Outsourced Engineering or Internal Hires? How to Choose.

Deciding Between Outsourced Engineering and Hiring

Are you currently stuck trying to decide if you should outsource your engineering efforts or start building up an internal team? You may be thinking about the costs, the time, the vetting, and the planning required for both options and be feeling stuck.

We get it – outsourced engineering through an R&D firm like Root3 Labs can be expensive. When looking at the numbers, it can be difficult to compare and determine which option will lead you to success. Ultimately, everyone’s path is different, and what’s right for one company might not be right for yours!

These are some of the factors we think are most important to consider when weighing your options.

Long-Term vs Short-Term Needs

Let’s start with the big picture first. Do you need these resources indefinitely, or is this a short-term effort?

It’s a great idea to hire full-time engineers when they’re a resource you’ll need long-term. Developing a software platform that will require continuous updating? Have multiple R&D projects in the pipeline? Hiring is likely a good idea.

If you’re only designing a single product that’s going to production, it’s often better to outsource. The design phase is finite, so an internal design engineer would need alternate work after the product reaches manufacturing. If you transition them to the manufacturing team, they’ll be focusing on things potentially outside of their skill set such as quality assurance, operational optimization, and six-sigma statistical analyses. They may not have experience or interest in transitioning to this new role, which would mean hiring more internal resources specific to those new tasks.

You can see how even though building an internal team may have a cheaper price tag up front, there’s risk of even greater costs down the line if you aren’t paying attention to your long-term goals.

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The Cost of Outsourced Engineering

At face value, outsourced engineering seems more expensive than internal engineering. Usually, this conclusion is based on comparing the billable rate of an R&D firm to the hourly rate of a salaried employee.

Of course, determining something’s “true” cost is much more complex. That simple comparison fails to account for employee benefits like healthcare, retirement, and paid time off. It also fails to account for infrastructure like an office, desk, phone, a high performance computer to run demanding software (3D CAD, software compiling, signals processing, etc.), and workshop tools to build and test prototypes (machinery, oscilloscopes, environmental chamber, etc.).

Take our own workshop as an example! We have a large variety of tools and machines that allow us to build and test prototypes quickly in-house. And, we’re always adding new tools to further increase our capabilities.

External resources won’t typically work on your project full-time, so there’s an inflection point for when the cost alone would make an internal resource less expensive. Looking only at cost fails to consider that you’d likely have to hire multiple engineers in multiple disciplines to meet your needs. Once you begin multiplying these salaries and quantifying the initial ramp-up costs, an outsourced engineering firm may be the better option.

Instant Experience and Diversity

If you need access to a range of experienced engineers fast, outsourced engineering can provide you with nearly instant access to an experienced team of mechanical, electrical, and software engineers as needed. Building up these resources internally is a huge investment, both in time and cost.

Engineers on an outsourced team can be both onboarded and off-boarded as needed by your project. With internal resources, you need to have ongoing work for a full team of disciplines. With external resources, you only pay for each engineer as needed, even if that support is intermittent.

For example, if your project requires PCB design, an electrical engineer will design that PCB based on the required functionality. Once complete, you may need mechanical resources to enclose or mount that design. Then, you might need the electrical engineer to hop back on your project for troubleshooting or PCB revisions. Finally, a software engineer may come in and program the components to work together. With the design finally functional, you may want the mechanical engineer to jump back in and design the enclosure for manufacturing.

Outsourcing your R&D gives you resource flexibility without compromising quality.

Are You Building Expertise?

If you have a specialized technology stack, it makes sense to have specialized in-house engineering resources. It takes time to build institutional knowledge about a core technology, so investing in internal resources can set you up for success long-term.

However, there may be components of your technology that are outside of your wheelhouse and wouldn’t be worth the investment of hiring internal resources. Maybe you’re developing a novel filtration system, but you need to automate the process. Or, you’re developing underwater sonar transducers for a novel application, but you need to package your system. Maybe your team developed a new technology that works on the bench, but you need to design it for manufacturing.

In these instances, it may make more sense to outsource those efforts. Your internal resources understand the core technology, and an external resource can help fill the gaps to help you reach your larger goals.

The Bottom Line

Deciding between outsourced engineering needs or building an in-house team is not a simple choice. The pros and cons to both approaches need to be carefully weighed based on your specific project requirements and long-term goals.

Ultimately, many of our clients find that the best approach is to strike a balance – hiring some full-time engineers for ongoing, core capabilities, while selectively outsourcing specialized or short-term engineering projects. This hybrid model can provide the stability of in-house expertise along with the flexibility and rapid access to diverse skills that outsourcing can offer.

The right decision for you and your business will depend on factors like the duration of your engineering needs, the uniqueness of your technology stack, your access to experienced talent, and the overall cost considerations.

Written By: Chad Schneider, MSE, P.E.

Still have questions?

If you’re still having trouble determining the best path forward, reach out to discuss your specific requirements in more detail. An expert consultation can help you identify the most strategic approach to pursuing your product development goals.