The software development market is booming, and developer salaries are on the rise. According to CWjob.co.uk, the average salary for a senior-level developer in the UK is currently £57,500, with many roles pushing far beyond £100k on the pay scale. Meanwhile, in the US, the median salary for a senior developer is US$131,206, and even entry-level developers can achieve a salary over US$60,000.
As a business owner or recruiter, you may be wondering why rates have gone up and how you can afford these new salaries. If you’re struggling to hire developers, it’s important to understand the current market conditions. The situation is complex and there are several factors at play. In this article, we’ll explore the reasons behind the rising rates and what businesses can do to adjust.
What's Happening In The Software Development Market?
Over the past twenty years, developer rates have been slowly climbing as the industry has matured. Between 2000 and 2011, American developer salaries jumped by an impressive 21% to 35%. As we entered the 2010s, the global financial crisis caused a bit of a dip in rates — but they’ve been climbing steadily ever since. Developer salaries are now at an all-time high across the US, UK, Germany and the Netherlands, but even in some Asian countries such as Singapore, average developer rates have jumped as high as US$72,993. This trend is global, and there’s no sign of it slowing down anytime soon.
The number of software developers worldwide is also continuing to increase, springing from 23 million in 2018 to 26.9 million in 2021. By 2024, this number is expected to leap to 28.7 million. But there’s a problem — the demand for developers is growing even faster than the supply. This reflects a greater trend across the labour market as a whole. Within Europe, the overall job vacancy rate climbed from 2.3 in the first quarter of 2019, to 2.6 in the last quarter of 2021. Industries across the board are struggling to fill positions, but the problem is especially acute in tech. And since the global developer population isn’t keeping up with the rising demand, this has caused developer rates to skyrocket.
There are several reasons for the higher than usual demand for software developers and engineers. Firstly, the COVID-19 pandemic sparked a boom in the number of digital transformation initiatives. Businesses of all sizes have been scrambling to move online and they need developers to make it happen. Secondly, the growth of new technologies such as artificial intelligence (AI) and the Internet of Things (IoT) is also driving up demand. These new technologies require specialised skills that are in short supply. It’s estimated that there are currently 9 trillion devices in active use worldwide, and this level of connectivity demands a vast number of developers to maintain it.
How Is This Affecting Business?
Rising developer rates and shortages are putting pressure on businesses of all sizes. For small businesses and startups, the high cost of hiring can be a real barrier to entry. Many companies simply can’t afford to pay the rates that developers are now demanding. This is particularly true in the US, and Western Europe, where the average developer salary is significantly higher than in other regions.
Even for larger businesses, the rising rates can be a problem. With developers now commanding such high salaries, it’s becoming increasingly difficult to find talent that falls within budget. But the problem goes beyond a simple inability to match salaries. With developers in such high demand, the recruitment process is becoming increasingly competitive. Many businesses are struggling to find candidates that meet their requirements, let alone candidates that they can actually afford to hire.
This is pushing the total cost of recruitment — from the time spent writing job ads and screening candidates to the fees charged by agencies — even higher. It’s not unusual for businesses to spend several months to a year trying to fill a single developer role. And the longer a role remains vacant, the more it costs the business in terms of lost productivity. In fact, the average cost of a vacant developer role in the US can be as much as US$500 per day.
Businesses that cannot fill essential developer roles are facing growing project backlogs and in some of the worst cases, can end up losing high-value clients and contracts. Without enough skilled developers, businesses are forced to delay or cancel projects due to a lack of talent availability. The high cost of recruitment is also having a knock-on effect on company growth. With businesses spending more and more on recruitment, there’s less money available to invest in other areas such as R&D, marketing, and product development. This can limit a company’s ability to scale and result in increasing stagnation.
What Can Businesses Do?
There are several things that businesses can do to mitigate the impact of rising developer rates. But before adjusting their recruitment strategy, they first need to accept that the labour market has changed, and it will be necessary to adapt their approach accordingly.
The most obvious solution is to simply increase salaries in order to stay competitive. But this isn’t always possible, especially for small businesses and start-ups. In these cases, businesses need to get creative and find other ways to attract and retain talent. This might involve offering flexible working arrangements, increasing employee benefits, or providing training and development opportunities.
Some businesses are also turning to alternative sourcing models, such as nearshoring and offshoring. Nearshoring is the practice of hiring developers from neighbouring countries, while offshoring is the practice of hiring developers from countries further afield. This can help businesses to mitigate the impact of the current labour shortage and allow companies to gain fast access to a pool of high-quality talent. However, even while hiring overseas, it’s important to remember that the best developers will still command a premium rate. Developers in popular hiring locations such as Poland can command a rising salary year after year. Since developer rates are continuing to climb worldwide, this will remain a consideration whether you choose to hire locally or through an international outstaffing agency or recruitment broker.
By outsourcing recruitment, businesses can still avail of a shorter recruitment process and expend fewer resources during their search for suitable talent. Outstaffing agencies allow businesses to scale more easily and locate highly educated and experienced developers in a far shorter time frame. If you can’t find suitable talent in your local area, outstaffing will enable you to seamlessly build a high-end development team quickly, saving your business from the negative financial consequences of a vacant position.
So, while rising developer rates are undoubtedly a challenge for many businesses, there are still ways to navigate this issue. By being realistic about the labour market, adjusting salaries accordingly, and considering alternative sourcing models, businesses can still find the talent they need to drive their company forward.