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While hiring the best talent is an integral part of any successful business, it’s becoming even more crucial for CTOs to hire the right employees for their technical team. Hiring the right – or wrong – employee doesn’t just have an effect on your employee morale, it has a large impact on your company’s bottom line. In a world where new programming languages are being invented every month, you never know which of your next hires could become the creator of the next Swift or Go.

Whether it’s getting your product to market before competitors or retaining the best technical talent to avoid the costs of turnover, here are a few ways hiring has an effect on your bottom line.

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Bad Hiring Decisions

Hiring the wrong person increases training costs, recruitment costs and severance costs (to name a few). Below are some various statistics about the true cost of a bad hire.

  • Inc.com says that turnover costs about 1.5 times the salary of the employee who needs to be replaced.
  • The U.S. Department of Labor estimates that the average cost of a bad hiring decision can equal 30% of the individual’s first-year potential earnings. Those costs increase the higher up in the organization the turnover occurs.
  • A CareerBuilder study showed that 69 percent of employers reported that their companies have been adversely affected by a bad hire this year, with 41 percent of those businesses estimating the cost to be over $25,000, and 24 percent said a bad hire cost them more than $50,000.
  • The Harvard Business Review concluded that as much as 80% of employee turnover is due to bad hiring decisions.

In addition to the financial burden of hiring the wrong employee, organizations typically will see lower employee morale. When people see their coworkers leaving, gossip starts to spread and some people may even start to worry about their own jobs. Current employees may find themselves taking on extra work to make up for those who just left and can be stressed or unhappy with their new roles. Employers could see a decrease in employee productivity as a result of the low morale.

Another result of constant poor hires is a bad reputation. Your recruiters, hiring managers, and even your organization as a whole can be burdened with this negative reputation. After all, a string of consistently bad hires is easy to recognize. In return, you could lose the respect of not only your peers and colleagues, but ruin your reputation in your industry as a whole. Today, more than ever, recruiting and hiring has become increasingly social. A few bad hires may negatively impact the public perception of your company as a positive place to work with. With public reviews being so widely available, sites like Glassdoor are often one of the first places potential employees will go prior to their interview.

Lastly, bad hires result in an increase in training time. It takes a great deal of time and energy to train a new employee so they are up to speed on the company in general and the specific role they are filling.

Time to Market

It's no surprise that companies who accelerate their "time to market" have higher success rates in their competitive space. Now, more than ever, with software eating the world, this means that your time to market is directly impacted by the caliber of the team building that product. Now think about how much this is affected by the caliber of the team that’s building the product. In such a fast industry, chances are that your competitors are working just as hard as you to get their product out there first. In this case, success really comes down to the quality and efficiency of your developer team.

You can hire 20 satisfactory developers in hopes of getting your product finished quicker, or you can hire two really exceptional developers who get the job done in half the time. A study by McKinsey & Co backed up this claim, showing that “hiring and retaining below average or average performers have real opportunity costs because top performers can increase productivity, revenue, and profit by between 40% and 67% over average performers.”

A real-life example of this principle in action is The Container Store and their CEO Kip Tindell. Tindell operates the company’s tech hiring strategy by following the “1-3 rule”, meaning that one great employee will be as productive as three employees who are merely good. As a result, Tindell feels he gets ahead by receiving three times the productivity of an average worker at only two times the cost.

Longevity and Quality of Hires

As of January 2014, a typical wage or salaried employee stayed with their company for about 4.6 years . For developers, this can be even less, with averages reported of 2.9 years and 2 years minimum. While these numbers certainly aren’t scientific, they are less than the national average, suggesting that developers don’t stick around as long as in other careers and companies need to work to change this.

After the initial recruiting investment upfront, it’s important for companies to retain the quality talent they’ve obtained. And when we say “retain” we mean for more than a year. According to the Center for American Progress, the median cost of turnover was 21% of an employee’s annual salary.

For developers specifically, they want to experience the opportunity to learn and grow within their job and work with a smart team. Companies who invest in catering to the wants and needs of their employees have a higher retention rate (and happier employees!)

Changes and Disruptions to the Industry

The technology industry is in constant change, and new innovations are being made every day. The kind of work that programmers do today is vastly different than 20 years ago.  Current developers can’t just walk into a bookstore and learn how to code in a day – it takes hands-on learning with a variety of tools to really learn the craft. So if you’re hiring developers based on the same process from 20 years ago, you’re destined to fail. You want to focus on hiring the movers and shakers, otherwise you’ll never be a disruptor to the industry.

Attracting technical employees who will positively impact your bottom line is a challenge. You never know where your next hire will come from or who they will be. By positioning your employer brand in a way that developers and engineers will find appealing is a crucial step to success. 

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