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How Much Would It Cost to Make a P2P Lending Platform?

Getting a bank loan is not easy for millions of people. The world’s unbanked population is 1.4 billion, with billions more remaining underbanked. Even in the USA, 5%+ of households remain totally unbanked, and over 25% more are underbanked, according to the FDIC report. These figures translate into 63+ million American adults who don’t have access to traditional finance. 

What does this mean for FinTech businesses?

  • You can access a huge customer base by offering more loyal and flexible financing services than traditional banking does. 
  • You can create a steady, lucrative revenue stream in the FinTech industry by offering safe P2P lending solutions. 
  • Entering a P2P market niche is relatively easy today, with the basic requirement of a P2P lending app/platform and a smart credit risk assessment mechanism that minimizes lenders’ risks.

You can join the rising digital finance industry and the emerging P2P lending sector with a technically superior, safe solution, which has immense potential amid the changing financial sector. As of 2021, P2P lending had an $83+ billion market size and is estimated to continue growing at a CAGR of 29.7% in the coming years. 

Statista experts project P2P lending to exceed 1 trillion USD by 2050. The P2P projects have made finance more accessible and affordable to billions, and the sector is likely to enjoy quicker growth with the mass adoption of innovative technologies. 

Here we examine the ins and outs of the P2P lending business to let you make an informed decision on building your own peer to peer lending software for users. We also provide a detailed breakdown of such a project’s cost and factors to consider at all stages.

Read on to get equipped with all vital data on P2P financing and get a new revenue stream for yourself. 

Per-to-per (P2P) Lending Market Growth Rate

Key advantages and disadvantages of peer-to-peer lending platforms 

The emergence of P2P lending has opened many doors to people with scarce access to traditional finance. However, it’s a sector with its own specifics and nuances, so one shouldn’t consider it a panacea to all financial needs. 

Here is an overview of the pros and cons you should know before using or launching P2P lending services.  

Advantages 

  • Lower interest rates, greater returns. The P2P market is highly competitive, so providers set minimal interest rates for lenders to retain loyal clientele. Thus, as a business owner, you can enjoy greater returns by giving your users a well-priced P2P lending service package.   
  • More democratic access to finance. P2P lending is more accessible to people with different economic statuses. Fewer documents are required to get a loan, giving previously underbanked and unbanked people easy access to funds.  
  • Thorough assessment. Most P2P platforms operate on blockchain and use cutting-edge analytical tools, so they can perform smart creditworthiness assessments with a larger number of factors than a regular balance scorecard.
  • Greater flexibility. Compared to traditional banks, you can enjoy a broader variety of credit products and terms at P2P organizations. 

Disadvantages 

  • Credit risk. Lenders in the P2P market need to tolerate higher credit risks because they give money to high-risk consumers. Thus, it is vital to include these elevated risks in the business model.
  • Legislative loopholes. FinTech is a developing industry that faces much legal resistance in many jurisdictions. Before launching a P2P platform, you need to choose all regulations and ensure that you don’t break the law.

Why is it a wise decision to invest in a P2P lending app? 

There are many factors in favor of joining this rapidly expanding FinTech market niche. 

  • The P2P lending market was only $83+ billion in 2021, but its size is expected to reach $700+ billion by 2030. 
  • As of 2020, 126+ million Americans were using P2P lending apps. According to LendingTree research, 84% of consumers have tried P2P lending already, and 44% use them at least once a week. 
  • Africa is the largest P2P lending market, with over 70% of payments (over $1 trillion) made by clients from African countries.

As you can see, the pace of P2P market growth is quick. It’s currently dominated by giants like PayPal, Venmo, and Google Pay, but more P2P lending apps are entering the market every day to make it more competitive and diversified. 

The good news is that you can also build an attractive and feature-rich peer to peer loan app and grab a fair share of this lucrative market. Let’s find out how it works. 

Crucial things to consider before developing a money lending app 

Building a secured P2P lending app is a multi-stage process that goes far beyond software creation. Here are the preparatory steps every FinTech startup should take. 

  • Adherence to government rules and regulations. Since your P2P lending software provides financial services, you should ensure that it meets all local regulations and licensing requirements. This way, you will avoid legal trouble and fines, let alone the closure of your project by law enforcement. 
  • Collaboration with banks. Working with traditional financial institutions is unavoidable even in P2P lending, as clients need to deposit and withdraw money somehow. Study the list of local banks and international finance operators to find the best partner for payment processing. 
  • Borrower’s verification process. Rigorous user verification is part and parcel of secure P2P loan apps, so you should include the KYC/AML policy. The standard verification steps include state-issued ID verification, phone number check, bank account validation, and tax documentation checks. 
  • GDPR compliance. GDPR is an overarching regulation protecting user data across the EU. Even if you operate beyond the EU borders, it’s better to ensure GDPR compliance, as some of your users can be from the EU or conduct transactions to and from the EU, thus making you eligible.  
  • PCI DSS certification. As your clients are likely to use credit and debit cards when operating your app, you must ensure compliance with the PCI DSS security control policies and procedures.

