How to Calculate Technical Cost-Per-Hire by Bobby Guliani

The Ultimate Guide to Calculating Cost-Per-Hire for Technical Roles

Since 2004, the cost-per-hire metric has been used by companies of all sizes to measure the effectiveness of their HR functions. SHRM once defined it as â&#x20AC;&#x153;the costs associated with the sourcing, recruiting and staffing activities borne by an employer to fill an open position in an organization.â&#x20AC;? In the same report, they suggest that the formula for calculating your cost-per-hire is the following: Total internal + external recruiting costs Total # of hires in a given time frame Historically, executives have honed in on this metric for one reason: to put pressure on HR teams to reduce their spend. But hiring developers is a unique challenge. The competition to hire the top programmers is intense, and hitting your tech recruiting goals often means creating developer-specific employer branding strategies and job listings. Not only does that work require additional manpower, but the most effective developer hiring strategies have their own budgets. All of these things make it more complicated to understand what a reasonable cost-pertechnical-hire should look like. So, how can talent acquisition leaders accurately measure the costs of hiring a programmer, while showing their executives the value of doing so independently of other non-technical roles? In this guide, weâ&#x20AC;&#x2122;ll help you: Understand how this metric impacts your entire developer hiring strategy Discover why you should measure your technical cost-per-hire separately from your non-tech roles Gather all of the information you need to accurately calculate your cost-per-developer-hire

The Ultimate Guide to Calculating Cost-Per-Hire for Technical Roles

How Cost-Per-Hire Impacts Your Developer Hiring Strategy For some executives, it’s incredibly difficult to comprehend how much more difficult and expensive it is to hire a developer. But before we talk about how to communicate those costs to anyone outside of your HR function, let’s take a look at the impact of an unfilled developer role. We’ve discussed the impact of losing a developer in detail. But more surprisingly, Dice recently found that the average cost per day of an unfilled developer position is $500 per day. At first, that per-day expense might seem far more affordable than any cost-per-hire number you show to an executive. But let’s break this down a bit. Say that in your previous experience, it typically costs you $7,000 to hire a Front-End Developer. For just one programmer, that sounds like a lot of money. But let’s also assume that historically, it has taken you an average of 45 days to hire that type of developer. Multiply that number by the $500 per-day rate of an unfilled role, and that comes out to a whopping $22,500 of lost productivity. If your fellow executives have initially balked at your predicted budget to hire a developer, walk them through this exercise to justify your tech recruiting spend. Still, there are a couple more things you should understand about calculating technical cost-per-hire before you discuss it with anyone outside of your team. 1. Your cost-per-hire might be different across the developer roles you need to fill 2. Your anticipated spend should be driven by your biggest tech recruitment goals

Measuring Cost-Per-Hire for Different Developer Roles One metric should rule them all, right? Well, not when you’re recruiting for a variety of developer roles. Consider that over half of the respondents to the 2018 Developer Hiring Landscape identified as Back-End Developers, while only 11.3% identified as System Administrators. Both of these roles are critical to most organizations today, and yet one is clearly more difficult to recruit for than the other. If you were hiring a Back-End Developer this quarter, your cost-per-hire might include online recruitment tools and a small events budget to interact with passive candidates. Since these developers are a slightly easier to find, your costs not only could be lower, but also more predictable.

The Ultimate Guide to Calculating Cost-Per-Hire for Technical Roles

But with fewer System Administrators on the market, you’ll probably need to allocate more resources to in-person technology events and employer branding campaigns. You might need to post your jobs on lesser-known careers sites that those candidates trust. All of those costs will add up, but that’s not necessarily a bad thing. It also might be a much higher dollar amount than a typical Back-End Developer search. But over time, you’ll be able to more accurately track how much specific developer types cost to hire, making it easier to get the other executives at your team on board.

Understanding Your Tech Recruitment Goals In many cases, the biggest tech recruitment goal for any HR function is to hire developers. But what if you’re more concerned with improving your company’s reputation in the developer community? How does your cost-per-hire change if you’re trying to build your tech candidate pipeline or generate more applications? The cost-per-hire metric that you care about should be influenced by what you’re trying to accomplish. An employer branding campaign online might have a fixed cost that seems high, but proves to consistently get passive tech candidates interested in your company. Plus, that initiative might result in zero hires, at least in the near-term future. The good news? That’s perfectly OK! Let’s add to our previous System Administrator example by saying that we want to run a three-month employer branding campaign. It might sound complicated to keep track of all of your spend for this role, especially if your company is comfortable waiting a few months for the right person. But all you need is a single document like the one below to track all of your recruitment costs for a technical position.

