$235,427.88
We did the math.
That’s the one year cost to hire a full-time developer with a $150k salary. You can add or subtract a few thousand bucks based on the hire, but it’s going to be around $250k when you consider salary (~$150k), hiring and sign-on fees (~$36k), benefits (~$30k), interview process (~$13k), and onboarding time (~$7k) - and that’s if everything goes well.
How do we know? We’ve done it and will continue to do it. We’re a software development consultancy with full-time developers (like Whole Foods, we love them but they aren’t cheap!).
It’s a lot of money and a full-time hire decision is something we don’t take lightly. It’s also the decision most of our clients are facing - do we hire full-time or bring in some third-party help?
Based on your situation, either may be the right choice.
We’re not making the case for one or the other, but here are a few things we consider (and four rules) before we invest the equivalent of a 2-bedroom starter home into a new hire.
Business Forecast
The current state of your business may be the most important factor to think about. A full-time hire can’t be scaled up or down based on demand, nor can they be replaced by a new person with a different skill set when you need it. A full-time role is grounded in the idea that you have a specific, predictable, long-term need that a single person can fill.
If you’re not sure where your business may be financially or directionally in 8-12 months, it probably makes more sense to consider an agency hire. You won’t need to worry about layoffs, it’s easy to call in different skillsets, resources can be scaled up or down based on immediate needs, and you get access to a whole new meme library.
Cost to Hire
These are the hidden costs of hiring and the ones we typically overlook. First, there are the resume reviews, intro calls, take home exercises, interviews, text threads telling your uncle that your niece isn’t qualified…you get the point. The time suck part of the hiring process that always seems to take longer than you anticipate, while pulling people away from their day jobs. And while this stuff may take a lot of time, skipping them is a non-starter, a bad FTE hire is one of the most costly decisions you can make.
Then there are the hard costs, things like recruiter fees and signing bonuses (both of which often stretch upwards of 20% of first year salary).
And finally, we have onboarding and ramp up time, typically the 2 weeks when a new hire is getting their feet under them, learning the ropes, and introducing themselves on an unnecessary number of slack channels (all while getting paid and taking other people’s time).
The upfront hard costs are limited only to full-time hires. In terms of soft costs like interviewing and onboarding, outside partners typically onboard onto 10-20 new clients per year, so they’re not only used to presenting their work and expertise in an efficient way during the hiring process, but they’ll also probably be up and running within a day or two of kickoff.
Ongoing Costs & Projected Work
The biggest line items with a full-time hire are the ones we think of first - salary, benefits, etc. These are the ongoing, monthly costs that drive hiring conversations. If we can’t afford these, we don’t even start thinking about it. But too often we don’t think about these costs within the context of projected work.
There’s a big difference between 10 weeks of development work and 10 months of development work - and that difference is compounded when you compare paying a $100k/year and a $250k/year developer salary. Knowing what you’re going to pay a developer and knowing what an external agency will cost makes this decision very clear and helps you understand where efficiencies can be gained.
The cost of miscalculating projected work increases significantly with a full-time hire. If work dries up, you’re facing layoffs, severance costs, and team culture impacts that may lead to resignations. But when work ends for an external vendor, there is, sadly, no separation cost 🙃.
When you’re starting to evaluate a full-time hire, don’t be afraid to engage in initial conversations with external partners even in an exploratory way, you might find you’ll get a better deal.
Hiring History
We like to think we’re pretty good at hiring and our employee churn at The Gnar is fairly low. But we’re also brutally honest about our weak spots. There are some areas where we aren’t the best talent evaluators (don’t ask us to judge an olympic diving event). So in those spots, rather than committing to a full-time employee, we work with external partners who specialize in those areas. It reduces the risk (and cost) of starting all over again with a new employee and covers up an expensive weak spot.
Should you hire a FTE or agency?
There isn’t a right or wrong answer, but it is a question that doesn’t get asked enough once a company has chosen a path.
You know what’s best for your business, but here are four simple rules to keep in mind:
- If you do have a need, spend the 30-60 minutes asking a software development agency for a ballpark quote. It gives you an additional data point for cost/benefit analysis and will be a minimal time investment.
- If you have a core team member who left and needs to be replaced you should consider a full-time hire. Typically, these full-time roles have existed for a long-time with demonstrated work consistency, you won’t want an external firm for that.
- However, if your business experienced layoffs, inconsistent workloads, or significant turnover in the past 12-months you should consider a vendor partner. It’s great to think these things won’t happen again, but it rarely works out that way and evaluating a full-time role next year will reduce risk.
- Similarly, if you look ahead at the next 12-months and have an urgent project need or undefined skillset needs your best bet is an external partner. They’re used to ramping up faster than an FTE and will have a deep roster of skill sets to suit your needs once they’re defined.
Also, if you liked this article please subscribe to our newsletter