How does a P2P loan app work

Let’s take a sneak peek into the operations of a peer to peer lending app to clarify what it takes to build and operate one. 

  1. Borrowers and lenders sign up for a P2P app and create their accounts. 
  2. Borrower fills out the form with their banking details, occupation, and regular income data to enable lenders and smart creditworthiness assessment algorithms to evaluate their risk levels. 
  3. Lenders also link their bank accounts to the system and pick the loan products they’re ready to provide. 
  4. Borrowers apply for loans provided by lenders. 
  5. Lenders review applications and decide on who they will award the loan to. 
  6. Once the loan gets approved, the borrower gets the money on the predetermined terms to their bank account. 

All data about terms, dates of payment, and interest rates are conveniently displayed in the users’ profiles. Both lenders and borrowers track their active loans and receive notifications about status changes. Here is a figure visualizing the process of p2p lending. 

Cost to create a loan lending mobile app in 2022 

Now, let’s boil it down to features and numbers – what does a lending app include, and how much would it cost to create a P2P lending platform

The bare minimum your P2P lending app would need to operate safely and deliver the needed services to users is: 

  • A website 
  • A login/signup function 
  • User profile 
  • A user dashboard (different for borrowers and lenders) 
  • Connectivity with banks 
  • Credit score calculation 
  • Document processing 
  • Loan management 

However, these features mostly relate to the platform’s front-end part. The app’s back end is also an essential part of the process. It’s much harder to estimate the cost of back-end development because a blockchain-powered P2P lending app (a DeFi app) is serverless, so it has a distinct cost breakdown than a traditional digital app would have.

Here is a calculation of hours and rates for this task you may count on. We’ve taken an average breakdown of hours necessary for P2P loan development and have added the rates you may get from a low-cost, medium-cost, and high-cost dev provider in different parts of the world. 

 HoursLow cost ($35 per hour)Middle cost ($70 per hour)High cost ($100 per hour)
Website40-50$1,400-$1,750$2,800-$3,500$4,000-$5,000
Login/signup8-15$280-$525$560-$1,050$800-$1,500
User profile25-30$875-$1,050$1,750-$2,100$2,500-$3,000
User dashboard30-40$1,050-$1,400$2,100-$2,800$3,000-$4,000
Bank connectivity15-25$525-$875$1,050-$1,750$1,500-$2,500
Creditworthiness calculation algorithm15-25$525-$875$1,050-$1,750$1,500-$2,500
Document processing25-30$875-$1,050$1,7500-$2,100$2,500-$3,000
Loan management30-40$1,050-$1,400$2,100-$2,800$3,000-$4,000
QA testing30-40$1,050-$1,400$2,100-$2,800$3,000-$4,000
Back-end development300+$10,500+$21,000+$30,000+

Thus, based on such a rough estimate, the cost to create a P2P lending platform ranges from $45,000 to $100,000+ for a P2P lending app. 

Negotiate every aspect of the development scope with your dev agency to determine the budget before starting the work. Also, it’s critical to discuss all revisions and additions underway to understand what unexpected costs and hidden fees you can encounter in the process. 

How to make profit from money lending app? 

A typical concern of money lenders software creators is the ability to make money on such a project. As a rule, P2P app owners get revenue from the origination and transaction fees. 

Origination Fees 

As a provider of secured peer to peer lending services, you can set a fixed or dynamic origination fee deducted from every allocated loan. As a rule, the obligation to pay the fee lies on the borrower. Thus, when you get $1,000 from a P2P lender, the platform sets a 5% fee, and you’re likely to get only $950 to your account, repaying the full sum ($1,000). 

Transaction Fees 

Transaction fees are charged for all transactions on the P2P platform, which operates as a provider of secure, instant transactions. Besides, the transaction fee is usually charged from the lender after the borrower successfully covers the entire loan. 

Conclusion 

As our review suggests, P2P lending is a lucrative business with a moderate entry barrier in the form of local regulatory compliance and the cost of building a platform for P2P operations. 

With the rapid growth of this market and the rising number of regular P2P lending users, this business niche is definitely worth considering as a source of steady income for projects of all sizes. 

FAQ 

What is a P2P lending app? 

A P2P lending app is a financial software product allowing users to get and provide loans on a peer-to-peer basis without intermediary oversight. 

How does digitization change lending?

Digital services have revolutionized the lending sector of finance by giving lenders and borrowers secure online platforms to meet one another and negotiate favorable loan terms without a central intermediary (e.g., a bank). 

How to build a P2P lending platform? 

First, you need to find a reliable and experienced software engineering firm with expertise in building peer lending apps. Next, you should discuss the set of required features, the underlying technology, and the budget for this project. The final product will require rigorous QA testing and security audit; after that, it’s ready for launch. 

Who can use P2P lending? 

Anyone can become a borrower or lender in the P2P market. You only need to have verification documents and an active bank account (active for over one year). 

Why invest in P2P lending? 

