Custom software solutions pave way for innovation, helping improve productivity, deliver improved customer experience, and facilitate business growth. At the same time, companies have to take into account the cost of software development and their budget. Should they hire a software development company for bespoke solutions or get a freelancer to cut costs or just hire in-house resources?
In this blog, we will discuss how much it costs to hire a software developer and what are the best options for you.
There were 23.9 million software developers in the world in 2018, according to Evans Data Corporation. This figure reached 26.4 million in 2019 and is expected to grow to 27.7 million in 2023 and 28.7 million in 2024.
Spike in Demand Sky-Rockets the Cost of Hiring a Software Developer
Rapid technology advancements and growing development challenges have resulted in huge demand for hiring a software developer with in-depth technical skills. However, a limited talent pool is a major reason behind the astronomical cost of hiring a dedicated software developer. Now as the law of demand and supply dictates, the shortage of skills has caused a tremendous surge in the salary package of software developers.
Keeping pace with the latest industry developments, the demand for highly skilled developers has increased significantly. According to industry projections, employment opportunities in the field of software engineering will increase at a rate of 24% by 2026 (Source: EEWeb) as compared to only 11% of all occupations combined. Estimated growth in demand is primarily driven by the fast-paced demand for IT security, healthcare, and mobile software. Let us see why it is a challenge to hire quality developers.
Key Challenges in Hiring Software Developers
According to Robert Half, 67 percent of IT managers are planning to grow their teams in areas such as security, cloud computing, and business intelligence, but 89 percent have faced challenges in hiring the talent.
Let’s first analyze the common recruitment challenges most of the companies face today, which increases the overall cost.
Exorbitant Recruitment Agency Fee
Lack of skills in the field of software development is one of the key reasons influencing sky-high fees of recruitment agencies today. This is a crucial aspect contributing to the increased overall cost of hiring a software developer.
Despite the exorbitant hike in fees, the hiring process is broken. Most agencies use automated tools, post flawed job descriptions, or have unsound selection criteria. This eventually results in a higher percentage of candidate churn rate, adding to your costs further.
Lack of Versatile Skills
Good programmers have extensive expertise in a variety of skills today. For a company, it can be challenging to find the best match for their project requirements, set up the right infrastructure, ensuring high security and performance, and taking care of code quality and stability. The company might end up investing more in their employees in order to raise their caliber.
Huge Cost Per Hire
Do you know how much cost is involved just in hiring a dedicated software developer; leave alone the daily/monthly expenses post-hiring them? Let’s us do the math.
It takes 42 days on average to fill a job position (Source: Hire Vue). During this time, companies can face a productivity loss of $33,251 (Source: DevSkiller). Plus, the cost of new recruitment can amount to $31,970, suggests Wanted Analytics.
In addition to these, there are innumerable other factors that a company should take into consideration to understand the average cost per hire. These include:
- In-house recruiting staff
- Office work
- Temporary staffing costs
- Advertising costs
- Relocation fees
- Immigration expenses
- Technology fees
- Travel expenses
- Consulting services
Recruitment agency fee, which is 15-30% of an employee’s annual salary
Considering all these costs will help you get the Cost Per Hire (CPH) Indicator. Please note that all the figures should belong to the same time period.
|CPH =||External Costs + Internal Costs|
|Number of Hires|
Employee Retention & Turnover
Skilled software programmers are always in huge demand. Funded startups and large organizations are willing to shell out a “premium price” and provide added benefits to attract the best talent pool. This has made employee retention a big challenge for companies that can’t always afford to pay the premium price. Also, “Burnout” is not the only reason why employees leave today. Countless companies today are experiencing exorbitantly-high turnover rates because programmers are continuously looking for jobs with lucrative salary hike and job positions.
You might be contended making a new recruit and overlook the fact that nearly 33% of employees are actively searching for new jobs – 73% of your employees are open to new career opportunities (Source: Emplify). What’s even more distressing is over 20% of new hires are estimated to leave in just 12 months of hiring (Source: Quarsh)!
It’s staggering, right? But that’s the way it is today. And even one employee turnover would mean a loss of productivity and cost to hire a software developer.
