Recruiting new employees can be a hefty line item, especially in the tech industry where salaries are usually above average. The average cost per hire is nearly $4,700, but often, it's even higher.
Why does hiring tech talent cost so much? From my experience in building tech teams, it's not just about the high demand for tech talent and fierce competition. There's more to it.
What surprised me is that not all recruiters know the right way to track cost-per-hire. By that I mean, they just add up advertising costs from platforms like Indeed, then put some candidate travel expenses on top and call it a day.
This common method gives a rough idea of hiring costs. But it's only a part of the story. There are many factors that drive up the cost of hiring tech talent, and we’ll explore them further.
When it comes to hiring tech talent, companies often have to decide between working with a recruitment agency or handling the recruitment internally. We at Brocoders usually handle hiring ourselves, but from time to time, we also reach out to recruitment agencies to meet our hiring needs. Each option has its own set of costs, so let's take a closer look.
| Recruitment agency costs | Internal recruitment costs |
|---|---|
| Hiring through a recruitment agency comes with its own set of expenses. The bulk of it usually circles around the agency fee, which is a percentage of the hired candidate's annual salary. For example, here's how much hiring a tech professional with an annual salary of $80,000 would cost you: | The internal recruitment process involves multiple cost factors. Let's break them down: |
| Agency fee Typically ranges from 15% to 25% of the candidate's first-year salary. In our case, let's take a 20% fee. Fee amount: $16,000 (20% of $80,000) | HR & Recruitment team 30-hour recruitment tasks: $7,700 (based on $110,000/year salary) Additional staff salaries vary by team size and structure. |
| Additional services Some agencies offer additional services like skill assessments, background checks, or preliminary interviews. These services, while convenient, add to the cost. Estimated cost: ~$3,000 | Job advertising Posting a job ad on a platform like Monster for one month: ~$375 |
| Guarantee periods Agencies often provide a guarantee period during which they'll find a replacement at no extra cost if the hired candidate leaves. This is a cushion but comes at a cost baked into the initial fee. | Candidate sourcing Costs associated with sourcing candidates through various channels, including LinkedIn recruiter licenses, job fairs, etc., can also add up. Estimated cost: $1,000 |
| Miscellaneous costs Any other costs that might emerge during the recruitment process, like candidate travel and accommodation for interviews coordinated by the agency. | Screening and interviewing Time and resources spent on screening resumes, conducting interviews, and other assessment tests. Estimated cost: $1,000 |
| - | Travel and accommodation Covering travel and accommodation costs for candidates relocating from distant locations. |
| - | Onboarding Orientation, training, and the administrative costs associated with getting a new hire up to speed. Estimated cost: $1,000 |
| - | Miscellaneous costs Background checks, reference checks, etc. |
| Approximate total: $19,000 (plus any miscellaneous expenses and sometimes travel costs) | Approximate total: $13,000 (plus any miscellaneous expenses and sometimes travel costs) |
But the final cost of recruiting tech talent comes from a blend of hard and soft costs. So let’s talk about them.
Hard Costs
Roughly 30-40% of the total recruitment budget goes into hard costs. Here's a closer look at some of them:
- HR Manager 30 hours effort – $7,700. It's not just a run-through resume ordeal. Your HR manager is there understanding the job role inside out, having important chats with department heads, and crafting job descriptions that hit the mark. They’re also diving into the background checks, but there's more to it. It's about screening, having conversations, and really getting to know the candidates to ensure they're the right fit for the team.
- 1-month job ad on Monster – $349. While essential, advertising costs can add up quickly across multiple platforms. So it's worth exploring bundled advertising packages or alternative platforms for cost savings.
- Basic background check – $1000. This is a nominal but necessary expense to ensure the integrity and suitability of potential hires. Triple it when it comes to hiring top managers.
- IT equipment – $600-4000. Investing in quality equipment upfront can lead to long-term savings by reducing the need for repairs or replacements.
- Training courses – $400. A well-structured onboarding and training program can expedite the time it takes for new hires to become productive, potentially saving costs in the long run.
- Employee support 20 hours effort – $6,000. Offering robust support during the initial period can enhance employee retention, thereby reducing the recurring costs of hiring.
- New employee signing bonus – $2,000. A signing bonus is an incentive, but its necessity could be evaluated based on the competitive landscape and the availability of talent.
Soft Costs
Now, soft costs account for about 60% of the total recruitment cost. They include:
- Internal team effort. Team members spend time defining roles, interviewing candidates, making hiring decisions, and onboarding. Every hour spent has a cost, which can vary depending on the project type.
- Productivity dip. When you combine both hard and soft costs, the average cost per hire lands anywhere between $7,500 to $22,000. It's a broad range, varying with each unique hiring situation.
Considering both hard and soft costs, the average cost per hire is roughly from $7,500 to $28,000. This broad range depends on the complexity and the unique challenges of each particular case.
Can Hiring Costs Be Reduced?
As you can tell, hiring new talent costs more than a pretty penny, especially when you add taxes, upskilling, and benefits to the mix. But can you lower the expenses? Of course, here are some ways to do it.
You can cut costs with AI vetting, internship-to-hire programs, or employee referrals. They each have their pros and cons and all of them are worth the shot. So feel free to try any of these options and see which one works the best for you.
As an alternative, you can also consider joining forces with a reliable third-party provider like Brocoders. We have 87 skilled software engineers ready to tackle your projects. And if you need more hands on deck, we can find the right fit fast thanks to our extensive pool of 10,000 pre-vetted candidates.
Send us a message and let’s discuss how we can make your hiring process smoother and more cost-effective. We're here to help.