How to conserve when building capital efficient engineering teams

This is chapter one of the three-part series:
A complete guide to capital efficient engineering teams

Whether you’re launching a new SaaS startup, scaling your current engineering team, or spinning out a product from your existing company, building out an efficient software development team is a massive investment.

I’m not just talking about how to conserve on salaries – although fairly compensating your software engineering team is certainly nothing to sniff at. Beyond salary, if you break the hiring process down into a cost equation, it’ll likely look something like this:

Eventual ROI – (Time spent sourcing, vetting, interviewing, and onboarding + capital spent sourcing, vetting, interviewing, and onboarding) = cost to build engineering team

Capital efficiency gains happen when you increase the ROI of each engineer you hire, and decrease the cost of actually getting them on the team. Companies who optimize for this equation are strategically investing capital into the levers that grow their business: highly efficient engineering teams building great product.

Those who don’t are stuck in a constant cycle of reinvesting capital into administrative sinkholes. Let’s not do that. Sinkholes are scary. This is a roadmap for how to avoid them.

Costs of hiring software engineers

The initial costs of hiring and onboarding new engineers – both your time and capital – often feel like inevitable deadweights on your bottom line. So much so, in fact, that we typically don’t dedicate any of our mental energy to solving them.

The problem is, if we take these costs as gospel, we limit ourselves to only optimize for one side of the capital efficiency equation.

As someone smart once said, you need to know your enemy to beat it. So let’s break down what those costs look like for most of us:

• 1-3 hours to create job post*
• 4-8 hours to filter applicants* 
• 8-12 hours to fully vet and interview candidates* 
• 2-4 hours spent on HR onboarding tasks, like negotiations, initial paperwork, etc.*
• 8-16 hours to orient the new hire to your team, workflows, and software solutions*
• 20-40 hours to coach new hire throughout the initial month (typically called the onboarding window)

*If you’re like any modern SaaS or technology-enabled company, you likely use off-the-shelf software solutions to aid in each of these steps. So, include these costs in your calculations.

All-in, EduBirdie estimates that employers spend an average of just over $4,000 on each new hire. That number is staggering, but what’s even more worrying for me are the tradeoffs that hiring managers are making with their time.

No one is better at hiring rock-solid, senior engineers than, well, other rock-solid, senior engineers. So, who’s running your hiring process, and dedicating an average of 65 hours of their time in any given quarter to bring on just one new team member? That’s right: your A-players.

What development progress are you halting by pulling away your top talent from their high-value work?

The most capital-efficient way to build your software engineering team

Capital efficient engineering teams should not only yield off-the-charts ROI, but should also have minimal hiring costs. The traditional way of hiring allows for neither of these – and negatively impacts the ROI of your existing top engineers.

At Gun.io, we’ve worked with hundreds of clients who have started to fix their capital efficiency equation by fundamentally rethinking the way they hire.

They start by optimizing for maximum ROI of their software engineers by engaging them on a contract basis. We know that it can take up to 8 months for new employees to really start delivering their maximum value. We also know that software engineers have the highest turnover rate of any other role in the tech industry – so in order to actually move the needle of your business with engineering talent, you need to find a way to be an outlier when it comes to retention.

The answer is to engage engineers who are already doing their dream job: freelancing.

Not only do freelance engineers stay on engagements longer than full-time employees, but clients who work within this model (rather than hiring full-time, on-site employees) are also only paying for work that directly impacts their business.

This is helpful particularly for lean, capital-conscious teams: they don’t pay for water cooler conversations, or for developers whose expertise isn’t required for this stage of your development process, or for their engineers to hire each other. Just the time that their engineers are actively engaged with and contributing to their business. They’re able to quickly swap in and out talent based on their acute, time-sensitive needs.

Beyond unlocking higher per-engineer ROI, we’ve seen clients drastically reduce their hiring time and costs – in some cases even making it nearly negligible – by engaging their engineering team on a freelance basis through Gun.io.

To mitigate these hiring costs, they let Gun.io do the work for them – for free. The time and money they previously spent on sourcing, vetting, and selecting the right candidates for the right roles is able to be invested elsewhere in their businesses. Yes, seriously. We source, vet, and match candidates for our clients at no cost to them.

If you’re still doing the math, I’m sure you’re already seeing the dollar signs in your eyes. Higher ROI, nearly 0 hiring costs…what is this wizardry?

Long-term, freelance engineering teams are more capital-efficient than in-house teams

Beyond those initial cash- and time-sucks of actually hiring your team, maintaining a highly productive engineering team often requires the budget of a venture-backed company. If you’re not there yet, a freelance engineering team could cost you half the price of a fully-loaded, in-house team.

	Full-Time Freelance	In-House
Annual Salary	$179,000 – $268,500(Hourly rate of $100-$150)	$118,000 – $212,000(Average salary range of senior software engineers in U.S.)
Annual Benefits(Average 33.2% of salary)	$0	$38,940 – $69,960
Overhead Costs(20% of salary in general and administrative costs)	$0	$23,600 – $42,400
Replacement(Average cost-per-hire)	$0	$4,129
Total	$179,000 – $268,500	$184,669 – $328,489

Data courtesy of PayScale, ZipRecruiter, Glassdoor, Bureau of Labor Statistics, and SHRM.

Let’s be clear: we’re all drawn to a deal. Whether it’s WalMart on Black Friday, or offshore dev shops offering a functional app for $50, the promise of saving money is tantalizing and almost impossible to ignore. But the more times you fall into the trap of sacrificing quality for savings, the sharper your bullshitometer becomes (it’s a thing).

A capital-efficient engineering team is not synonymous with cut-rate, budget, or low-quality.

Instead, those who have built capital efficient software have successfully staffed their engineering teams with senior developers – just on a freelance basis through Gun.io.

Check out the other chapters of our Complete Guide To Capital Efficient Engineering Teams for an applicable roadmap on how to conserve capital when building, managing and mitigating turnover with your engineering team.