shared functions that make the team work at all, which means the team lead's time, delivery management, HR and finance. Margin sits on top and is usually smaller than clients assume, because the loaded cost underneath is bigger than they assume.
This is why an unusually low rate should worry rather than please you. Rates below the loaded cost of employment in the supplier's own market are being subsidised by something, and the usual candidates are junior staff billed as mid-level, a person shared across three clients, or a business model that requires constant new sales to cover existing delivery.
| Cost line | Who carries it | Typically visible? |
|---|---|---|
| Gross salary | Supplier, inside the rate | No, rate is blended |
| Employer taxes and statutory contributions | Supplier | No |
| Paid leave, sick leave, public holidays | Supplier, so you pay for delivered time only | No |
| Recruitment and replacement | Supplier | No, until turnover becomes yours to notice |
| Bench and utilisation gap | Supplier | No |
| Team lead, delivery management, HR | Supplier, or you if you buy augmentation | Sometimes, as a separate line |
| Onboarding and ramp | You, in reduced early output | Never on the proposal |
Why is comparing the rate to a salary misleading?
Because a salary buys you an obligation to pay, not a guarantee of delivered work. Employer contributions, holiday, sickness, equipment, recruitment fees, management time and the cost of an empty desk while you search all sit outside the payroll figure, and every one of them is inside a supplier rate.
The comparison also ignores what happens when someone leaves. An in-house resignation costs you a notice period at reduced output, a search, an offer premium to beat the market, and a fresh ramp. Under a dedicated team contract those costs sit with the supplier, and the relevant question becomes whether the contract actually obliges them to backfill and how quickly.
The honest counterpoint is that in-house employment buys something a contract cannot: permanence of knowledge and identification with the business. That is a real advantage and it is why the conversion question exists. It is not, however, a cost advantage, and treating it as one produces budgets that fail in the first year.
What drives the rate up or down?
Four things, roughly in order of size: the market the engineers are employed in, the seniority mix, the scarcity of the specific skill, and the shape of the commitment.
Location dominates because it sets the loaded employment cost underneath everything else. Seniority is the next lever and the one most often misused, because clients specify senior across the board when a team of one senior, two mid and one junior would deliver more for the same money. Scarce specialisms carry a premium that is genuinely earned: a machine learning engineer or an experienced platform engineer is expensive everywhere, and a supplier offering one at a general application development rate is offering you something else.
Commitment shape is the lever clients forget they hold. Longer terms, predictable headcount and slower ramp-down notice all reduce the supplier's utilisation risk, and utilisation risk is a real line in their cost. Asking what a twelve-month commitment does to the rate is a reasonable question and usually produces a real answer.
What does the proposal leave out?
Four costs, all of which land on you. Ramp, which is the reduced output of the first weeks while the team learns your domain and codebase, and which is the largest hidden cost in the whole engagement. Your own management time, because a team of six needs a product owner who is genuinely available, not someone attending a demo fortnightly. Tooling and licences per seat, which are small individually and surprising in aggregate across repositories, CI minutes, observability, design tools and any per-user SaaS in your stack. And environment access, including any security or compliance work needed before external engineers can reach your systems.
That last one is the schedule risk rather than the cost risk. If your access approval takes six weeks, you are paying a full team rate while people wait, and this happens often enough to be worth checking before a start date is agreed.
A useful discipline is to build the budget as team rate plus a ramp allowance plus a named internal owner's time, then compare that total against the loaded in-house alternative. Comparisons made this way rarely surprise anyone later.
Which pricing structure should you accept?
A fixed monthly cost per named team member, with a clear notice period and a stated policy on holidays and replacements, is the structure that produces the fewest arguments. It is predictable, easy to forecast, and makes the supplier's incentive to keep good people on your account clear.
Hourly billing against a monthly cap looks more precise and usually is not, because it introduces a conversation about whether a given hour was billable and pushes both sides toward measuring time rather than output. If you are offered hourly, ask what happens in a week where someone is blocked waiting on your team, and listen carefully to the answer.
Whatever the structure, three clauses matter more than the number: notice period for reducing headcount, the replacement obligation and its timeframe, and whether you pay for a replacement's ramp. The third is the one most often left silent, and the reasonable position is that you pay for the person you had, not twice for the same knowledge.
How do you sanity-check a quote this week?
Take the monthly rate, divide it by a realistic number of working days in the month, and ask yourself whether you would pay that day rate for a competent contractor in the supplier's own market. If the answer is that it looks impossibly cheap, ask directly what the seniority mix is and whether anyone on the proposed team is currently on another account.
Then ask for the team composition by name and role, with the lead identified, and ask what proportion of the lead's time your account gets. A lead spread across four accounts is a coordination cost you will pay in slower decisions.
Finally, ask what the rate would be for the same team in twelve months. A supplier who cannot answer has not thought about retention, and retention is the mechanism that determines whether the context you are paying to build stays in the room.
Common questions
- How is a dedicated development team rate calculated?
- A blended rate contains gross salary, employer taxes and statutory contributions, paid leave and public holidays, equipment, health cover, recruitment cost spread over expected tenure, bench time between engagements, and the shared cost of team leadership, delivery management, HR and finance. Margin sits on top and is usually a smaller share than clients expect, because the loaded cost beneath it is larger than the salary figure implies.
- Is a dedicated team cheaper than hiring in-house?
- Compared fairly it often is, but only when the in-house side is costed fully: employer contributions, holiday and sickness, equipment, recruitment fees, management time, and the empty desk during a search. Compared against a bare salary figure it will look expensive, which is the mistake that misprices most of these decisions. In-house employment does buy permanence of knowledge, which is a genuine advantage but not a cost advantage.
- Why are some offshore development rates so low?
- Rates below the loaded cost of employing an engineer in the supplier's own market are being subsidised by something. The usual explanations are junior engineers billed at mid-level, one person shared silently across several clients, or a business that depends on continuous new sales to fund existing delivery. Ask for the seniority mix by name and whether any proposed team member is currently assigned elsewhere.
- What costs are missing from a dedicated team proposal?
- Four, all landing on the client. Ramp, meaning the reduced output while the team learns the domain and codebase, which is the largest hidden cost. Internal management time, since a team needs a genuinely available product owner. Per-seat tooling and licences across repositories, CI, observability and any SaaS in the stack. And security or access approvals, which cost schedule rather than money when a full team waits weeks for credentials.
- Should I pay a fixed monthly rate or hourly?
- A fixed monthly cost per named team member produces fewer disputes and forecasts cleanly. Hourly billing looks more precise but pushes both sides toward measuring time rather than output, and creates arguments about weeks where an engineer was blocked waiting on the client. Whichever structure applies, the notice period, the replacement obligation and whether the client pays for a replacement's ramp matter more than the headline number.
- Does a longer contract reduce the rate?
- Frequently, because utilisation risk is a real cost line for the supplier. Longer terms, predictable headcount and generous ramp-down notice all reduce the chance of an engineer sitting on the bench between engagements, and suppliers can price that reduction. Asking directly what a twelve-month commitment does to the rate usually produces a concrete answer, and the answer tells you something about how the supplier's business works.
