Engineering is the largest cost centre for most tech companies â and the hardest to optimise without breaking something. This guide shows what works, what doesn't, and the framework that lets you reduce costs without compromising the team that ships your product.
Where Engineering Costs Come From
The cost of an engineering team breaks down roughly as:
- 50â60%: Salaries
- 15â20%: Benefits, payroll taxes, employer contributions
- 10â15%: Recruiting (fees, internal HR time, opportunity cost)
- 5â10%: Tools, hardware, training
- 5â10%: Management overhead
The salary line is where the biggest leverage lives â but it's also where "cost reduction" most often turns into "talent reduction." The key is changing the composition of the team, not reducing it.
The 4-Step Cost Reduction Framework
Step 1: Classify Every Role
Separate your engineering roles into two buckets: "core IP roles" (require permanent employees, deep product context, long-term ownership) and "execution roles" (well-defined scope, specialist skills, project-bounded work). The second bucket is where you have the most flexibility.
Step 2: Convert Execution Roles to Contract
For every role in the execution bucket, consider whether staff augmentation delivers the same output at lower cost. Senior engineers through Indian staffing partners: $40â65/hr all-in vs $120â180/hr fully-loaded for equivalent US permanent hires. The saving is real and significant.
Step 3: Optimise Your Recruiting Process
Retained search fees for tech roles are 20â25% of annual salary â $25Kâ$40K per hire. For permanent roles, building a strong referral programme and in-house recruiting function pays back quickly at scale. For contract roles, a staffing partner's fee is included in the hourly rate â no separate recruitment cost.
Step 4: Track Cost Per Feature Point
Move from headcount cost to velocity cost. What does it cost to ship one sprint's worth of features? This metric lets you compare permanent vs contract vs no-hire options on an output basis rather than an input basis.
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