With technology's advent, companies worldwide prioritize digital transformation to manage operations and grow. As a result, IT projects are increasing rapidly, leading to a growing demand for skilled IT professionals. The budget is also a significant concern for companies when hiring IT professionals.
Companies have two options to meet the growing need for IT professionals: IT staff augmentation or in-house hiring. Before adopting any model, companies must analyze and compare the costs of both options.
This article will compare staff augmentation and in-house hiring options to help companies make informed decisions.
Staff Augmentation vs. In-House Hiring: Key Highlights
Here are some interesting highlights for both staff augmentation and in-house hiring:
In-house hiring
1. The cost of recruiting a new hire is typically 15-25% of their base salary.
2. Longer hiring process, often taking months to find the right candidate.
3. Hidden costs such as training, equipment, and benefits must also be considered.
4. On average, it takes 35 days to find a software developer.
Staff augmentation
1. The cost of a staff augmentation company also depends on factors such as experience, team size, project duration, and scope.
2. Shorter hiring process, usually taking only a few days to find the right talent.
3. There are no hidden costs as the staff augmentation company provides all necessary equipment and employee benefits.
4. Flexibility to scale up or down the team as per specific project requirements.
Staff Augmentation Pricing Model
Companies pay for the services an external team provides hourly or monthly in staff augmentation. The pricing models offered by types of staff augmentation companies are:
Time and material
The most common pricing model staff augmentation companies offer is based on the time and material approach.
Clients pay for the hours developers spend on their projects and any additional material costs. Rates are usually set according to the experience level of developers. All salaries, benefits, and other fees are hidden within the hourly rate. The company charges the agreed hourly rate for any work its staff completes, including project management and communication.
As a result, this model is flexible and can be adjusted according to project requirements. iRonin.IT, a leading software development company, usually uses a time and material pricing model to augment qualified developers.
Dedicated team model
In this model, the company hires a dedicated team of developers for their project. The team is assigned exclusively to one client and works on multiple projects if required. Clients pay a fixed monthly salary for each developer and a service fee to the staff augmentation company.
Project-based model
In this model, the company pays a fixed price for the entire project. The companies usually calculate the cost factor based on the project's scope, complexity, and duration. Everything is included in the project cost, from designing to development, testing, and maintenance.
Managed service model
Managed services are a combination of staff augmentation and outsourcing. In this model, the staff augmentation company takes full responsibility for managing and delivering the project. Hosting, maintenance, and support are also included in the cost.
The pricing is usually fixed or based on a service level agreement (SLA). This model is ideal for companies that want to outsource their project to an external team without worrying about management.
In-House Hiring Pricing Model
The traditional hiring model for IT professionals is through contingency, retained, and contract recruitment.
Contingency model
In this model, the staffing agency only gets paid when a candidate is placed. The fee is usually 15-25% of the new hire's salary.
Flat rate model
Pay for a set number of hires over a specific period. Hourly or daily rates are typically used in this model.
Retain model
In this model, milestone-based payments are made to the recruiting agency. For each milestone, a partial payment is made. The remaining fee is usually paid when the new hires have completed their probation.
Initial Investment for Staff Augmentation and In-House Hiring
The payment structures of both staff augmentation and in-house hiring can significantly impact a company's initial investment. Let's take a closer look at how each model affects the initial investment:
Staff augmentation
Staff augmentation provides a much lower initial investment. Companies only pay for the services provided by the external team on an hourly or monthly basis. There are no additional recruitment costs, onboarding, or training, as the staff augmentation company takes care of these.
Furthermore, there are no hidden costs, such as equipment or benefits, as the staff augmentation provider also provides these. This can result in significant cost-effective solutions for companies, especially when considering short-term or temporary projects where a full-time workforce may not be necessary.
In-house hiring
In-house hiring requires a significant initial investment, including the cost of recruiting, onboarding, training, and any necessary equipment. Hiring a software developer can cost over $50,000 when all associated costs are considered.
As for initially hiring a development team, you can expect to pay not only each developer's salary but also the additional costs of hiring support staff, such as HR and project managers. Recruiting fees for full-time positions can also be significant, with contingency recruitment agencies charging 15-25% of the new hire's annual salary.
Ongoing Expenses for Hiring Models
The expenses continue after the initial investment. Both staff augmentation and in-house hiring come with ongoing costs that companies must consider.
Staff augmentation
Staff augmentation's ongoing expenses are relatively low, as companies only pay for the external team's services. This can include hourly or monthly rates and any additional material costs. The staff augmentation company takes care of all salaries, benefits, and other costs related to their employees. For instance, iRonin.IT covers all perks, such as sports cards, medical insurance, paid holidays and leaves, company retreats, conference attendance, and other benefits, so the company doesn't need to be concerned about these details.
In-house hiring
In-house hiring has more significant ongoing expenses since companies are responsible for all salaries, benefits, and other costs associated with their employees. Like in the USA, the cost of benefits averages around 30% of an employee's salary. This can add up quickly, especially when considering a team of developers. Additionally, companies must also cover any equipment costs and potential bonuses or raises for their employees. Some companies may also offer shares in the company as part of their compensation packages, providing employees with a stake in the company's success and aligning their interests with those of shareholders. Other perks or incentives, such as stock options, profit-sharing, or performance bonuses, might also be included.
