Hiring skilled remote developers is essential for software companies looking to scale up and expand their teams. However, finding and onboarding new technical talent comes with significant costs. Understanding your cost-per-hire metric can empower you to make strategic decisions when building out your engineering staff.
In this comprehensive guide, we’ll break down what cost per hire means, how to calculate it and provide actionable tips to optimize your hiring budget. Whether you’re a startup aiming to be scrappy or an enterprise company wanting to streamline recruiting, these insights will help you hire top developers at the best possible price.
Cost per hire refers to the total costs involved with recruiting, hiring, onboarding, and training one new employee. This metric allows you to analyze how much your company invests to bring one developer onto your development team.
For engineering managers and recruiters, cost per hire is a vital number to track. It directly impacts your budget, headcount, and broader company strategy. Being intentional about your cost per hire can maximize hiring ROI and prevent you from overspending on the wrong candidates.
Understanding your cost per hire provides clarity on where your budget is going and how to adjust your hiring practices. Here are some of the key benefits of calculating this metric:
For these reasons, seriously tracking cost per hire separates strategic data-driven companies from those making hiring decisions on a whim. Doing this analysis provides visibility into the intersection of engineering productivity, team growth, and finances.
Figuring out your specific cost per hire takes a bit of math. Here are the key components that go into the calculation:
This includes any expenses tied to talent acquisition for the defined period. Main categories:
The tally of how many new engineers joined the company in the time frame you are measuring.
Formula Cost Per Hire = Total Hiring Costs / Number of Hires
To illustrate, here is a sample cost-per-hire scenario for 6 months:
Calculation: ($18,000 + $12,000 + $5,000) / 10 hires = $3,500 cost per hire remote developers.
This shows a $3,500 investment was required to hire each of those 10 new software developers alone.
Cost per hire can vary significantly depending on the type of engineering role you are hiring for.
Here are typical cost ranges:
Accounting for these variations in your model provides better precision on costs as your team grows and takes shape. The composition of roles you need influences how much you’ll invest per hire.
The main pitfall in determining cost per hire is underestimating the full costs tied to talent acquisition. Beyond obvious recruiting expenses, many overhead costs should be factored in as well.
Here are some major cost centers to include in your calculation:
While individual expenses may seem minor, together they represent the full investment made to acquire engineering talent. Tracking this comprehensively year over a year provides complete visibility into your hiring machine.
Once you’ve crunched the numbers on your company’s cost per technical hire, how do you know if it falls within a healthy range?
Here are two productive ways to contextualize your metric:
Compare Over Time
Looking at how your cost-per-hire changes provides insight into the efficiency of your recruiting operations. Growing costs may signal bloated spending. Declining costs may indicate positive optimizations but also potential quality issues.
Ideally, you want to see a consistent or moderately declining cost-per-hire trend:
Sudden spikes in the cost of hiring should be investigated. For example, a jump from $3,500 to $8,000 in one year indicates recruiting got considerably more expensive. This may be from an expansion into a new geography, but it warrants a closer review.
Against Industry Averages
Compare your metric to available industry data on cost per technical hire:
If your costs significantly exceed the norm, that’s a flag. For example, a $15,000 cost per hire for a standard software developer role would be concerning and call for evaluations into why your recruiting is abnormally expensive.
The goal isn’t necessarily to make hiring as cheap as possible. But when armed with your cost-per-hire data, there are opportunities to refine processes for a more balanced ROI.
Here are five areas to focus optimization efforts:
Adding automated screening tools early in the process of hiring developers can reduce time spent manually phone screening less qualified applicants. Define key technical and soft skills to filter candidates before they reach your staff.
Conduct targeted competency-based interviews focusing on must-have aptitudes. Develop a structured interview guide for consistency across candidates. Train hiring managers to ask insightful questions while avoiding irrelevant ones.
A major hidden cost in recruiting is candidate experience. Negative experiences from a disjointed process or lack of communication can hurt your employer’s brand. This leads candidates to warn others away from applying.
Ensure a streamlined, personalized process including:
This candidate TLC pays dividends through referrals and reputation, saving on future recruitment marketing.