Hiring a Software Developer – Cost Factors to Consider
There are various cost aspects you need to consider before recruiting a software developer:
Scope of the Project
When hiring a software developer, the total cost will depend on several factors related to the scope of the development project – location, technical knowledge, and experience of the developer. For example, software programmers having expertise in backend technology get a higher average salary than ones with front-end skills.
If the software development project involves working with common technologies such as PHP, CMS, WordPress, or HTML, you can easily quote a competitive rate. However, if it requires the programmer to have skills in advanced technologies like Kotlin or C++, then you have to pay more.
Some of the primary scope categories that affect the cost of hiring a developer are APIs, hosting environment, application size, databases, and time.
Type of Software You Want to Build
The type and the complexity of the software you want to develop also plays a pivotal role in determining your development cost. The more specialized the platform is, the higher will be the cost to hire. For example, an AI-integrated software solution will require you to hire a developer with specialized skills. Therefore, the cost will be higher. Similarly, an enterprise-grade app that automates complex and multiple processes would cost more than an ordinary mobile application.
Hiring In-house Developers vs. Outsourcing
This is one of the most important cost factors you should consider before hiring. Many organizations consider having an internal team of developers, coders and QA testers. This helps them gain complete control of the project and make improvements. However, the cost of hiring and retaining an in-house team can often make you go over budget. Here is an example to help you understand:
Suppose you require talent with specialized expertise in the role of a senior software developer. When you plan to hire in-house, the cost will include the following:
- Recurring annual salary: $94, 083 (According to Pay Scale)
- One-time recruitment agency fee: $20,698
- Loss of productivity during “Time to Hire”: $33,251
In addition to these, you have to consider the cost of setting up the infrastructure, tools & technologies, development cost, and additional benefits to the employees. All these can result in an exorbitantly high cost of hiring a software developer.
For smaller and less complex development projects, you can consider hiring part-time developers or on an hourly basis and have your in-house team. But if the project is complex and large, then it would be a cost-effective option to outsource to an experienced and reputable software development company.
Software development companies either offer service as a package or provide the option to hire a dedicated developer. The dedicated developer will work exclusively on your project – offshore or onshore – as an extension of your development team. When you hire a trusted company, be assured that they have extensive technical know-how and experience to deliver custom solutions. No setup cost or training required.
Plus, you can hire a developer on a monthly-retainer, hourly or, a fixed-cost basis. As your business scales, hire more or cut down depending on your needs. Overall, this helps save your costs significantly.
Average Annual Software Developer Salary Worldwide
The below chart will help understand the average annual salary of software developers across 11 top-paying countries:
Hiring a Software Development Company vs. a Freelancer
In the earlier section of the blog, we have discussed why it is more cost-effective to hire a full-stack software development company than building an in-house team. Now, we will understand whether you can save costs by outsourcing or hiring a freelancer for your software development project.
Freelancers are most suitable when you have a smaller project in hand and want a professional to handle only a particular section of the software solution. Freelance software developers are typically available on an hourly basis or may charge you project-wise.
Advantages of hiring freelance software developers:
- Ideal for small-term projects or to work upon a particular skill
- Flexibility to scale based on your project needs
- Save money on smaller and less-complex development projects
Disadvantages of hiring freelance software developers:
- They typically specialize in only one thing, for instance, backend development, front-end software solutions, design, etc. So, you might have to hire more freelancers or get an expert having all-round skillsets. This would eventually cost more to your company.
- Less trustworthy and not accountable for your projects
Outsourcing to a Software Development Company
When you outsource to an offshore software development company, you can leverage their vast expertise and talent pool hailing from diverse backgrounds. They typically offer service-as-a-package and are more cost-effective than hiring a freelancer with only specialized knowledge in one field.
Advantages of hiring an offshore development company:
- Suitable for complex, big-budget projects
- Get a complete team of specialists working on your project
- More cost-effective than freelancers
Disadvantages of hiring an offshore development company:
- Lack of effective communication and control if you do not choose the custom software development company wisely
Want to know how we help our clients build a team of quality offshore developers without hurting their budget. Click here
Hopefully, this blog helped you understand how much it costs to hire a software developer and how it can be beneficial to hire an outsourcing partner like Radixweb to realize your business goals. We not only offer the best rates for development work but we also offer a team full of seasoned developers who have been extensively working on cutting edge and challenging projects.