Investments in P2P lending are sure to pay off quickly because of this market’s quick expansion and growing popularity among users worldwide. It’s more accessible and flexible for consumers, and both lenders and P2P platform owners can generate high revenue from this form of financing. 

 

Fintech Success With Rapid Application Development

In the previous article, “Enterprise Software Development on OutSystems Low-code Platform”, we discussed the benefits of low-code development using the OutSystems platform for businesses. In the article, we want to raise the issue of the most important aspects of enterprise development – speed and flexibility.

For financial companies, speed and flexibility are among the key criteria for successful software development. The thing is that many factors influence the work of the financial industry:

  • external – new trends in design, new conditions in legislation, pressure from competitors,
  • internal – changes in terms of service, internal processes.

And that’s not to mention that every year there are a multitude of new innovative and flexible fintech startups stepping on banks’ toes and eating away their market share.

In such conditions, it is vital to be able to quickly adapt to changing conditions. Change or die! This is the slogan of the years to come for the banking industry.

In the article, we will review, in detail, the task with which our customers come to us most often – the ability to quickly create and implement applications in the corporate ecosystem.

This tactic is called Rapid Application Development.

Why should banks consider Rapid Application Development (RAD)?

Research by Geneca addresses this question perfectly. The company interviewed 600 IT business people and found that:

  • 75% of the IT leaders admitted that almost all projects are doomed to failure from the first stage of development.
  • 80% stated that at least half of the time spent on the project was dedicated to reworking the functionality.
  • 78% said that business representatives should be more involved in projects, which will provide an opportunity to develop software that meets business requirements.
  • Only 55% clearly understand the business goals of their customers.
  • Less than 20% think that businesses need a clear definition of requirements.

Looking at these figures, it becomes obvious that substantial changes are needed in the field of corporate app development. Those who change their tactics will win. Financial companies definitely should consider the Rapid Application Development methodology. This approach solves all of the mentioned above technical and business issues both for back office and front office applications.

What is Rapid Application Development?

Rapid Application Development is a form of agile methodology. It focuses on quickly getting the result you need and is best suited in two cases:

  1. Developers are limited by budget and/or time.
  2. There are no strict requirements for the product.

Development is faster because specialists use the appropriate technical means and regularly clarify the customer’s requirements. In addition, a key element of RAD is a joint assessment of the result with the stakeholders.

Most characteristic features of RAD:

  • quick feedback from the business or end-users,
  • frequent release of prototypes or updates,
  • breakdown of the project into sprints,
  • flexible change of requirements.

You can’t apply Rapid App Development to any particular development model. RAD is an idea. Its essence is that we win because we consider development as something flexible, capable of quick change.

Rapid Application Development methodology

According to the RAD methodology, the development process is divided into 4 stages. These are steps designed to build a great application with minimal risk.

Define the requirements

Before starting development, stakeholders discuss project requirements, determine a budget and a deadline, set goals and calculate expectations. In the approach of RAD, neither stakeholders nor developers spend a lot of time on developing complete and detailed specifications.

The main principle of the RAD is the freedom to change requirements at any time while still working on the application. During the first stage, the “essence” of the application is determined, and its vision is formed. So the requirements are put forward according to this “essence” and “vision.”

Prototype development

At this stage, designers, developers, and business users work together closely. They create working prototypes of the application that meet all the product requirements or its parts.

Feedback gathering

After developers release the prototype and the beta version of the product, the stage of collecting feedback from users begins. The goal of this step is to improve the prototype version and make the product as useful as possible.

A curious fact: sometimes what was originally conceived by customers is completely unclaimed at this stage.

Having collected the feedback, the specialists return in step 2: taking into account all the changes and new requirements, a prototype is created again.

Delivery of the project

Having received positive feedback on the prototypes, the developers are finishing work on the project. They optimize the application and provide service stability.

At this stage, app developers perform such jobs as integration with the necessary systems, writing of documentation, maintenance, and support. All for one purpose: to release the application.

OutSystems as Rapid Application Development Tool

As we mentioned in the beginning, recently we have published the article “Enterprise Software Development on OutSystems Low-code Platform”. There we described in detail the advantages that companies receive in developing applications using the low-code platform OutSystems.

Now, we will focus on another important advantage of the platform – it is an excellent tool for Rapid Application Development.

All the platform’s functionality is honed for work on the RAD methodology. OutSystems is an excellent rapid mobile and web app development platform and provides all the necessary tools to quickly create enterprise applications.

But what really sets OutSystems apart from other platforms and makes it completely dedicated to Rapid Application Development is the ability to integrate with any service. This greatly enhances its development.

Another feature of OutSystems is that with the help of the platform you are brilliantly able to  create prototypes and process feedback for each separate feature. And this is a fundamental requirement in RAD.

What’s essential for RAD to work?

If your organization wants to apply a Rapid Application Development approach,  your development team should wisely consider the following requirements.