Resource

Cost

Timeframe

Job Listing

$1,000

Jan ‘18 - August ‘18

Employer Branding Campaign on Developer Central

$5,000

Jan ‘18 - March ‘18

Meetups and Networking Events

$2,500

Ongoing until role is filled

Resources you need?

Your Cost?

Your timeframe?

Resources you need?

Your Cost?

Your timeframe?

The Ultimate Guide to Calculating Cost-Per-Hire for Technical Roles

How to Calculate Technical Cost-Per-Hire So now that we’ve discussed the impact of your technical cost-per-hire and all of the things you should consider before you calculate it. But the question remains—how do you calculate it? Before we get to that, it’s important to redefine “cost-per-hire.” Think about SHRM’s definition of cost-per-hire. While that formula is an easy way to measure the impact of your tech recruitment spend, it’s actually a better indication of how much it costs to acquire an applicant, not a full-time hire. Often, leaders mistake cost-per-applicant for cost-per-hire. If you’ve done this in the past, you likely have plenty of company. But before we get to the formula to calculate your technical cost-per-hire, let’s take a closer look at the differences between cost-per-applicant for cost-per-hire

Cost-Per-Applicant Measures Your Tech Recruiting Spend Remember SHRM’s definition of cost-per-hire? In case you need a refresher, it’s “the costs associated with the sourcing, recruiting and staffing activities borne by an employer to fill an open position in an organization.” The truth is that this is a good definition, but not for your overall cost-per-hire. Instead, it’s a good way to understand your total cost-per-applicant. Think about all of those sourcing, recruiting, and staffing activities. What do those drive? Applications to your open jobs. This is an excellent metric to measure. But there are additional expenses to you and your company once a developer enters your interview process—none of which are influenced by any of those recruiting tools. Why should you measure cost-per-applicant separately from your overall cost-per-hire? Knowing your applicant acquisition costs gives you the insights you need to tweak your tech recruiting strategy along the way. If a job listing on one platform isn’t generating applications, you’ll have data to support the decision to remove it from that careers site. If you’re seeing success with a particular candidate database, it’ll be easy to justify dedicating more resources to it.

The Ultimate Guide to Calculating Cost-Per-Hire for Technical Roles

Cost-Per-Hire Includes All Spend Throughout the Developer Hiring Process On the other hand, cost-per-hire includes everything we discussed in the previous section. In addition to those things, it should account for all of the fixed costs of hiring a developer. Typically, these fixed costs include: The salary you’ve budgeted to pay a candidate The salaries that you’re currently paying to your tech recruiting staff (including yourself!) Equipment and software budgets for your new developer hire The onboarding and training expenses that you provide to all new hires When you factor all of these numbers into your overall technical cost-per-hire, this number might seem very expensive. That’s by design. Your cost-per-applicant indicates whether or not your tech recruitment strategy is effective. But your overall per-hire cost supplements that by highlighting the importance of retaining developers. Each time one of your programmers accepts a new role, it’s not your cost-per-applicant that your company should anticipate spending to replace that person—it’s the overall cost-per-hire.

An Updated Formula to Calculate Technical Cost-Per-Hire That was probably a lot of information to digest. But ultimately, we can use the information we’ve gathered to this point to calculate your technical cost-per-hire with this updated formula: [Internal and External Recruiting Costs]

[Fixed Hiring Costs]

Number of Hires Made in a Given Period of Time This isn’t much different than the formula that SHRM published back in 2004. But using the context that we’ve laid out in this guide, you’ll have a much clearer idea of your overall costs to hire a developer. With that metric, you’ll be able to get the other executives at your company on board with your tech recruitment strategy more easily—and as a bonus, you’ll have an even clearer idea of when your tactics aren’t working, where you’re spending too much of your budget, and where it should be reallocated.

The Ultimate Guide to Calculating Cost-Per-Hire for Technical Roles

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