IT Outsourcing Cost Calculator
Outsourcing vs in-house IT.
Calculate IT outsourcing first-year savings versus fully-burdened internal cost from headcount, salary, and the equivalent vendor quote.
What this tool does
This calculator models first-year financial outcomes when comparing outsourcing arrangements against maintaining an internal IT function. It estimates internal IT costs by multiplying headcount, average salary, and an overhead burden factor, then subtracts the combined outsourcing contract fee and transition costs to show the net difference. The result illustrates how these two approaches compare financially in year one. The calculation assumes your internal cost figure includes salary, benefits, equipment, and infrastructure at a standard burden level. Primary drivers are IT headcount size and average compensation—larger teams or higher salaries increase internal costs and typically widen any gap. A typical scenario might compare a 10-person internal team against an outsourcing proposal. Note this covers first-year figures only and does not account for service quality differences, long-term staffing changes, or factors outside the specified inputs. Results are for illustrative comparison and not financial projections.
Enter Values
People also use
Cloud & Tech
Offshore vs Onshore Dev Calculator
Compare offshore vs onshore development costs with management overhead and quality adjustments factored into total annual savings estimates.
Cloud & Tech
Software Project Cost Calculator
Calculate software project cost from developer count, hourly rate, hours per developer, contingency, and infrastructure.
Business & Startup
Recruitment vs Direct Hire Calculator
Compare recruitment agency vs direct hire costs by calculating agency fees, job board spend, and vacancy productivity loss side by side.
Formula Used
Spotted something off?
Calculations or display — let us know.
Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
IT outsourcing saves money when external contracts beat fully-burdened internal cost. Internal cost includes salary, employer NI (~13%), pension (5-10%), benefits (10-15%), and overhead (10-20%) - typically 30%+ on top of salary. So a 50k salaried IT engineer really costs 65k+. A 60k outsourcing contract for equivalent service already saves money.
5 IT staff × 50k average salary × 1.3 burdened = 325,000 internal cost. Outsourcing contract 200k/year + 30k one-off transition = 230k first year. Savings 95k first year, rising to 125k year 2+ (no transition cost). Reasonable case for mid-market companies with standard IT needs.
Outsourcing failures: loss of institutional knowledge, slower response for urgent issues, vendor lock-in, reduced internal IT capability for future projects. Works best for commodity infrastructure (helpdesk, email, basic networks). Strategic IT (product engineering, security, data) should usually stay internal even when expensive.
A worked example
Try the defaults: it headcount of 5, avg it salary of 50,000, outsourcing annual contract of 200,000, transition one-off of 30,000. The tool returns 95,000.00. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.
What moves the number most
The result responds to IT Headcount, Avg IT Salary, Outsourcing Annual Contract, and Transition One-off.
The formula behind this
Internal cost = headcount × salary × 1.3 burden. Outsourcing first year = contract + transition. Savings = internal - outsourcing. Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.
What the score tells you
Headline financial numbers — income, savings, debt — each tell part of the story. This calculation stitches several together into a single read you can track over time. The value is in the direction, not the absolute number.
What this doesn't capture
The score is a composite of the inputs you provide. Life context — job security, family obligations, health, housing — doesn't appear in the math but shapes the real picture. Use the number as a prompt, not a verdict.
5 × ££50,000 × 1.3 vs ££200,000 + ££30,000 = 95,000.00.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
The calculator computes the annual cost comparison between maintaining an in-house IT function and outsourcing it. Internal costs are calculated by multiplying headcount by average salary, then applying a 1.3 multiplier to account for employment-related burden costs such as benefits, overhead, and administration. Outsourcing costs in the first year combine the annual contract fee with one-off transition expenses. Net savings are derived by subtracting total outsourcing costs from internal costs. The model assumes a constant burden multiplier and does not account for variations in employment costs, multi-year contract differences, ongoing management fees, redundancy costs, service level variability, or changes in headcount and salary over time.
References
Frequently Asked Questions
What burden to apply?
When does outsourcing fail?
Partial outsourcing?
Offshore vs domestic outsourcing?
Related Calculators
Offshore vs Onshore Dev Calculator
Compare offshore vs onshore development costs with management overhead and quality adjustments factored into total annual savings estimates.
Software Project Cost Calculator
Calculate software project cost from developer count, hourly rate, hours per developer, contingency, and infrastructure.
Recruitment vs Direct Hire Calculator
Compare recruitment agency vs direct hire costs by calculating agency fees, job board spend, and vacancy productivity loss side by side.
More Cloud & Tech Calculators
Cloud & Tech
Accounting Software Cost Calculator
Calculate total accounting software cost across years including initial setup hours, given subscription price and ongoing usage.
Cloud & Tech
App Development Cost Calculator
Estimate total app development cost from team hours, hourly rates, platform complexity, and a 15% project-management buffer.
Cloud & Tech
AWS vs Azure vs GCP Calculator
Compare AWS vs Azure vs GCP annual costs with reserved instance discounts factored — see which hyperscaler wins at your usage mix.
Cloud & Tech
CDN Cost Calculator
Calculate monthly CDN cost from data transferred, request volume, and storage at the per-GB price your provider charges.
Cloud & Tech
Cloud Cost Calculator
Calculate cloud compute storage and bandwidth costs with reserved discount. Enter compute monthly to see cloud net monthly cost across compute and storage.
Cloud & Tech
Cloud Migration ROI Calculator
Calculate cloud migration ROI from current infrastructure cost, cloud cost, migration costs, and productivity gains. Free — no signup.
Explore Other Financial Tools
Money Insights
Financial Resilience Score
Score financial resilience across 5 dimensions instantly — emergency fund, income sources, debt level, insurance, savings rate.
Productivity & Time-Value
Conference Attendance ROI Calculator
Calculate conference attendance ROI including time cost and expected income uplift. Enter registration cost to see net benefit and total investment.
Crypto
Digital Asset Portfolio Calculator
Calculate how much of each digital asset to buy or sell to reach target allocation percentages. Enter asset 1 current value to see trades needed to rebalance.