Must-haves:

  • Close collaboration between the business and developers
    The foundation of RAD is the active cooperation of the customer with the developers. If the customer isn’t involved in the work, doesn’t show any interest in the project, then RAD is not the best idea.
  • Experienced Project Manager
    Working without clear project requirements isn’t so easy, is it? An experienced project manager should always be at the head of the project. Without this person, development with a RAD methodology will turn into a series of prolonging changes without an end in sight. A completed working application won’t see the light of day.
  • Available Senior developers
    The RAD methodology assumes instant adaptation to new requirements. Therefore, this methodology is not the best option for novices. Only advanced level developers will work well in it.
  • Medium size project
    For development using the RAD methodology, medium size projects are suited best. For larger projects, this methodology is not suitable, since with a large number of requirements it is very difficult to make changes flexibly and fast. However, if the project is small, then it’s better to use another methodology.

Rapid Application Development benefits – the pay off

Though the RAD approach to corporate application development has its constraints, it pays off the efforts. If a financial organization is able to facilitate the approach inside its structure, the benefits will be quite immense.

Quick project delivery

Thanks to the iterative approach, continuous collection of feedback and the flexibility to make changes, a final version is achieved 10 times faster than with other methodologies.

Development cost reduction

The RAD model reduces the cost of application creation by up to 80%. Development time is considerably reduced, and in case of necessity for overall changes, the project doesn’t need to be developed from scratch.

Easier to make changes

Usually, numerous modifications in projects are not encouraged. Not in the case of RAD. In this development method, changes can be made even in the full swing of development.

Flexible adaptation of new technologies

If development is in full swing and it turns out that some technology can assist in solving the difficulties encountered, then it’s rather difficult to implement. There are too many risks associated with it because you need to go back and make changes to the requirements. With RAD, this issue is easily resolved – at any time you can adopt new technology.

More business engagement – better customer experience

The RAD supposes the active participation of the end-users in the project. Thanks to the collection of reviews and frequent updates, developers make sure they are delivering the product that the customers expect.

The best market fit

The main question of the Rapid Application Development model: what exactly does the customer need? The goal of the developers is to create a valuable and required product, and not another miracle application, which is unclear for whom and why.

Risk management

With the help of RAD at an early stage of project development, certain risks can be uncovered. Early assumption of risk gives more time and possibility to avoid its negative consequences in future.

Conclusion

Rapid Application Development is an outstanding enterprise application development model. It considerably reduces the gap between the development team and business and can perfectly be embedded in a business leverage strategy.

In contemporary conditions, financial companies need to consider using the RAD model. It will help:

  • avoid project failure,
  • not to spend a huge amount of time on software development,
  • to develop software that meets the requirements of the business,
  • provide developers a clear understanding of the company’s business goals.

It is important to remember: if you meet all the required conditions, the RAD methodology will give you incredible speed up and flexibility advantages throughout the entire development cycle of your product.

Smart Software Ideas for Offline To Online

Response to the Coronavirus Outbreak

The COVID-19 outbreak shut the world down for high-contact businesses and forced them to rethink their development strategies and business plans, take decisive actions depending on the industry they are in. Classical offline businesses are aware they have to learn how to shift to online to stay afloat during these uncertain times.

According to McKinsey & Company’s study, market capitalization has lessened across many sectors. There is a significant variety of the amount of the decline.

On the diagram below you can see the decline of market capitalization in various business areas. (Weighted average to date local currency whole shareholder returns by industry in percent. Width of bars is beginning market cap in $).

Today’s events are unpredictable. Actually, there is little chance the coronavirus will be eradicated soon. No one can predict the second wave of the pandemic.

This is the moment you must take specific actions and rebuild your company to survive an economic downturn.

There is a wide array of ways businesses can respond to the current COVID-19 horror story, yet the best one is to move online and cogitate about developing an appropriate solution.

This article focuses on some of the most effective and lucrative ideas to shift diverse offline businesses online. It contains plenty of examples to prove these ideas really work. In addition, it describes the cases of our clients, whose situations we know firsthand.

Education Courses: make a switchover to online learning

The coronavirus outbreak led to the near-total closure of educational institutions all over the world. At the same time, there has been a huge increase in the popularity of online learning.

Ideas

  • Educational web portals for shifting training online, uploading and selling video lectures and courses.
  • Applications with live streaming technologies for live lecture broadcasting.
  • EdTech – concentrate on brand-new technologies in education that combine advanced technologies, methods of creating and delivering new knowledge, analytics, and learning effectiveness measurement.

Examples

Moving online within a couple of days. The vivid example of cost-effective going online is a Spanish language school. The quarantine-related school closure made the staff seriously wonder what they would do next. To be honest, none of the teachers have ever heard of Zoom or had online teaching experience.

Nevertheless, in a couple of days, the school started with online classes and so far, they are going pretty well. The school did not lose a single student; on the contrary, it attracted new ones from other cities.

Now the language school is working on its educational portal and is actively creating an online learning environment.

Own Zoom. Programming & Web Developing Courses took a very serious approach to arrange online classes. The company has already had its educational platform but did not want to restrict in-person training to using only Zoom technology. In fact, recognizing the value of owning its platform, the company would like to receive data that helps to increase product success.

