The True Cost of Hiring Software Engineers
Hiring Software Engineers:
What Does it Cost and What Should I Do?
Growing a technology team is not straight forward. If there’s one major thing that the last 10 years working in the recruitment sector has shown me, it’s that there is a lot of money involved in hiring. I have seen companies grow from founders to thousands in months, I have also seen a lot of failures. There was a common theme between these differing outcomes, a realistic understanding of the cost to hire software engineers and scale a business.
Who Are You?
Before we go any further, take this moment to identify where you stand in the market. Are you a very early stage business, perhaps seed or bootstrapped, have you had your first significant round or Series A, or is this not your first rodeo?
This will have a huge impact on whether you can compete in the market. This isn’t a show stopper though, at the end of this piece I will link to a follow up article for bootstrapped businesses trying to hire software engineers!
What Will it Cost?
There are plenty of articles out there, dissecting the costs of advertising, interviewing, hiring and onboarding new hires. So I will not regurgitate the peripheral costs involved. But here is a quick clean glimpse of the reality of trying to hire developers in a major western city right now.
For simplicity's sake, let’s assume you have your top players in place, such as your CTO or Engineering Managers, now you need to make multiple hires of Goldilocks Zone developers. So any smart, eager to learn developer with 2-5 years of commercial experience, being paid market rate salaries.
New York: $120-150k
San Francisco: $120-180k
Perhaps you cleverly decided to avoid these centres to bring your costs down, congratulations, you may be able to reduce your final calculations by 10-20% depending on how hard you are now finding it to source developers in your small town.
Quick tip: Many technology companies are putting more effort into becoming remote friendly, to tap into the distributed workforce. We launched Remote Works off the back of so many candidates and companies asking us to build it. It is still early days but businesses taking this seriously are gaining all the advantages of being located in every town.
For Agency Recruiting
Any third party recruiter or agency that is any good, will likely not waste their time with fees below 20%. In fact, the more you pay someone, who can provide references, the more likely you will get a faster, better service.
If you had to choose a heart surgeon, a lawyer, or even a personal trainer, would you be focussed on finding the cheapest out there or the best you can afford?
So, hiring 10 Software Engineers @ $130k with 20% fees = $260,000
Now, those of you who have been around the block a few times will not be surprised by this. However you are in the minority. A lot of clueless onsite HR and ‘recruitment’ teams blunder into this process without any true understanding of the cost of hiring a lot of great people quickly.
Process - Fast 🙂
Quality - High 🙂
Cost - Expensive 🙁
For Onsite Recruiting
An option is to bring this expensive function onsite and get paid employees to do your recruitment directly. I have seen this done well and badly.
The typical mistake fast growing tech companies make is to build an HR team, when they should be building a sales team. The best recruiters have been out in the wild, they have had skin in the game and worked to hit targets and generate their own revenue.
If you want to replicate this inside your company then you need to hire hungry, motivated, efficient, sales people, who will want more than free coffee and some bean bags. These recruiters will actually source and drive inbound to your business, rather than expand bureaucratic processes.
Again, many make the mistake of hiring recruitment drop-outs who are looking for an easy life, these people will cost a fraction of the cost and you will end up hiring dozens of them to produce the output of one star player.
Star Player: $150k
Great recruiters are used to making 3-4 times their base salary, so you will need to invest in someone much like a great developer. These individuals can change your business and for 2x in cost will return 10x in value.
Hiring 10 Software Engineers @ $130k with 1 Onsite Recruiter = $150k*
*This assumes it would take a year for a single recruiter to achieve these results, in reality, a great recruiter could get this done much faster. Cost range $75-150k.
Process - Slow 🙁
Quality - High 🙂
Cost - Reasonable 😐
For Hiring Platforms
This is a fast growing space in the tech industry, with many companies keen to iron out inefficiencies and bring these costs down.
The recruitment process can not be fully automated but there are ways you can use technology to get your brand out there, drive awareness and information about your business to increase your level of quality inbound applications.
Long gone are the days of sticking up a job ad on Indeed and then praying you get something of value in return as they take your money with no accountability whatsoever and offer you little or no control. With big name IPOs such as Upwork and Fivvr giving the recruiting space headline news, you need to be offering more than just a job board in this market.
Disclaimer, I built the hiring platform you're reading this article on... well obviously!
This does make me particularly qualified to talk about the pros and cons of such platforms however.
Companies such as StackOverflow have for some time offered the ability for companies to publish profile pages with direct links to open roles. They, as well as others, such as Vettery and Hired have taken this a step further with dedicated talent teams to bolster their delivery options alongside their platform offerings.
We at WorksHub have also ventured into this space, with fixed cost pricing and offering unlimited hiring by leveraging tech to support human efforts. Pricing across the industry is starting to align, with DIY packages starting around $1500/month, with bespoke packages requiring additional resources moving anywhere up to $30k/month. Some ‘hiring platforms’ have however now started charging classic recruiting fees as discussed earlier in this article, likely due to the overheads of providing such additional resources.
For this example we want to keep human capital separate, as we want to calculate a platform only approach. Most of these companies keep this pricing information hidden away so that allows me to use WorksHub Pricing as an example, shameless. Let’s assume it even takes a whole year to make 10 hires with zero additional resources to assist, plus you are being picky to select for star players of course.
Hiring 10 Software Engineers @ $130k with WorksHub over a year = $16,200 🤔
Process - Slow 🙁
Quality - High 🙂
Cost - Cheap 🙂
So, What Should You Do?
This wasn’t that sort of article, I am just laying out the costs of hiring software engineers. In reality you have to do all of this, but think how:
- For those of you needing to quickly grow and who have the resources, then you can employ some human capital into the process. Ask amongst the tech community what recruiters are standing out as excellent, be prepared to pay high fees, but use this resource to fill those difficult and immediate hires.
- As your company grows, think about how to replicate the energy and efficiency of those recruiters you’ve met, internally at your business. Remember to build a sales team mentality with targets and timeframes. Do this slowly with star players, a 100 person company does not need 10 recruiters for god sake.
- You have to use the power and reach of dedicated hiring platforms so you can get the message of your brand out there. Especially if you are bootstrapped. I am very passionate about creating ever more value for our users, with recent free products such as Issues that allows your business to leverage it’s open source projects from GitHub to attract technical talent to your community. Such platforms and tools can be excellent slow burning marketing devices that offer great returns for their low cost. Keep these running in the background indefinitely!
In conclusion, as I started out, this is an expensive business. However, if you combine resources and use the technology available to you, you can scale your efforts.
Don’t worry, as promised, here is the link to a guide for bootstrapped business to hire software engineers without the recruitment costs! 😱
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