When to hire a Software Agency vs hiring a Developer for your custom software

At some point, every company hits the same wall. The spreadsheets aren’t working anymore. The off-the-shelf SaaS don’t quite fit. You need something custom built. And the first question is always the same: do we hire a developer or an agency?

Most advice on this topic comes from agencies looking to sell their services or from freelance developers promoting their work. So take all of it (including this) with that in mind.

What I can offer is 8 years of watching companies make this decision, sometimes correctly and sometimes not. I’ve seen companies hire a developer when they should have hired an agency. I’ve seen the reverse. And I’ve seen companies do both at different stages and get great results from each. The right answer depends on what you’re actually building, how fast you need it, and what happens after it ships.

The full time developer

Hiring a developer means bringing someone onto your team. They learn your business, your data, your processes. Over time, they become the person who knows where everything works.

A good developer who can build internal tools and business software earns $85K to $140K. Add benefits, equipment, recruiting costs, and management time, and you’re looking at $110K to $180K in total annual cost. And that’s before they’ve built anything.

The ramp-up period is a time that people often forget to include in budgets. When a new developer starts, they usually spend the first 2 to 4 months getting to know your business, your systems, and your data. Although they are working and learning during this time, they are not actually building the tool you hired them to create.

A logistics company I know hired a developer to build an order tracking system. It took the developer two months to understand how their quoting, dispatch, and invoicing processes connected before he could design anything. The tool worked when it shipped, but the company waited four months from the hire date to working software.

The other thing is that a single developer is a single point of failure. If they leave, everything they built goes with them (in their head, at least). Training the next person will take months. If they become sick for two weeks during a crucial phase, the project will get stuck.

Hiring a full time developer makes sense when

You have ongoing software needs that will keep someone busy 40 hours a week, every week, for at least a year. You’re building a product that requires continuous development. Not a one time tool. You’re willing to invest 3 to 5 months before seeing real output. And you have someone on your team who can manage a developer, review their work, and make technical decisions. That last point matters more than people realise.

If nobody at your company can evaluate whether the developer is making good architectural decisions, you won’t know there’s a problem until the software breaks under real usage.

The agency

An agency gives you a team for a fixed period. You get the project scoped, built, and delivered. Then the engagement ends (or shifts to maintenance).

The cost structure is completely different. You’re paying for an outcome, not a salary. Most internal tool projects at our agency fall between $8K and $50K, delivered in 4 to 8 weeks. No benefits. No recruiting fees. No months of ramp-up.

An agency also brings experience you can’t get from a single hire. We’ve built 50+ internal tools across logistics, wholesale, field services, education, and a dozen other industries. When a wholesale distributor tells us they need to track inventory across three warehouses with different SKU formats, we’ve solved that problem before. A new hire hasn’t. They’ll figure it out eventually, but you’re paying for their learning curve.

The tradeoff is that an agency leaves. We build it, we hand it over, and unless you’re on a maintenance retainer, we move on to the next project. You don’t get someone sitting in your office who can fix a bug in 20 minutes. You get a team that’s available during business hours, responds within a day, and handles changes on a scheduled basis.

An agency makes sense when

You have a specific project with a clear scope. Build this tool. Connect these systems. Automate this process. You need it done in weeks, not months. You don’t want to manage a developer or make technical decisions. And you don’t have 40 hours a week of ongoing development work to justify a full-time salary.

Comparing an employee and an agency

On paper, the developer looks cheaper.

“$140K per year divided by 2,000 hours is $70 per hour, and the agency charges $150 per hour, so the developer is half the price.” That math is wrong for three reasons.

First, a developer isn’t productive for 2,000 hours a year. Between ramp-up, meetings, context switching, and PTO, you’re getting maybe 1,200 to 1,400 hours of actual development time in year one. Probably 1,500 to 1,600 in year two.

Second, the agency isn’t billing you 2,000 hours. A $30K project might take 200 to 300 hours of agency time. You pay for the project, not for a year of someone’s life.

Third, and this is the one people miss entirely: what’s the cost of waiting?

If an agency delivers in 6 weeks and a developer delivers in 5 months (including ramp-up), that’s roughly 3 months of difference. Three months where your team is still doing things manually. Still making errors and still spending Friday afternoons reconciling data in spreadsheets.

For a 30-person company, those manual processes easily cost $3K to $8K per month in wasted labour. Three extra months of that is $9K to $24K. Add that to the developer’s salary, and the calculation looks very different.

The hybrid approach

Hire an agency to build version one. Get it shipped in 6 weeks. Start using it. Figure out what you actually need versus what you thought you needed (always different). Then, six months later, when you have ongoing feature requests and enough development work to justify it, hire a developer to maintain and extend what was built.

The developer starts with a working system instead of a blank canvas. They have a codebase to study. They have users who can tell them what’s working and what isn’t. Their ramp-up is half as long because the hard decisions have already been made.

An education company we worked with did exactly this. We built their student coordination tool in five weeks. They used it for eight months. Then they hired a part-time developer to add features and integrations as needs came up. That developer was productive in his second week because the system was already documented and running. Compare that to a developer starting from scratch, and the difference is months. You can see more about that project in our case studies.

Questions to ask yourself

Do I have a specific project or ongoing development needs?

If you can describe exactly what you need built and it has a clear endpoint, hire an agency. If you’re thinking, “We need someone to build things for us indefinitely,” hire a developer.

How fast do I need this?

If the answer is yesterday, an agency wins every time. A developer hire takes 4 to 8 weeks to recruit, then months to ramp up. An agency can start next week.

Can someone on my team manage a developer?

If nobody at your company can evaluate code, make architecture decisions, or prioritise a technical backlog, a solo developer is going to struggle. They need someone to report to who understands what they’re doing. An agency manages itself.

What’s my budget?

A developer has a fixed monthly cost whether they’re building or idle. An agency is a one-time cost per project. If you have a $30K budget for a specific tool, hire an agency. If you have $120K annually allocated and you’ll always have work to do, a developer might make more sense.

What happens after the tool is built?

If you need someone to maintain, extend, and support it full-time, a developer gives you that. If you need occasional updates and bug fixes, a maintenance retainer with an agency is cheaper and simpler.

The wrong reasons to choose either

Don’t hire a developer, thinking it’ll be cheaper in the long run, without actually running the numbers. For most SMBs with $3M to $30M in revenue, a custom tool is a project, not a permanent function. You don’t need a full-time developer any more than you need a full-time electrician.

Don’t hire an agency because you’re afraid of commitment. If you genuinely have a year’s worth of development work lined up, an agency doing it project by project will cost more than a good full-time hire.

Don’t hire either one until you can clearly describe the problem you’re solving.