Freelancers vs. Agencies in IT Project Development

The 4th industrial revolution has caused traditional businesses to shift their focus towards digitization. Many organizations that don’t have software developers on their payrolls now need to decide whether to form their own development teams, or outsource their projects to outside providers.

Deciding whether to hire freelancers or an agency to carry out key development projects is not an easy one either. Most software projects require significant time and money investment, and the future of your entire business can depend on the results.

With this out of the way, let’s start by examining the benefits and downsides of hiring freelancers as well as agencies.

Benefits of hiring freelancers

Lower development rates – Because they have no overhead costs to worry about, freelancers are usually able to offer more cost-effective rates compared to agencies.
We list this as a benefit here, but lower rates alone don’t mean that your project will be more cost-efficient. If a project gets delayed due to poor source code quality or project management issues, the actual final cost can become much higher.
In-house employment is an option – Companies often decide to permanently hire freelancers who perform well over a longer period of time. The availability of this option only depends on the freelancer’s plan for the future, while it is rarely possible with agencies.
High-level specialization – Freelancers often decide to become specialists in a few development technologies, making them reliable experts in their own field. This can sometimes be a downside too, if your project requires the use of a wider range of languages and frameworks.
Scaling the team is easy – Recruiting new freelancers for a project is relatively fast and easy. There are many freelancer platforms and recruiting agencies out there who can help you do this as well. Once you recruit new team members, the senior development lead can help on-board them to the project.

Note: While finding freelancers is easy, it’s fairly difficult to realistically assess their competencies before actually hiring them. If you don’t have a thorough skill assessment procedure in place, finding the right people to join your project can also take a long time.

Potential downsides

Management issues – After a certain point, it becomes very difficult to manage a large team of freelancers. This is especially true if they are working from different locations and time zones. Tracking performance and work progress are among the main management challenges.

Working from home in general can have its own downsides. At first it might sound great, but in practice it can be difficult to provide consistent results if the work environment is too unstable. Potential distractions, and lack of control can cause work to slow down and lose focus.

Communication can be difficult – Without careful coordination, working from different time zones also weakens the flow of information between team members. It can be extremely time-consuming if you constantly have to ask for updates from each freelancer on your team. Agencies often solve this by dedicating a person to this role full-time.

Also, if there are too significant cultural differences between the employer and freelancers, the effectiveness of communication can decrease further. Even carefully written task specifications can be misinterpreted by the other party, causing delays in the project.

Work overload & split focus – Freelancers often work for multiple clients at the same time. They can also get distracted by solo projects of their own, potentially slowing down the progress of others. Motivating freelancers to focus more on your project can also be difficult. Increasing salaries only works as a motivator up until a certain point.
Potentially high fluctuation – Freelancers often have a change of heart about their careers, either deciding to seek full-time employment or change specialization. This can mean high fluctuation over the course of a longer project, causing progress to slow down every time you have to on-board a new team member.

On the other side of things, agencies will likely remain available for the long run.

Replacing key team members is difficult – If a developer who has spent years developing your software suddenly decides to leave the project, replacing him or her can be a real challenge. Without having detailed documentation, it can also take weeks or even months for new developers to figure out how everything works in the source code.

Benefits of hiring an agency

Streamlined project management and QA processes– Agencies usually have highly optimized project management methodologies in place. Dedicated project managers can help you take care of team monitoring and communication tasks. This allows you to focus more on other, also important areas of your business. You can be sure that the team will be able to effectively communicate in your language, because project managers are specifically trained to possess the necessary language skills.

It is not the case for every agency, but many also have in-house quality assurance and code review processes, which guarantee higher software quality.

Larger knowledge pool – If you work with an agency, you gain access to the combined technical knowledge of dozens of development experts. This is essential for larger, more complex projects that require in-depth experience with multiple platforms, languages and frameworks.
Higher accountability and reliability – While freelancers can disappear from a platform overnight, agencies are registered and regulated by their local governments. If managed well, they can serve as long-term partners over the course of multiple years or even decades.

Signing legally binding development contracts with them also provides much more security for your business, with clearly defined accountability.

Takes care of scaling the team for you – You don’t have to worry about scaling the development team either if you choose to work with an agency. They usually have plenty of available developers to dedicate to a project. They are often also in constant contact with IT recruitment agencies to be able to hire additional developers quickly if necessary.

You also don’t need to worry about replacing key developers if they unexpectedly become unavailable. Agencies can seamlessly take care of this as well.

Potential downsides

Higher development rates – Agencies usually work with somewhat higher hourly rates than freelancers. This is understandable, as they also have to cover certain overhead costs. Also, most of these expenses will serve the purpose of ensuring a smoother development process and higher product quality.

They are able to offer added services such as team scaling and recruitment, QA, project or product management and more.

