True cost of recruiting a developer [infographic]

Have you ever wondered how much it costs to recruit a new programmer? The numbers may surprise you.

The most common cost of recruiting a developer which comes to mind is a recruitment agency fee, but it’s just a starter. In the IT world, where there is a talent shortage, hiring a new programmer (or any tech talent) increases in cost and effort as time goes on. The better a programmer is, the more expensive it gets. The best ones are like superstars with their own agents. Employee turnover is a huge problem for most companies and long-time employment is almost unreal. According to the 2015 Recruiter Survey, the average employee tenure is below 6 years; 30% of people change their job in 1-3 years and 29% in 4-6 years. Quarsh’s research gives even more dreadful numbers – 20% of new hires leave in 12 months!

Even with low turn-over you need to be prepared for recruitment costs. These studies show that 79% of the workforce keep their resumes up-to-date and 63% have updated their LinkedIn profile just in case. Are you sure your employees won’t quit on you?

Feel free to share this infographic on your site, but please mention the article below, where all the data is explained.

Data behind “True cost of recruiting a developer”

Time is money

It sounds cliche but it’s true. The longer your position is unfilled, the more money you lose. It’s gotten trickier as the result of a shortage of qualified programmers. An unfilled position can cost you upwards of $500 a day. The average time to hire varies and according to some research it takes as long as 95 days. Talent Acquisition 2015 by Deloitte shows that with each year it takes longer to fill a position with the number rising from 48 days in 2011 to 52 days in 2014. DHI Hiring Indicator gives the most encouraging vacancy duration time – 35.3 days for 2015. It means that you could lose as much as $17,650 as the result of a vacancy (35.3 days x $500).

Programmers know their value and they will not wait for you. You need to act quickly to get the best talents. An extended candidate search does not equate to a more capable programmer. Quite the opposite, the best candidates would be gone and you’ll be left with people whose skills may not be satisfying to you. John Sullivan’s research reveals that 10% of candidates are hired in 10 days. Slow hiring leads to slow decision making a combination that can damage your employer brand. Hiring can be both stressful and exciting for each party involved in the process. The stress of waiting for recruitment results makes people feel negative about the recruitment process and the company itself. Moreover, the slowness has an impact on your other employees (since they are doing extra work to cover for the vacancy) and consumers (vacancy often causes errors and delays). That, in turn, means a significant loss of revenue and productivity.

The amount spent on recruiting a new programmer varies depending on; the skills, position type, level, market demand, geographic region and so on. However, the average of hiring a software engineer is somewhere around the $50,000 mark. The cost of recruiting a freelancer who works from home is different than the cost of recruiting a full-time programmer in Silicon Valley. The average sunk-cost of a new hire is somewhere between $4,325 (Deloitte 2015) and $41,111 (£31,808 Oxford Economics 2014). For a position with a salary of $51,676 (£40 000, Quarsh) the number goes up to $89,510 (£69,285, Quarsh). So how can you find out how much it costs you to hire a new programmer? It’s not easy, but you can estimate the cost using the cost-per-hire (CPH) indicator:

CPH= (external costs+ internal costs)/ number of hires

External costs are the recruitment expenses incurred outside your physical location. These may be advertising costs (expanding employer brand, job posting), consulting services (legal, technical), immigration expenses (especially important when you recruit abroad, which is a very popular practice in IT recruitment), relocation fees, travel expenses (for both the candidate and the recruiter), technology fees, third-party fees (recruitment agencies, headhunters), etc.

Internal costs include; in-house recruiting staff, management, office work, training, temporary staffing costs, etc.

Recruitment entails both external and internal costs. If you hire a headhunter or recruiting agency it charges you 15-30% of the new employee’s annual pay (external cost). If the recruitment is conducted by your employee, the time the person dedicates to the recruitment is your internal cost (hourly wage x hours). The most popular solution is a hybrid one.

Here are some detailed external/internal costs you need to cover:

1. Sourcing

The first step is to find your candidates. Let’s look at how much it can cost you:

Job description

It starts with a well-written proper job description. You need to know who you are looking for and have the description written in an appealing way. It takes about 1h to complete so it costs you $25.

Job boards

When you have the job description ready, you need to post it on some job boards/ sites. Completing one posting can take up to 30 min and costs you ca. $12. The posting price varies and you can cut your damage by posting for free on some forums where programmers spend their time, but be prepared to pay for posting on job boards. The price ranges from $25 for one posting up to several hundred dollars.

Company website

Your career page and company website are powerful employer branding tools which can be crucial in recruitment as 92% of employees say an employer brand is important to them in considering applying for a job. Keep your website up-to-date and informative. Even if you don’t hire at the moment, the website leads to extending your talent pool. Make it user-friendly and go mobile (according to Monster’s research 70% of people use mobile in job search). Create extraordinary candidate experiences to make sourcing cheaper.