Within three weeks, the company developed Zoom analog right in its training platform. Thanks to the quick transition to online, none of the students quitted learning and the company gained its reputation as an academic innovator by developing and selling a number of new online courses.

Sport and Fitness: offline to online shift

For gyms, fitness studios, and private trainers, switching to the online workout isn’t easy. Since social distancing is crucial during the coronavirus time, many fitness studios hosted free live workouts on Instagram: business owners hoped quarantine would not last long. But it turned out that measures to tackle the pandemic were much more serious.

It became obvious that businesses must be quick to adapt to survive, as the world most likely will not go back to as it was before.

Ideas

  • A mobile app or web platform for the online workout. You can lower the price to keep up and maintain the customer base. Even after quarantine, you can offer online workout options to help everyone stay fit across the globe.
  • Selling video records of workout training.
  • Live streaming apps for workout broadcasting.
  • Website for booking online workouts.

Examples

Be a cut above the competitors. One of the gym owners admits that he did not believe that anybody could buy his video content since many trainers stream for free. But soon he realized that he should be a cut above to compete. The trainers of his gym created video content to get people motivated, to give health and nutrition tips, and to cheer clients up. The team launched online marathons in Zoom. Despite it being the team’s first experience, it led to business success and recouped initial investment.

All ingenious is simple and sometimes is cheap. Another gym owner mentioned that he created video content with added value for customers. Being an amateur shutterbug, he just used an iPhone, a microphone, and a tripod to shoot videos for YouTube. Access to the videos was given only to the gym clients. Now the owner is slogging on creating a portal with registration-to-gym procedures, online training sessions, and other business ideas.

Retail: how to start your own online business

Retail has been hit particularly hard, as the COVID-19 pandemic forced retail stores, malls, and shopping centers to close. However, the crisis provoked many creative ideas of developing software to attract and retain new customers.

Ideas

  • Own online store.

Examples

How to keep income at the pre-crisis level. This is the story about business, whose development is taking place before our eyes. Earlier, we assisted the retail chain owner in creating an online store. At the beginning of the quarantine lockdown, he agreed to partner with a delivery service. Thanks to this, he was able to keep his sales humming.

By the way, it wasn’t enough for him, so at the moment we are developing a number of applications to support his own delivery service.

Do what you never dreamed of before. According to the insider information, in March, the offline sales of the on-trend clothing boutique plummeted nearly 50%. In April, there were no sales at all. At the same time, online sales witnessed growth by at least 60%.

The owner wrapped his mind around increasing online sales. Now his team is actively collecting customer feedback, offering repair services, providing a comprehensive policy for returns and exchanges, and selecting items based on purchasing-history data.

Moreover, the store started selling internationally, which the owner had not even dreamed of before.

Leisure: how to get online in such a business

In light of coronavirus disease, it would seem that leisure-related businesses are suffering the most immediate repercussions. In fact, the leisure industry is able to adapt to challenging conditions and find a way out with recently-developed software.

Ideas

  • Web portals to which you can upload your online courses or transfer the theoretical parts of training courses.
  • Web sites, where you can talk about your services and value proposition, share your ideas and experiences, place your blog.

Example

Lucky Strike. Do you have a suggestion on how to switch the yacht club online? During the coronavirus outbreak, the club owner had to close the office and cancel all public events.

At the same time, the company launched highly informative online yacht training courses with a theoretical part. It was an incredible success: everyone who wanted to learn sailing, but did not have time or lived in another city, could study the theoretical section of the course.

Besides, the company created a number of sports courses, started a blog, translated several sailing movies, and launched the online store with the club’s merchandise.

Catering Business: working offline and online

Many restaurants, cafes, and bars had to close during the coronavirus outbreak. Restaurant business owners understood they had to find new ways to get customers. Therefore, many restaurants offer takeout and delivery options.

Ideas

  • Online food ordering apps and websites.
  • Mobile self-service or contactless service apps.

Example

100% Contactless. Here we would like to share the story of our client. He asked us to develop a contactless dining app to maintain adequate social distancing and minimal contact between visitors and staff at a restaurant.

The app works like this: the user sits at the table, scans the QR code on the table, and downloads the app. Then he places an order by indicating his table number. Payments are fully digital through smartphones. Thus, the entire dining out process is completely contactless.

Entertainment: the show must stream online

Cinemas, amusement parks, theaters, and other cultural venues like concert halls and museums were closed worldwide due to COVID-19. However, it is the entertainment industry that helps people to amuse themselves in their leisure time and distract from heavy thoughts during unprecedented health and economic crises.

Ideas

  • Live streaming event apps for concert and performance video broadcasting.
  • Applications and websites for professional virtual tours.

Example

Consider tech issues and do not forget about donations. Some theaters have already begun streaming their pre-recorded or live performances online. Fine-tuning, high-quality sound, and image are the keys to success.

