Software Development Agencies Vs In-house Dev Teams
Agency or in-house team? Compare the real costs of hiring developers in the UK, including National Insurance, pensions and recruitment time, with a fixed-price agency build.
Should you hire a software development agency or build your own in-house team? For a single project, an agency is often cheaper and quicker than hiring: on a fixed-price contract you’re paying for agreed deliverables rather than a headcount. In-house tends to pay off when you need the same skills every month for years, or when you already have an IT team with the right skills and spare capacity.
Before you decide, weigh up the real costs: not just a salary, but National Insurance, pension contributions, equipment and the time it takes to recruit and onboard someone. This guide sets out where an agency tends to win, when in-house makes sense, and what to check in an agency contract before you sign. At Code23, we use a written fixed-price scope so you can compare the agency route with the full cost of hiring.
Advantages of working with an agency over setting up an in-house team
Agreed Scope and Price
When you commission an agency on a fixed-price basis, you're paying for a specific result. A good agency will set out what you'll get and the timescale in writing, so you're paying for agreed deliverables rather than a number of hours.
On a fixed-price contract, if a deliverable is listed in the agreed specification, the agency normally absorbs any extra development time it needs. Check how your contract handles overruns and change requests before you sign.
With an in-house team, you carry the cost of any unexpected setbacks yourself, in time, salary or both.
Skillsets Required
You'll need software or web developers on an app development project. But if you're aiming high, you'll also need other specialists.
- UX and Visual Designers
- A Project Manager
- Quality Assurance Testers
Working with an agency gives you these skills without employing a full team yourself or engaging each specialist as a freelancer. If you do engage contractors through their own limited companies, check whether the off-payroll working rules (IR35) apply: for medium and large clients, the client is usually responsible for deciding the worker's employment status.
When some individuals are only required for a small number of days, you won't want to employ them full-time. Finding, vetting and managing freelancers or contractors also takes time and money.
"It has truly been a fantastic experience working with the Code23 team. Every part of the process from the scoping and onboarding down to the design and implementation of our website was handled excellently. The quality of service delivered by the team is globally top standard and I couldn't be more satisfied with the final outcome."
The Costs
Although you might decide to take on your own development team to keep costs low, this could prove a false economy.
Give some thought to the less obvious costs associated with taking on your own team. As well as salaries, you'll need to pay holiday pay, sick pay and, for eligible staff, pension contributions, and budget for training and career development.
This could be worthwhile if you're going to continue utilising these skills, but for a one-off app development project, it's unlikely the time and money investment will be recouped.
For larger companies with an existing IT department, it could be advantageous developing an app in-house. Particularly if the existing team have specialist skills and experience, and a design team. This is dependent on capacity around other projects though, so not always an easy solution.
Another consideration is where new employees will work. Office space, remote-working equipment and the tools a larger team needs all add to the cost.
True Cost of Taking on a Permanent Employee
There are a few additional costs to take into account if you're looking to take on permanent staff. Some are non-negotiable and others are difficult to predict.
- Employer's National Insurance: 15% on each employee's earnings above £5,000 a year (2026 to 2027 rates), although eligible employers can claim up to £10,500 a year in Employment Allowance
- Employer pension contributions: at least 3% of qualifying earnings (£6,240 to £50,270 a year) for staff you must auto-enrol, which is anyone aged 22 to State Pension age earning at least £10,000 a year
- Holiday pay
- Statutory Sick Pay, payable from the first full day of sickness since April 2026
- Statutory maternity and paternity pay, most of which you can reclaim from HMRC
- Employers' liability insurance, which most employers must hold, with at least £5 million of cover
- Equipment costs
- Payroll software that reports PAYE information to HMRC online
Staff Contingency
Not only do you need to shell out for sick pay, but you'll also need backup in place if you're short-staffed due to sickness, holiday or training days.
This may not matter if there isn't a tight deadline. In reality, though, you probably want to launch your app as soon as possible. Cover for absence is a common reason for hiring an agency to develop your digital product.
