Introduction
An adequate workforce is one of the first things an entrepreneur needs when starting and scaling a business.
However, while staffing is absolutely critical for every organization, it's also a major expense.
This is especially true for tech and IT companies, where staffing expenses can skyrocket. That's because the IT industry is infamous for its high staffing requirements and enormous infrastructure needs.
We've all recently been flooded with headlines of tech giants like Google, Twitter and Amazon firing thousands of their employees all across the globe to reduce their staffing expenses.
The purpose of the decision was to increase profitability by reducing expenses, and there were multiple reasons for it.
This highlights the need for tech companies to effectively balance labor costs and profits.
This article offers useful tips and strategies for cutting staffing costs and improving financial outcomes in the technology industry.
Nonetheless, it's essential to thoroughly understand staffing costs and their impact on a tech firm's success before implementing any cost-cutting measures.
Staffing costs & profitability: A tech business's conundrum
Broadly speaking, 'staffing cost' is an umbrella term that covers the different HR hiring and management expenses, like interviewing expenses, payrolls, bonuses, administrative expenses, etc.
Most tech businesses often struggle in this area. They're either underspending or overspending on staffing; it directly impacts their profitability and hampers revenue growth.
So, what's the ideal amount to spend on staffing?
Well, there's no one answer to this question. A lot depends on your tech business's scope, size and policies.
However, ideal staffing costs can fall anywhere between 20 to 35 percent of the gross sales of a business.
If a tech business, or any business for that matter, happens to be spending more than this on its workforce, it must cut down on such expenses. This is essential to optimize revenue and ensure the long-term sustenance of a business.
It may seem like a good idea to cut labor costs, but in reality, it can harm businesses. Let's explore the challenges businesses may encounter when attempting to reduce labor expenses.
Factors to Consider When Cutting Down on Staffing Costs
Reducing staffing costs is a crucial aspect of business management. However, it's essential to consider specific factors to ensure a safe and seamless cost-cutting process. Without adequate knowledge of these factors, several complications may arise.
By understanding and addressing them, you can effectively avoid potential obstacles.
Employee's interests
In any business, there are several stakeholders, including management and employees. It's crucial to recognize the employees' role as stakeholders and ensure their interests are met.
Unfortunately, many businesses prioritize their own interests over their employees' when cutting labor costs, leading to conflicts of interest and a failure to align personal objectives with company goals.
To prevent this, a well-planned labor cost-cutting strategy must balance both the company's and employees' interests.
Staff well-being
Employee well-being is as important as a company's financial structure, if not more. Many businesses use unethical labor cost-cutting approaches, like reducing staff count and pressuring employees to compensate with more work.
This labor cost-cutting approach, while might appear to be effective for achieving financial stability, can crumble your organization's work environment. It reduces loyalty and psychological safety while increasing the pressure to overwork and likelihood of burnout.
Burnout can impact the employee's desire to do their job well.
Therefore, in an attempt to get more work done with less capital, you're likely doing the opposite: reducing the employees' productivity and output.
Poor market reputation
Market reputation is a critical factor for businesses and can largely impact their business's ability to run and sustain.
Companies with lousy market reputations, not just in terms of their services but also employment and work environment, are likely to suffer in the long run.
Thanks to the internet, it is now easy for employees to run a background check on a company before joining it. In this case, if your company has a history of unethical labor cost-cutting, you will probably have difficulty finding employees willing to join your company.
Declined employee motivation
Employee satisfaction and productivity are two sides of the same coin. That said, it's commonly understood that employees who are not satisfied with the work culture and facilities are likely to become unmotivated to work.
This is often visible in the form of reduced initiatives, declined performance, and lack of effort. This usually happens when businesses adopt a labor cost-cutting strategy that does not align with employees' 'motivating' factors.
Some of the most catastrophic outcomes of this aspect can be increased employee turnover rate and reduced willingness to 'go out of their way.'
A business can face a few possible challenges when adopting a labor cost control strategy. How do we avoid them?
The answer is simple: you need a staff cost control plan that satisfies your requirements without harming the employee's interest.
Wondering how? Keep on reading, as in the upcoming section, we have discussed eight ways through which you can safely yet efficiently cut down on staffing expenses.
How to efficiently control staffing costs in a tech business
Streamline workflow
There is no doubt that leisure time is a vital part of an employee's everyday work life and contributes towards stress control. However, it cannot be denied that having excessive leisure time can often be a loss for the employer.
Simply put, there is a fair chance that you have more employees than work. Owing to this factor, the employees in your organization have too little to do and, therefore, are not optimally productive. In numerous cases, this excessive leisure time can result from unplanned employee activities and disoriented workflows.
In this situation, businesses need to streamline their employees' workflows to minimize leisure time. A few ways to do this are to conduct performance reviews, standardize outputs and use tools like Scribe.
Scribe is an AI-powered generator that writes your process documentation for you. This means that you can focus on doing the work that matters — and upskill your team in seconds.