You can arrange a symbolic cost per view to keep the business afloat. Some theaters and cinemas sell access to online videos to a worldwide audience, others accept online donations, so anyone can thank for watching a movie or performance by donating any amount of money.

Conclusion

The world will never be the same. A business won’t be the same.

We tried our best to give you the tools to improve your business. With them, you can endure this crisis and all subsequent ones.

Here, we accumulated ideas and examples of bridging the gap between offline and online business. We are sure that the list is not complete. The world is full of incredibly talented and creative people, whose desire for growth and development never goes away.

These days are times of radical changes. Gain momentum – think about ideas that quickly turn into a profitable business during a crisis.

How to choose cooperation model in IT

Nowadays, the vast majority of companies have information technologies as a non-core asset. Consequently, the opportunity to transfer these non-core assets under the management of a professional external partner and free up resources of the company for priority business areas – looks very attractive.

At this point, the customer is faced with several issues as to how to choose the most effective cooperation model, how to evaluate this approach from a financial perspective rather than investing in the development of his/her own team of IT specialists?

We continue a series of blog posts devoted to the topic of outsourcing software development. In this article, we decided to reveal the topic of cooperation models in IT outsourcing and how to use them efficiently. Moreover, you can check our previous article “7 main tips to avoid startup failure”.

Outsourcing partner: models of cooperation

Currently, there are 4 basic models of cooperation that are used in all the world markets:

  1. Fixed-price
  2. Time and Materials
  3. Dedicated team
  4. Hybrid

Fixed price

The main criteria of this model are – a fixed budget, a constant project scope, an established time interval (4 weeks, 2 months, etc), also a possible compromise in quality.

The fixed-price contract is perfect for any size projects, where requirements, specifications, and schedules can be clearly defined before the start of project development since it is nearly impossible to make adjustments when the project started.

Typically, this model is also used for short-term software development tasks that do not require close monitoring by the client.

Time and material

The peculiarity of this model lies in the absence of a precisely defined project cost – the customer pays the actual amount of work performed by the IT outsourcing company under the time spent and the hourly rates of the contractor’s specialists.

Both parties can flexibly approach the changing requirements, conditions, and priorities of the project and, as a result, can quickly adjust the scope of work and terms.

The model is suitable if the customer’s idea is associated with new technologies (not with fully developed markets), and he/she intends to provide direct control over the project and ensure the team with specific materials, also when the scope of the project is unknown or the implementation will take several months or even years.

Dedicated team

Dedicated Team is a business model that implies both parties mutually agree with the workload and requirements of the project, indicating the necessary amount of time. At the same time, the outsourcing company provides IT specialists that are fully focused on the project and meet the requirements of the customer. The client has full managerial control over the project and the team. Moreover, the contractor performs the functions of a staff recruiter and administrative support.

The fundamental difference of the dedicated development team is its long-term nature: partnerships between the customer and the contractor are conducted for a long time and can involve the implementation of a set of projects.

Hybrid model

The approach includes the basic principles of Time & Material and Fixed Price models.

Our company, RNDpoint, applies the hybrid model in practice. We can share with you 2 types of hybrid models that we use. However, it is worth noting that the choice of model is highly dependent on many factors such as estimated time, amount of work and resources, the complexity of execution and so on.

The first type is suitable for longer and more expensive projects. At the beginning of the project, we start working according to the Time & Material model. Then, when a certain part of the functionality is ready and we can plan our next sprint more clearly, we discuss the edits with the customer and schedule further fixed price sprints.

The second type is better working for small projects or startups. It implies  that the company and the customer agree on certain arrangements. For example, to do the specific tasks for a fixed price no matter how many hours it takes, and also completing other minors (or not) tasks for Time & Material strategy. The model is successfully working because the customer can pay a lower cost for Time & Material assignments and be ready to pay for a fixed part of the project. As a result, it is easier for startups to control their expenses.

Thanks to this model, the client has an opportunity to be flexible and, at the same time, look through every detail, thus avoiding too many edits in the final project.

Conclusion

The model of cooperation with outsourcing IT partners is the client’s decision, which depends mainly on the type of project and the predictability of the time and the cost. The fixed price model would be the best choice for short-term development with a clear description of the functionality and the concept of the final product. Three other models would be better for long-term cooperation, and also in case, the customer is going to change the workflow.

Be that as it may, the client should remember that the cooperation model that worked well for other organizations and a particular contractor may not always be the best choice to launch his project, because everything depends on the main project features – time, money and resources.

How to write an effective scope of work?

Step-by-step Instruction: Scope Of Work For An Outsourcing Company

No matter the size of the company you have, one issue comes to mind when cooperating with an outsourcing provider. That is creating a precise project plan. As a result, both sides lose their most valuable resources like money and time, while becoming frustrated. Often the reason lies in the simple things – both parties don’t understand each other because they perceive the information in different ways.

To resolve this issue effectively, a well-developed scope of work (SoW) should be conducted.

This means that whenever the company enters into a contract with the outsourcing company, an agreement on the terms of reference will help to clearly determine what both sides can expect from future cooperation.