An agency can usually cover absences from its own team or trusted partners, with systems in place to manage the work.
That keeps the training and handover time you have to manage to a minimum. Ask how the agency allocates senior and junior work and whether that changes the price or assurance.
Staying Ahead of the Curve (or having the competitive edge)
Opting for an agency can give you access to more up-to-date industry knowledge. An agency brings experience from similar projects with other organisations, which can help you avoid mistakes a new team would learn the hard way.
Agency developers often work across many projects, which can expose them to a wider range of tools and approaches than a team focused on one product.
You also get the benefit of a team that shares what it learns across projects.
Knowledge Retention
Staff turnover can affect both agencies and in-house teams. An established agency should have documented processes, so new team members get up to speed quickly and everyone works the same way.
Processes refined over many projects can also cut down on wasted time. Ask any agency you're considering how they document their work and hand it over.
Why You Need a Project Manager, Designers and Testers
Project Manager: A project manager pulls the elements together, divides work among the team, checks milestones and keeps the project on track.
UX Designer: A UX designer helps make a product easy to use and accessible. They conduct research, define the information architecture and user flows, and create wireframes and prototypes ready for UI design.
UI / Visual Designer: The UI designer takes the wireframe or prototype and creates the final imagery. This includes layouts, colour schemes, icons and typography. Good visual design can make an app more enjoyable to use, connect functionality with aesthetics and present the product clearly and consistently.
Quality Assurance Testers: It's essential your app is tested on different devices and browsers. A professional software tester uses test scripts, exploratory testing and automated checks to see how the app behaves in different circumstances, and reports issues to the project manager so developers can fix them.
Time Requirements
In our experience, an agency will usually turn a project around faster than a newly hired in-house team. Using an agency can also save time for you and others involved in the project.
You'll need to factor in the time to recruit staff and all the other HR and accountancy responsibilities you'll incur from taking them on. Even after team members join, it will take a while for them to get up to speed.
Frequently asked questions
Is it cheaper to hire an in-house developer or use an agency?
For a single project, an agency can work out cheaper once you count salary, National Insurance, pension contributions, equipment, recruitment and management time. An in-house hire tends to pay off when you need the same skills every month for years, rather than for a one-off build. Scoping the work with an agency first can make the full cost easier to compare before you decide whether ongoing headcount makes sense.
What should I look for in a software development agency?
A defined process from scoping through design, development and testing, a named project manager rather than one generalist juggling everything, and evidence of similar builds. Ask what’s included in the fixed price and what counts as a chargeable change request before you sign anything. We’ve delivered 350+ projects since 2005 and start with a written scope before quoting a price.
Can I move from an agency to an in-house team later?
Yes. Some businesses start with an agency to get a first version built and put into use, then hire in-house once the workload is steady enough to justify a full-time salary. Before you sign, check that the contract assigns the intellectual property in the code to you in writing, and ask for documented code and a proper handover so you aren’t tied to the agency.
References
- https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027
- https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay
- https://www.gov.uk/statutory-sick-pay
- https://www.gov.uk/employers-liability-insurance
- https://www.gov.uk/guidance/understanding-off-payroll-working-ir35
- https://www.crunch.co.uk/knowledge/article/how-much-does-it-cost-to-hire-an-employee
- https://www.prospects.ac.uk/job-profiles/ux-designer
- https://www.legislation.gov.uk/ukpga/1988/48/section/90
Next step
Whether you go with an agency or build a team of your own, scoping the work properly before anyone starts helps make the costs comparable.
We’ve delivered 350+ projects since 2005, and we start with a written, fixed-price scope so you know what you’re getting and how changes are handled. If you’re weighing up an agency against hiring in-house, that scope is the easiest way to compare like for like.
Plan the next release
Build the next version around the result it needs to produce.
We’ll define the scope, design the journeys and build the systems behind them with one senior UK team.