Instead of spending your day answering questions, training colleagues or manually building long documentation, Scribe does the work for you. Here's one in action (that took 15 seconds to make!)
By streamlining your workflows, you'll optimize your workforce requirements and even control staffing costs in the long run.
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Outsource requirements
Whenever a tech business suffers from a staff shortage, the first course of action that it follows is onboarding more in-house staff. While this might sound like a great option, it is surely not the most capital-friendly one and directly increases the staffing costs of an organization.
To elaborate, onboarding more employees means increased salaries and more infrastructure requirements. Naturally, this approach isn't ideal in terms of controlling staffing costs. One great alternative to this option is outsourcing your staffing requirements.
You can hire dedicated developers from an IT agency offering staff augmentation services in this approach. This way, you will be able to leverage world-class tech talent without hiring more employees, ensuring optimal output and controlled staffing costs.
Even if you are not looking to hire additional staff, you can use this approach to replace your existing human resource requirements and shift to staff augmentation for reduced staffing costs.
Reduce employee turnover
When a tech business hires an employee, it invests a lot of time and resources in polishing that employee's skills. This is done to ensure that the hired employee is capable of handling the assigned job responsibilities. Some of the most common activities in this aspect are on-job training and learning sessions.
Naturally, providing this training costs companies a certain amount, which is also calculated under staffing costs. It is essential for a business to get optimal ROI from such investments. However, there are numerous cases when employees leave the organization just after receiving the training. In this case, the time and capital invested in such employees is a direct loss to the organization.
A business can overcome this challenge by simply focusing on reducing employee turnover rates and increasing employee retention. A low employee turnover rate directly means reduced time spent in repetitive employee orientation, induction, and training and, therefore, reduced staffing costs.
Optimize the hiring process
There are many cases in which companies make poor hiring choices and recruit employees lacking the required skills and talent for their roles. Such companies suffer from high staffing costs as they have to again and again fire and hire employees.
Avoid all of this by streamlining the hiring process with adequate skill requirements. To elaborate, a company can easily increase its productivity and reduce employee leisure just by hiring the right candidates for the job role. This will reduce the time and capital investment in conducting the hiring process repeatedly, limiting the staffing expenditure.
Maximize automation
Today, high-end technologies like artificial intelligence and machine learning are rapidly advancing and are becoming more and more intelligent. This intelligence is highly comparable to that of humans, owing to which businesses are using these technologies to automate tasks that humans traditionally do.
In terms of tech businesses, one can automate various processes such as data collection, UI/UX design, programming, QA testing, and more. Resulting from this, tech businesses can get more work done without hiring additional human resources. This directly contributes to lower staffing costs and increased business profitability.
Restructure the team
Inefficient human resource management is one of the key reasons why so many businesses suffer from high staffing costs. This usually happens when businesses fail to understand their staffing requirements and inadequately appoint staff for their processes and operations.
A business should restructure and reshuffle its human resources per the changing requirements. Additionally, reshuffling the team also:
- Eliminates monotony in work.
- Reduces employee boredom.
- Improves productivity.
This way, you can control your labor costs as well as benefit from productive and motivated employees.
Change salary structures
A salary structure is the monetary compensation that employees receive in exchange for their services to the company. Salaries form a major part of the overall staffing costs and, therefore, have a tremendous role in controlling the overall labor costs.
A business can easily modify the fixed salary structure of its employees to cut down on labor costs. The idea here is to reduce the fixed salaries and focus more on providing performance-based bonuses and compensations. This way, you can easily control your staffing costs without demotivating the employees.
As a matter of fact, this strategy can positively impact employee motivation, as here, the employees are rewarded for the effort they put into their work. Therefore, the better the efforts, the better the pay.
Go remote
Hiring a team of developers comes with various overhead expenses, the most significant of which are infrastructure costs. Depending on the scale and size of your business, these costs can be extremely high. Many businesses calculate such costs as a part of their staffing cost, as these are the facilities that the staff needs to work at the organization.
You can easily reduce these costs by shifting from on-site development to remote development and facilitating a virtual workspace for your team. This concept has gained tremendous popularity during the COVID pandemic and is still a prevalent development strategy. By implementing a remote work strategy, you can easily cut down on infrastructure costs and bring down your overall staffing investment.
Not just that, remote development saves the developers from spending their time and energy on the daily commute and adds to their work satisfaction. This factor makes remote development a win-win situation for your business's cost control as well as for the employees.
Final thoughts
Adequate staffing is an integral part of running a tech business. However, doing so comes with a hefty staffing cost, which, if left uncontrolled, can reduce your business's overall profitability and hamper its growth.
In this scenario, controlling such costs and reducing them to a certain level is essential. However, doing so can also harm your business's stability and structure. Therefore, you must plan a staffing cost reduction strategy that satisfies your and your workforce's interests.
You can choose any of the strategies or even a combination of multiple strategies mentioned in this blog to achieve this objective. These tried-and-tested strategies are certain to help you efficiently control your tech business's staffing costs without compromising employee satisfaction and morale.