Flexibility in Hiring Models
Both in-house hiring and staff augmentation have their level of flexibility, which can affect a company's decision.
Staff augmentation
Considering staff augmentation service is highly flexible, companies can adjust the number of developers they need. Whether they require a larger or smaller team, companies can quickly scale their development resources up or down to meet their project demands. Additionally, staff augmentation allows for short-term or temporary projects without the long-term commitment of hiring full-time employees.
Offshore staff augmentation also provides a global talent pool, allowing companies to fill the skill gaps temporarily or find developers with specialized skills to meet their project's needs.
In-house hiring
In-house hiring has less flexibility and scalability, as companies must commit to full-time employees for a specific period. This can become an issue if the project's scope changes and the company needs to scale its team up or down.
Hiring new employees can also be time-consuming and costly, adjusting resources based on the project's challenges. However, in-house hiring allows for more control over the team's work and direction, which some companies may prefer.
Scalability for Business Growth
As projects become more significant or new projects arise, companies must consider the scalability of their development resources.
Staff augmentation
Staff augmentation is highly scalable and can quickly meet the demands of a company's growth. If a company needs to scale its development team, it can add more developers from the staff augmentation provider.
Additionally, companies can easily adjust their resources if a project's requirements change without worrying about hiring or training new employees. This flexibility allows companies to scale their business quickly and efficiently.
In-house hiring
In-house hiring can be more challenging to scale, involving finding new employees, onboarding, and training them.
The process can take time and resources away from the company's core tasks, affecting its growth potential. Additionally, in-house hiring may not offer the same level of scalability as staff augmentation.
For example, if a project requires a specialized skill or expertise, the company may not have access to those resources in-house. It would need to hire externally or retrain existing employees.
Risk Management for Hiring Models
Business decision-makers must also consider the risks associated with each hiring model.
Staff augmentation
Staff augmentation carries less risk, as companies are not responsible for all employees' costs and potential issues. If a staff augmentation provider has issues, such as an employee leaving or not meeting expectations, the company can easily replace them with another developer from the provider's pool.
In-house hiring
In-house hiring carries more risk since companies are solely responsible for their employees' performance and associated costs. If an employee leaves or does not meet expectations, the company must handle the hiring process again and incur all related expenses. Additionally, if a project fails, in-house employees may become redundant, causing financial strain for the company.
Staff Augmentation vs. In-House Hiring: Final Comparison
Both augmented staff and in-house hiring have unique advantages and disadvantages, making it essential for companies to carefully consider which model best fits their needs.
Advantages of staff augmentation
- Lower initial investment
- Flexibility in scaling the team up or down
- Access to a global talent pool
- No additional costs for recruiting, onboarding, or training
- Faster time-to-hire and delivery of the project
Disadvantages of staff augmentation
- Less control over the team's work and direction
- Possible cultural and communication challenges with an external team
- May not be a suitable long-term solution for large-scale projects
- Managing different time zones
Advantages of in-house hiring
- More control over team direction and work
- Full-time employees are fully dedicated to the company
- Easier to build company culture and team dynamics
- Can be more effective for workflow and communication
Disadvantages of in-house hiring
- Higher initial investment and ongoing costs
- Less flexibility when it comes to scaling up or down resources
- The time-consuming and costly hiring process
- Limited access to a global talent pool
When is it best to choose a staff augmentation model?
Considering IT staff augmentation is a strategic decision that can benefit companies significantly.
Staff augmentation allows companies to gain access to tech talent with the necessary skills and expertise. The cost structure associated with traditional hiring and onboarding processes can be eliminated.
Here are some factors to consider when choosing a staff augmentation model:
1. The development projects where the expertise of a developer is needed for a short-term project.
2. Staff augmentation provides the required expertise and knowledge when the IT team lacks the necessary skills or experience for a project.
3. Seasonal or unpredictable spikes in workload can be managed efficiently through staff augmentation without hiring additional permanent employees.
4. The company can bring in global talent with specific skills and expertise, providing diverse perspectives and ideas.
5. Companies with restricted budgets or limited financial resources can benefit from staff augmentation by avoiding the costs of hiring a full-time project team.
6. Staff augmentation helps companies quickly scale up or down their tech team based on project requirements without experiencing the delays of traditional hiring processes.
7. In cases where companies are looking to test a project's or product's viability, staff augmentation is a low-risk option, as external resources can be brought in without any long-term obligations.
8. Staff augmentation can also be an effective solution for companies that need to fill a temporary gap in their team due to employee leaves or resignations.
The staff augmentation model provides flexibility, cost-effectiveness, and agility in managing the tech team.
Consult with us: What’s the best for you?
At iRonin.IT, we can provide you with recommendations on which model best fits your business needs, and our CTO (Chief Technology Officer) is available for a free consultation if you need clarification on which option is financially better for you.
We understand that every business has unique requirements and strive to find the best fit for our clients.
Contact us today to discuss your project and find out how we can help you achieve your goals.
