Beyond Salary & Rate Cards: The Real Total Cost of Software Engineering
A CFO & CTO guide to comparing in-house, offshore, and nearshore
If you’ve ever compared a $120k salary to a $55/hour vendor rate and felt like the decision was obvious, this post is for you. Salary and rate cards are the sticker price. What Finance actually pays – and what Engineering actually lives with – includes ramp time, coordination, security, inefficiencies in collaboration, and a handful of small costs that quietly add up. My aim here isn’t to scare you; it’s to make the math honest so you can choose the right mix with fewer surprises.
I built a Total Cost of Engagement (TCE) Calculator to make these trade-offs concrete. Plug in your assumptions to compare the actual costs of in-house hiring with offshore and nearshore outsourcing side by side. You’ll find the download link at the bottom of the page.
Why total cost comparison beats sticker price
The fastest way to derail an engineering budget is to compare costs on the wrong basis. A salary alone ignores benefits, PTO, tools, recruiting, and management time. A vendor’s rate card hides ramp time, internal oversight, security, travel, and more. Once I normalize these, the option with the apparent lower cost is often just the least complete.
What I mean by Total Cost of Engagement (TCE)
Total Cost of Engagement (TCE) is an annualized, apples-to-apples number that captures everything you pay to turn ideas into shipped software. The sections below outline the cost elements that belong in a true comparison.
In-house hiring: what sits on top of gross salary
Let’s make this concrete. A Senior Developer doesn’t just cost their base. On top you’ll typically see:
- Employer payroll taxes & insurance (Social Security/Medicare, unemployment, workers’ comp).
- Benefits & retirement (health, dental/vision, 401(k) match).
- PTO cost (holidays, vacation, sick days).
- Performance/annual bonus (annualized) and stock options/RSUs (annualized).
- IT equipment & tools (laptop, monitors, peripherals) and software licenses (Office 365, IDEs, Slack/Jira/GitHub, security scanners).
- Cloud/test environments for realistic integration.
- Training & development, beyond onboarding.
- HR & recruiting costs, amortized over expected tenure.
- Management overhead, because leads and managers spend time coaching and reviewing.
- Facilities or remote stipend (office, coworking, home setup).
- Attrition & backfill buffer, if you model churn explicitly.
- Ad-hoc tooling costs for project-specific devices, services, or environments.
- In many U.S. contexts, the fully loaded number lands ~35 – 60% above base salary, depending on benefits and your toolset. The TCE Calculator can show this as a waterfall from base → fully loaded so Finance and Engineering can see exactly what drives the delta.
- CFO takeaway: this is where forecast variance hides – especially bonuses, benefits, recruiting, and training.
- CTO takeaway: lead times and retention matter as much as cost; continuity reduces rework.
Outsourcing: what sits on top of the rate card
Most proposals show a clean rate. Delivery reality adds layers:
- Knowledge transfer costs. Expect a few weeks of overlap or slower velocity while context is built. Over time, the KT overhead % depends on the effort required for knowledge transfer and any pilot work. Greater real-time overlap (time-zone alignment) speeds shadowing and code walkthroughs and reduces this overhead.
- Productivity losses costs. A velocity buffer and rework allowance during early sprints and major scope changes. The delta % here depends on the extra capacity you carry to absorb slower velocity and re-work due to collaboration friction and cultural differences.
- Team management costs. Product owner, project manager, and architect/tech lead time plus Scrum ceremonies – the coordination tax you pay to keep everyone aligned. The overhead % here depends on time invested by these roles, communication latency across time zones, and the number of asynchronous hand-offs.
- Tooling & environments. Extra seats, VPN/SSO, CI/CD, scanners, and non-prod data – plus ad-hoc tooling costs that are project-specific.
- Security & compliance. SOC 2/ISO controls, background checks, DPAs, and data residency constraints.
- Legal & IP / Administration. Assignment of inventions, privacy addenda, contracting cadence, and local counsel where relevant.
- Travel & on-site. Kickoff and periodic planning often repay themselves in fewer misunderstandings.
- FX & payment. If the vendor is not a U.S. company, account for currency spreads, wire/processing fees, and invoice terms.
- Attrition & backfill. A modest overlap budget keeps continuity when someone turns over. Consider the average voluntary attrition rates in your industry and the typical time it takes to recruit and onboard replacements.
- Inflation/escalation clauses. Annual adjustments should be explicit, capped where possible, and tied to a known index or collar.
When you account for these, outsourced TCE commonly adds ~20 – 40% on top of the vendor’s published rate over a year. The point isn’t to inflate costs; it’s to avoid being surprised later.
Offshore vs. nearshore: the same categories, different weights
Although both models are common, they differ in TCE drivers – not only the rate card, but also the overhead created by time zones and the collaboration friction they introduce:
- Time-zone & language overlap. Nearshore teams work the same or adjacent hours, which reduces coordination friction and shortens ramp-up.
- Travel. A quarterly on-site from Dallas to Guadalajara is simpler and cheaper than a long-haul to APAC.
- Cultural differences. Communication norms, decision-making, and feedback styles can influence productivity and quality; align working agreements early and use real-time overlap to reduce rework.
- FX & invoicing. Nearshore engagements are more likely to invoice in USD with smaller FX spreads; offshore corridors may carry higher friction.
- Attrition & backfill. Patterns vary by market; your buffer should match reality, not generic averages.
The TCE Calculator can generate side-by-side stacks that show how the same project’s TCE shifts between offshore and nearshore with identical assumptions.
- When nearshore wins: fast feedback loops (agile ceremonies), all-day collaboration in real time, incident response during your business day, and predictable, lighter travel.
- When offshore still fits: large, well-bounded workstreams where overnight cycles are acceptable and travel is infrequent.
A simple decision guide
Map your situation on two axes: urgency/throughput and compliance/variance tolerance.
- In-house core + nearshore delivery (Scio). Strong overlap and fast iteration, with travel you can actually budget.
- Nearshore core + offshore scale. Elastic capacity for well-bounded streams.
- All in-house. When IP proximity and domain depth outweigh flexibility.
My point of view (Scio): I’ll recommend the mix that fits your throughput, risk, and budget certainty – even when that means not engaging Scio for every role. The calculator helps ground that conversation in numbers, not vibes.
Download the TCE Calculator to run your own numbers, or contact us and I’ll walk through the trade-offs with you.
