November 4, 2012
How Expensive is it to Hire Startup Engineers?

You are starting a new software company and you need to put
together a business plan. Part of that plan is a budget, and most of the
near-term expenses in that budget are likely to be engineering-related. What
are the major categories of engineering expenses? What are reasonable
assumptions for each?

When I had to put together the first financial model for
Stackdriver a few months ago, I was disappointed to find that very little information
is available publicly in terms of actual engineering costs for start-ups.
Recognizing that no two start-ups are the same, I'll share our budget and
actuals over the first few months here in the hope that other entrepreneurs
find the data points useful.

Fully-Burdened Cost: $132,000 per Engineer per Year

(Based on 10 engineers)

 Stackdriver Hiring Cost for Engineers

We Spend on Benefits and Lifestyle... 

From the outset, we knew that we wanted to build a fairly senior
engineering team and we knew that we would be recruiting from established tech
companies in the area.  We identified core benefits
(medical/dental/vision) as an area where our talent pool tended to be very
risk-averse, so we opted to invest in a benefits package that more closely
resembles what one might expect at a more established technology company (Blue
Cross PPO, Delta Dental, VSP, etc.).

With discretionary benefits, we opted to focus on perks that
help our employees enjoy a balanced lifestyle.  Accordingly, we
implemented a flexible time off policy (no cap on vacation time), a monthly
commuter stipend, company-paid house cleaning services, and a monthly full-day
team outing (work+fun).  Taken together, core benefits and perks represent
a ~24% uplift on the average engineer salary.

...Save on Hardware, Facilities, and Recruiting

We started from the outset with the policy of being a
“Hardware-less Office” so we can eat our own dogfood as a SaaS cloud management
startup.  We have stayed true to this so far, with the only piece of gear
(other than laptops and monitors) being a wireless router.  With this, our
cost per engineer for development environments cloud is $800/year compared to
5x that amount if we were to purchase and run our own equipment.  We are
currently running on Amazon Web Serivces (AWS), along with using Grasshopper
for phones, Gmail and Google Apps, and Comcast as our ISP.

Being in the city was really important to us in choosing a
space, as we wanted to be able to attract talent from start-up hubs along the
MBTA Red Line (Kendall/Central Square, Innovation District, etc.).  At the
same time, we were less than enthusiastic about the inflated rents in places
like Kendall Square, where established companies like Microsoft, Google,
Amazon, and VMware are expanding and driving prices higher.  In the end, we
were able to lock in a rate of $27/sq ft in Downtown Crossing (which is the
transportation hub of the entire city) vs. $57/sq ft in Kendall Square.

Recruiting can be an incredibly expensive part of hiring
developers, so we made the conscious decision up front to roll up our sleeves
and focus on in-house recruiting for as long as possible.  As founders,
we have spent about 25% of our time recruiting and we have also made it a focus
for our team to reach out to their own networks.  So far, we have not paid
an outside recruiter and have been able to staff up to 9 people in three
months.  We probably won't be able to do this forever, but we are enjoying
the savings in the meantime.

The Savings Add Up

(Based on 10 engineers)


This deliberately doesn't include the $25,000 per engineer
recruiting difference.  We've done this completely in house so far, so if
we compared our actuals to an Enterprise company who hired 10 people, the $250k
difference would be off the charts.

Netting it Out

All in all, in my original startup model, I had estimated about
$60,000 per engineer per year for benefits and overhead on top of salary.
 Based on our actual costs so far, we are tracking to about $32,000 per
year.  Of course your costs could differ dramatically based on your
location and the benefits that you choose to offer employees, but I hope the
data points prove useful as you put together your first start-up business plan.

Izzy Azeri is a Co-Founder of Stackdriver in Boston, MA.  You can follow Izzy on Twitter (@izzyazeri) by clicking here.

Photo credit: OpenView Labs

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