Social sourcing

Monster’s research shows also that 79% of candidates are likely to use social media in their job search. The key to social sourcing from a relevant audience is to know where programmers are. Apart from checking the most popular social media such as Facebook or Twitter, focus on tech forums and communities with GitHub or StackOverflow for a starter. Some IT companies employ an IT Sourcer or Talent Sourcer, whose main objective is to attract passive candidates, including using social sourcing. However, in many cases it is still the recruiter that deals with social sourcing. Sourcing from social media may take forever so it is a good idea to set a deadline (the time or the number of candidates). When you have a deadline of 10 hours it costs you $250.

2. Review applications

There are two categories in the process of reviewing applications –  a group of applications which are answers to your job posting and a group of candidates you find in sourcing. In the case of tech recruitment accomplishments count more than resumes. Check candidates’ portfolios, open source contributing and tech communities activities before you have a look at their resumes. The screening takes at least about 5-6 minutes for one candidate so if you have 100 candidates, it takes over 8 hours to complete (8hrs x $25 = $200).

Using applicant tracking system (ATS) saves your time as all the data on candidates is in one place. On the other hand, you need to pay for access to ATS and it can cost you about $60- $99 per month per person who has access to the system. Be aware that relying only on ATS may lead to missing out on candidates whose profiles don’t have the right keywords.

If you run your own database with candidate information, you need to take into consideration that it also consumes your time and money. The time to complete a database of 100 candidates can take up to 6 hours (6hrs x $25= $150).

3. Pre-screen

a) Interview – (video) call /contacting candidates

To pre-screen candidates you need to contact them and it takes time no matter if you call them or email them. Programmers prefer the latter but it must be personalized. If you decide on a pre-screen interview be prepared that it takes more than 15 minutes per person so calling 16 candidates costs you $100 (plus the communication fees).

b) Code challenge

Using coding tests is the way to cut your costs because it allows you to skip the pre-screen interviews and shortens the reviewing process. The candidates found during sourcing are invited to take a test, which helps you find the programmers with the best skills for your position. From DevSkiller clients’ experience you need to test 8-15 candidates to hire one programmer. This means that for each new hire the cost of using testing software is about $140.

4. Interview

After testing you reduced the number of candidates you want to interview in-person. The interview takes precious time from your employees (HR staff, managers, programmers) who conduct interviews. You need to make it as smooth as possible. Don’t waste time on puzzles, whiteboard tests, quizzes. This stage involves the cost of inviting the candidates to the interview (phone call/ email), checking their references and background, making time for the interview, the interview itself and calling all candidates with their results. Recently psychometric testing has been increasingly popular so if you are up to such tests, recruiting cost rises.

5. Additional costs:

There are still more costs to cover. If the vacant position requires constant coverage, you have to find and pay for temporary staff. You need to think about administrative fees, legal costs etc.

Onboarding a new programmer requires training and management time. The biggest problem is that a new hire is less productive and makes more errors.

The studies show that it takes about 29 weeks to reach optimum productivity. Productivity loss may reach $34 000.

Other costs include salary and benefits which may be crucial for your new programmer and help you win the best candidates. Also don’t forget about workplace integration – the cost of a desk, chair, computer, software etc.

So how much does it cost you?

Let’s estimate how much it may cost to hire a senior software developer with a salary of $ 94,083 (which is median salary value estimated by PayScale) and time to hire of around 43 days (according to Wanted Analytics).

The average agency fee (22% of the new hire’s salary) is $20,698, in-house recruitment (12%) costs you $11,290 and a hybrid solution (17%) is $15,994. These figures are the sums of the external and internal costs which are partly described above.

Moreover, as a company you’ll suffer productivity loss in this case totalling $33,251 or you will get the contractor cover which costs you $22,167.

You have to take into account also management time spent on the recruitment process, reviewing CVs, interviewing and repeating the process if the job offer gets rejected. Time devoted by a manager with a $62,000 salary (according to PayScale) for 10 days costs you $2,818 of their time and $8,454 in terms of productivity loss.

The total for this scenario is $22,562 for in-house recruitment and $31,970 if you recruit with an agency – and if you add the productivity loss or cost of contractor cover the number can exceed even $60,000!

As you can see, the cost of your new programmer greatly depends on you and your action. Just remember to list all positions mentioned above that go beyond individual recruitment costs. There are some unavoidable costs, but if you create great employer brand and workplace (to avoid turnovers), constantly work on your talent pool and prepare well for your next recruitment you can cut the figures and hire better candidates.