Changing teams can be difficult – If for some reason you decide to take your project to another development agency, this can be hard to do in certain cases. Some agencies might refuse to give you full ownership of the source code, or the contract can even prohibit changing providers over a previously agreed upon time period. We don’t do any of this to provide a high level of freedom for our clients, but these practices do exist in the industry today.
Can’t employ their developers in-house – Permanently hiring a dedicated developer into your in-house team is usually not an option. If it is, it usually comes with a very steep price. However, agencies like ours are always more than happy to long-term partnerships with clients.

Based on these benefits and downsides, we can already draw some conclusions.

How to decide if you should hire freelancers or an agency for your project

Depending on who you ask, and how you define project failure, the IT project failure rate is around 50-70%. Many software projects get cancelled or run out of budget due to project management issues, lack of development experience and various other reasons.

This happens regardless if someone decides to hire freelancers or an agency, or even in-house developers.

With all this said, it is clear that project owners need to be extra careful when choosing development partners. In our opinion, some projects are really well-suited for freelance teams, while others absolutely require the full attention of a dedicated software development agency.

We aren’t saying that it is impossible to complete a certain project with either freelancers or agencies. Our experience shows that some types of projects are simply better suited for one setup than the other.

Many different aspects need to be considered before making this decision. Some of these are:

Project scope

In project management terms, scope means the defined features and functions of a product. It can also represent the scope of work needed to complete a project.

If the scope of your project contains the development of a wide range of features for multiple platforms, using different programming languages and frameworks, you should probably consider hiring an agency.

For shorter projects with a more narrow scope, such as developing a website or building an application with only a few core features, it is often more beneficial to hire freelancers.

Complexity

Similarly to project scope, you should also take software complexity into account here. A highly complex program is comprised of many different parts that all interact with each other, often through multiple software platforms. Building such a system requires careful coordination, planning and management throughout the whole project.

Agencies are usually better equipped to handle such a project. They have optimized project methodologies in place, and can dedicate specialists to each management and development role.

We’re not saying, of course, that complex projects are impossible to complete with a team of freelancers. If you decide to go with this setup though, you must be prepared to dedicate a significant amount of time to managing the team and monitoring their progress.

Scaling

As we mentioned, managing a large team of freelancers can be very difficult. For projects that require you to scale the development team over time, it is definitely more beneficial to work with an agency.

On the other hand, if you are prepared to manage the work of a few freelancers, and you know for sure that you won’t need to scale the team in the future, you can safely choose this option as well.

If your team is prepared to handle scaling management, technical recruitment project management, etc., then hiring freelancers can still be a viable path for you.

Accountability

As many other forms of investment, development projects also come with a high amount of risk. Over the course of a longer development project that can last multiple years, many things can go wrong.

In this case, you want to have certain measures in place that guarantee your business’ safety. As government-registered and monitored entities, development agencies are easier to hold accountable if they fail to hold up their end of the deal.

If your project is really key to your business’ success and involves a high level of risk (high investment), we recommend hiring an agency over freelancers.

Risk management

This factor is also somewhat connected to the previous one. The best way to prevent failure is to implement risk prediction and prevention measures. Having constant performance monitoring and quick issue resolution procedures can greatly increase your project’s success.

Agencies can usually offer more risk management solutions compared to freelancers. There are more eyes on the project at all times, if a key team member becomes unavailable, someone else can quickly fill in for them. Dedicated project managers can also warn you about potential delays and risk factors in time.

Again, consider the level of risk involved in the project carefully before deciding whether to hire freelancers or an agency.

Technical recruitment capabilities

As we mentioned earlier, assessing and verifying software development capabilities can be quite difficult. If your team isn’t equipped with the proper knowledge to complete the vetting process, you risk hiring people with the wrong capabilities.

Agencies usually already have these skill assessment processes in place. They need to make sure that they only hire capable developers, as this is directly linked to their success as a service provider. They can also invest time and effort into improving certain skills of their developers.

If you are able to set up the necessary technical recruitment processes in-house, hiring freelancers can be a good option for you. Otherwise, go with an agency.

Project management capacity

This issue only comes to light when the project has reached a certain level of complexity. After a certain time, product owners notice that they dedicate too much time to monitoring the developers’ progress, and other, also important areas of their business doesn’t get enough attention.

To avoid this, you need to make sure that you have someone on your team who is able to handle project management tasks, even when the project reaches its later stages. If this is not a problem for you, working with freelancers can be beneficial.

If you don’t want to worry about project management, or don’t have in-house knowledge about the right methodologies, we recommend that you work with an agency.

In summary

The decision whether to hire freelancers or an agency should always be based on the project’s specific requirements. Certain projects can be much better suited for freelancers than agencies and vice versa.

Before making a decision, consider factors such as project scope, software complexity, future scaling, accountability and risk management.

If you aren’t satisfied with the performance of your initial team, don’t be afraid to change to another provider. It is much better to cut your losses early and focus on getting the project back on track instead of wasting additional resources.

Thanks for reading our article. We hope it provided you some useful new insights.