In-house recruitment vs agency

How to maximize your ROI with both!

Hiring a remote software development team in house recruitment vs agency by Seven Peaks Software

Introduction

Before making the decision to hire in-house by yourself or to hire a software recruiting agency to source the required tech talent for you, we advise you to first estimate the planned ROI for your investments in hiring your needed developers.

Estimating your planned ROI is important to ensure that you will pay for what you asked for depending on your specific requirements, the scope of work, and timeline.

To help you determine your hiring decisions, we have written this comprehensive guide with key points for you to keep in mind when evaluating your ROI in both of the possible internal and external hiring methods.

The differences

Evaluating your ROIs

Hiring for various software development positions requires several strategies and clear amounts of engagement with software development recruiting agencies. It has proven to not be an easy task.

Businesses who are looking for suitable software developers or designers may ask “Should I hire developers in-house, or completely outsource my hiring to dedicated software development teams/agencies?”

The truth is, these questions shouldn’t even be compared. What should be compared more in detail is the ratio in which the business should go for each recruitment approach.

To help more businesses around the world solve their hiring difficulties for software developers, we have come up with our tips and insights to help you and your business understand when it will be better to outsource your technical recruitment to an outsourced software agency instead of hiring full-time developers on the payroll.

Hiring an external recruiting agency may grant you a range of benefits such as higher flexibility, lower operational costs, time-saving, and more.

See below to uncover the key differences between hiring in-house and hiring dedicated software development teams through an agency.

Knowing your current cost-to-hire and total hiring costs is a good start to evaluating your hiring needs.

Once you identify and outline your current cost-to-hire, you will then need to multiply your current numbers by your average turnover rate. From there, you should calculate both your internal and external costs of hiring, then divide that amount by your total number of hires, which would make the equation look like this:

Cost per hire = Total internal costs + Total external costs / Total number of hires

Statistics by Workable show that the global approximate average cost per hire is around USD 4,000. There are numerous factors that determine this cost, therefore we suggest it is best to calculate the cost based on your own company’s metrics as well.

Once you find out your average cost of hiring, you will then uncover how to boost your ROI on hiring through cutting, or even getting rid of other internal or external hiring fees.

Agency costs

Learning more about agencies.

To understand the costs of recruitment agencies in detail, it’s suggested to first understand their business model – for pricing their services – to calculate your costs toward the agency.

The majority of hiring agencies’ top goal is to attain the right talent, if their talent gets successfully hired, they then reap a commission of around 15-20% of the candidate’s first yearly salary. Bear in mind that these costs can fluctuate and increase up to as high as 30% for harder-to-fill software developer positions that are in very high demand.

Your company’s costs of hiring talent through an agency will be sure to alter depending on your specific recruiting requirements, the industry your business is in, and the exact amount of fees/commission that you agree to give to the recruitment agency for their services.

Despite the possible fluctuations that may occur during this process, we are still able to estimate the average recruiting fees across different industries based on a report by Top Echelon – which gave the number of around USD 18,500 each year.

Clarifying your hiring needs

Know what you’ll need to grow your business.

From the estimate revealed above, it’s clear that if you choose to hire developers through an agency and be reliant on it – the costs of your hiring efforts will lower. However, the math is not as simple as that, as there are still more varying factors to identify.

You have now read the estimation amounts and have seen the numbers that can save you up to USD 17,000 – 18,000 each year on costs. Still, the calculations do not stop here.

In some scenarios, it’s more beneficial to depend on your in-house recruitment methods to save your business more capital. However, there are also some scenarios where avoiding utilizing a recruiting agency’s services can cost you much more capital down the road in the long term.

Let’s picture a real recruitment case – a company needs a software developer in a mobile development department to assist their mobile development team to complete a large project on time while ensuring the expected quality.

In this particular case, the obvious priority of that business is to hire fast and to hire as efficiently as possible – even though it is more expensive compared to other hiring methods.

This company will most likely prefer to choose a recruiting agency because their top priority in this situation is to hire fast and efficiently to get the competent candidate(s) as quickly as possible. While other factors such as hiring for a cultural fit are a lower priority.

In an alternative recruitment case, a company plans to hire a suitable software developer to work with them in the long run who will fit in well within their team structure. There is currently no hurry in finding a competent developer for them. This company may then prefer to turn to their in-house recruiters to hire more candidates internally.

Key points to take with you

“Great things in business are never done by one person.” – Steve Jobs

Strictly hiring software developers or designers in-house within your own company has its benefits and drawbacks. Having your in-house recruitment team can find, assess, interview, and potentially hire new suitable candidates.

This can be very advantageous due to the high chances of ensuring the quality of hire – as your in-house team will most likely already have a comprehensive understanding of your company’s needs. Hiring internally with your in-house recruiters can also allow for more savings on your budget.

Nevertheless, also having a human resources department will involve more HR-related responsibilities, which will require more attention than only hiring new candidates. Especially since hiring the required software developers or designers can take a significant amount of time!

Make sure to adopt a diverse set of important assets that the best-recruiting agencies possess which are their rich pool of suitable candidates, strong network/connections, leveraging modern talent acquisition tools, and the sheer focus to identify the right talent.

These assets of the best-recruiting agencies leverage the use of modern tools and methodologies to effectively set strong communication and collaboration channels, resulting in helping you and your company’s HR department work together to synergize externally with a trusted recruiting agency.

If your business can adopt the points mentioned above, you are on your way to maximizing your ROI on hiring the suitable tech talent to grow your business into the digital future.

Conclusion

When choosing to hire tech talent through your in-house recruitment team or externally through outsourcing to a hiring agency/dedicated team, it’s important to first understand the average costs of hiring for your desired talent in that industry.

Once you know the costs/numbers, it makes it easier for you to decide to hire internally, which may benefit for long term and less urgent positions, or to outsource your hiring to an agency if you’re looking for a fast and efficient way of acquiring your tech talent(s) to quickly complete a specific project.

Whichever path you choose, it will help to thoroughly understand both options to support you in making the right hiring decisions depending on the current situation and requirements needed at the time of your intended hire.

Do you need a dedicated software development team to assist your software and design projects? Talk to our experts to see how we can help you.

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