What is SoW?

Scope of Work (SoW) is a clear and thorough contract signed between the companies, which defines the division and the exact type of work that will be provided under the formal agreement for desired services. The contract also includes specific tasks together with deadlines and other requirements.

The agreement records the project requirements, responsible people, and obligations that are expected to be provided by both parties during the project activities. Furthermore, the document assists the companies in avoiding ambiguities which can lead to disputes on both sides.

Tips to write an efficient scope of work 

Your scope document template should be understandable and precise. Then, try to accurately determine the scope of needed services and adequately assess the capabilities of both the outsourcing team and the project, in general, before signing an agreement. Once you do this, you can develop a contract and ensure you maximize the mutual benefit.

Now, let’s look at the main points needed to make up the scope of work:

Complete a brief statement that could describe all the business needs and provide a short description of the services you intend to use.

Make an analysis of your company’s goals. Then, you need to create a good competitive proposal of your business, while analyzing the advantages and disadvantages of the competitor’s firms. Also, do not forget to select the priorities. Consequently, you will be able to bring this important information to your IT partner and discuss the vision together with the team.

As a customer try to describe the desired results or outputs as clearly as possible. Ask your outsourcing partner to describe each functionality and process thoroughly, even if it involves a lot of time and resources. Then, you will be able to make a complete and understandable list of services or work to be done. We all know of those cases where the service is provided, and the functionality works perfectly, but the goal is not achieved.

Start with defining the governance structure and then, give an outline of the project management procedures. Furthermore, you should sync with the outsourcing team in order to assess their capabilities.

If it is possible, give examples to better illustrate your idea or desired effect. It will give a better understanding and improve communication. Share some pre-prepared ideas, which may be helpful for an IT outsourcing team to assess the project and make its own assumptions.

Try to set realistic deadlines for each part of the project while taking into consideration the number of team members, their competitiveness, workload, amount of tasks, capacity, and everything that you have to use during the project. At this point, your IT partner will help you, as they are able to provide all the necessary information about the available team for your project.

From that point, the project cost goes for developing the application, resource expenses, overheads, pricing assumptions based on fixed-prices or time and materials project, payment terms, and schedule.

Mentioning the warranty terms, the maintenance agreement, the service levels, and other conditions will facilitate the security level of the contract.

Set the list of final outcomes that are expected to be presented by the IT outsourcing vendor to fit the company’s goals at the end of the project.

Scope of work vs statement of work 

Companies tend to get confused about these two quite similar combinations of words. However, they are absolutely different in terms of meaning.

The statement of work is a more general legal document that defines the goals and objectives of the project while also including the detailed scope of work.

The scope of work provides particular details such as lists of tools, resources, deadlines, examples, and purposes.

Conclusion

To summarize, the scope of work documents lays the foundation for a future successful project. Each paragraph of this document requires careful attention, however, do not forget to keep the facts and the most important information understandable. The language to describe your scope of work will present your organizational values and professionalism.

Ensure that the scope of work complies with all the above-mentioned points review this instruction.

How to Write an Attractive RFP for Software Development: Example and Template

Software Development. Looking for gems in the mud?

When you are going to design a software application, there are two ways to get it right. You can do the coding yourself relying on your own specialists and their skills. Or you will need some software development proposal from an outsourced vendor.

A well-written Request for Proposal (RFP) and carefully outlined proposal format for a software company can help:

  • to attract experienced developers attention;
  • assess whether your potential vendor has the ideas and skills to partner with you in your software project development.

Software development Request for Proposal: what, how, when

What is RFP in software development?

RFP for software development is a document designed to inform potential vendors about the project, learn about their domain expertise, and receive estimated project cost and timeline.

Typically, RFP for software consists of the following steps:

Step 1. You get in touch with selected vendors to find out if they are interested in a new contract. If your RFP contains commercial secrets or other sensitive data, you may ask them to sign an NDA before sharing any details.

Step 2. You send the RFP to vendors. It is best to keep it reasonably brief. Up to 10 pages is an optimal size.

Step 3. If a vendor decides they are right for the project, they may ask more questions to better understand your project and to clarify your requirements.

Step 4. Potential vendors send you their proposals. They may include initial effort estimates, project team makeup, and team members’ hourly rates. Information about the company, its clients, and its results may be included too.

Step 5. Once all the proposals are studied and the choice of a vendor is made, you sign a contract and kick off the project.

Software development proposal example: common and peculiar

Usually, the process of an RFP organization is not limited to looking for vendors/suppliers and buying equipment/services procedures. Request for Proposal preparation starts far ahead of the moment when participants are invited and bids are announced. Look at Figure 1 to see what the standard RFP process consists of.

Fig. 1. Standard RFP process

Speaking about a Request for Proposal for a software development project, it is obvious that structurally it corresponds to common RFP patterns. Differences refer only to some minor matters which are reflected in vendor-connected sections, such as the qualification and skills of the development team, their portfolio of successful activity in similar projects, etc.