Maintain ongoing connections with past applicants, university pipelines, freelancers, referral networks, and underrepresented communities. Proactively source from here to get applicants faster.
Employee referrals are a top source of quality hires. Offer creative rewards to incentivize referrals from your team. Consider referral bonuses, gift cards, credits, or swag.
Done right, these initiatives can significantly control costs while improving results. Even marginal per-hire savings add up substantially throughout high-volume recruiting.
A major way to gain recruiting efficiency is by implementing an applicant tracking system (ATS). Key benefits of an ATS include:
With these features, an ATS can shave significant time off the hiring process while improving quality. The right, technology stack is not cheap, but the long-term savings far outweigh the investment.
When evaluating options, look for an intuitive interface, robust reporting, configurability, and integration with your other HR platforms. The success of your ATS app project depends on adoption across your recruiting team.
A strategic hire will manage the implementation and train staff on the new workflows. This achieves maximum recurring savings that make the project cost-neutral quickly.
Why else should you keep your cost per hire in check beyond just tightly managing budgets?
Here are two major risks that arise from overspending in talent acquisition:
Balancing cost per hire not only protects your finances but also ensures you build teams sustainably. The goal is to curate an engineering staff of top-tier talent within budget constraints.
One hire gone wrong can be detrimental beyond just the sunk recruiting investment. The productivity loss and opportunity cost amplify the damage. Let’s examine the potential cost impact:
Total cost = $30,000+
And this does not account for the negative effects on team morale, culture, and delivering against goals. All reasons to avoid a bad match from the start.
As your business scales, your cost-per-hire needs also evolve. Here are some common shifts:
The ranges are broad but illustrate how cost considerations change with the maturity development skills and needs of your engineering organization. Know where you are on the spectrum.
One decision that impacts the cost per hire is whether to handle talent acquisition in-house or outsource it to an agency.
What are the differences?
Generally, early-stage companies want in-house recruiters to embed cultural DNA. Enterprises often leverage agencies to enable rapid, high-volume hiring.
The choice impacts not only cost per hire but also hiring quality, so factor both in when deciding what works best for your needs.
The rise of remote work opens up access to talent across geographies. But it also introduces some unique costs to factor:
While expanding your talent pool, keep these in mind when estimating the cost per remote hire. The flexibility of hiring remotely, also allows you to tap affordable talent markets to control costs.
Some roles allow alternative hiring models that control costs:
Bring on engineers at 30 hours a week. This allows access to parents, semi-retirees, and others seeking flexibility who may accept lower pay.
Initially engage technical talent on fixed-term contracts before making full-time offers. Reduces risk of mis-hire.
Gig Work Marketplaces
Tap into on-demand freelance talent for project work through sites like Toptal and Catalant. Pay only for the time you need.
While balancing quality, here are a few tactical ways to reduce cost per hire specifically:
Even small optimizations like these quickly compound hiring savings at scale. But be wary of extremes that compromise hiring quality and productivity. The end goal is stellar talent at a sustainable, cost-effective amount, not just cost reduction alone.
Building a diverse engineering team brings in a wider range of perspectives. However, it often requires additional investment to attract and include underrepresented groups.
Be mindful of these costs:
View this as a long-term investment that pays dividends through innovation. Set realistic cost-per-hire expectations for hiring remote employees, and get executive buy-in on the value.
As you forecast headcount growth, establish a clear goal for cost per engineering hire to guide budgeting. This forces your team to think through project requirements in an ideal scenario, not just what currently exists.
Follow this process:
Revisit this exercise annually to reset an ambitious but realistic benchmark as your needs evolve. The cost-per-hire goal provides a North Star for recruiting teams to align efforts against.
Leverage analytics throughout your recruiting process to base decisions on insights rather than assumptions. Capture key metrics like:
Analyzing this data will reveal what channels, processes, and strategies return the best results. Continual improvement becomes systematic, not guesswork.
Carefully managing your cost per hire provides the insight needed to scale your software engineering team. With a sharp focus on this key metric, you can take charge of budgets and build a world-class technical staff. The result will be quality growth that propels your business forward.
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