RFP example for a software project, in general, may contain the following sections and information:

Fig. 2. Sample request for proposal for software development structure

Software development proposal template. Simplify your roadmap to the right vendor

Though the reasons to conduct a Request for Proposal are numerous, and projects can vary from ordering cleaning services to buying heavy machinery, RFP templates for software may look very similar in structure to any of the mentioned above.

[Current Date]

[Project title]

[Project overview]

[Company’s name and background information]

1.Project goals.

[Company goal 1]

[Company goal 2]

[Company goal 3]

To reach these goals, [your company] accepts bids in response to this Request for Proposal.

The project details are as follows:

  1. The scope of work.

[Description of the project and a detailed scope of work.]

  1. Target deliverable schedule.

[Add the date when the project must be completed.]

The expected project completion date is [add date]. If this date is not met or needs to be adjusted, include your readjusted proposed date, as well as the reasoning for shifting the schedule. All proposed dates will be taken into consideration.

  1. Existing roadblocks or technical issues.

[Describe the time, resources, or other constraint factors that affect the proposal and the project.]

[Your company] currently has [insert list of roadblocks.]

  1. Budget constraints.

The budget for this project is [insert your price plus exchange currency information if vendors are outside the home country.]

  1. Evaluation metrics.

[Your company] evaluates bidders and proposals based on the following criteria:

Previous experience/past performance.

Samples and/or case studies from previous projects.

Experience and technical expertise.

Projected costs.

Responsiveness and answers to questions in the following section.

  1. Questions bidders must answer to be considered.

[Create comprehensive questions that are project-related to properly assess potential vendors.]

[Question 1]

[Question 2]

[Question 3]

  1. Submission requirements.

Bidders must adhere to the following guidelines to be considered: [guidelines list]

Only bidders who meet all metrics in the evaluation section should submit a proposal.

Proposals must be sent by [insert date.]

Interested bidders should submit the RFP and address it to [point of contact name and email address] by no later than [insert deadline.]

Samples and references should be included along with the proposal.

Proposals should not exceed [number] pages long.

Failure to comply will result in an automatic rejection.

A proposed schedule must be included and clearly expressed.

  1. Contact information.

For questions or concerns about this RFP, please reach out to [point of contact name] at [point of contact phone and email address.]

RFP for software: pros vs cons

Some experts say the RFP process is no longer considered the best way to select a vendor, regardless of industry. Though we still see a lot of companies relying on it when searching for software development vendors.

Let’s take a closer look at why Requests for Proposal for software became so popular, and why they fell out of favor.

RFP for software: voting in favor

The undoubted advantages of RFP for software development:

  • Multiple points of view on your software project. Participating vendors will offer different approaches to project development. You will be able to evaluate various approaches in detail before choosing one.
  • Understanding the real capabilities of vendors. Vendors need to provide tailored offers according to your software proposal example in response to your RFP. So, you can see if the vendor’s skills really align with your project.
  • A clear process of selection. RFP requires a standardized format of proposals. That makes it easy to compare vendors side by side.
  • It is possible to knock the price down. RFP makes cost one of the selection criteria. That helps keep a vendor’s pricing from going out of hand.
  • Time-saving in perspective. Even though it takes time and effort to write RFP, it helps to avoid repeating the same information to vendors. By using RFP, you can collect questions from all participating vendors in a single Q&A session to answer them at once.

RFP for software: votes for a veto

But what can go wrong with the RFP process? Sometimes, RFPs no longer provides the opportunity for the orderly, objective means of evaluating multiple participants, as originally intended. Thus the following flaws come at the front:

  • RFPs are time-consuming. Modern businesses have to be nimble. Building the requirements, evaluation of methodology, and potential bidder search are too long for a fast and timely reaction.
  • RFPs are expensive. You may not pay directly for the wasted time but all customers pay indirectly. Vendors who participate in RFPs maintain the overhead cost of bid-response teams. And you have to compensate your internal team’s time commitment to develop and evaluate the project.
  • The best software development companies don’t respond. Conducting an RFP doesn’t automatically mean the best provider will respond. You may never choose or even meet the best suitable vendor using a traditional RFP process.
  • The written requirements don’t always accurately describe the intended outcome. Requirements in your RFPs may not accurately support your goals because of a lack of necessary experts, too many restrictions, or mirroring an existing solution.
  • The methodology of selection is flawed. You need to know what questions are relevant to your vendor-choosing process, rather than creating a check-the-box exercise. It may seem practical; however, it can mask the true value of a potential partner.
  • The selection team doesn’t have the right members. A lot of companies put on blinders when developing a team for starting and running an RFP process. The members of RFP management groups do not have a clear picture of what to do and how to do things.

Conclusion

There’s no standard template or universal recipe for writing a request for proposal for software development. We’ve provided you with some important considerations and guidelines instead. Keep them in mind while following the RFP format for software projects that meets your needs.

If you don’t want to bother yourself with writing RFP technical requirements or have trouble studying RFP templates for software development, you can simply schedule a call with our team. We will be glad to provide you with our assistance.

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