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3 Shocking Reasons Why SaaS Companies WASTE a Lot of Money in Software Engineering

One of the most important things any company can do is create sustainable growth. However, to do this, you can’t be wasting money and most SaaS companies do in three shocking ways. Here’s how:

  1. SaaS companies waste money when they try to compete with local companies in compensation and benefits.
  2. SaaS companies waste money when they hire overqualified and expensive talent.
  3. These companies waste money when they hire underqualified and cheap talent overseas.

See the common denominator here? SaaS companies wasting money is congruent to employees. While each of the three points above is similar, they are influenced by different causes and have different solutions. Our suggestion? Effectively engaging in nearshore outsourcing. Here’s how these points are problems and how nearshore outsourcing can help you stop wasting money.

Local Company Competition

Companies tend to spend a lot of time and money while developing employee compensation and benefits programs with the goal of attracting and retaining talented employees. However, none of this is worth putting forth the time and effort if employees don’t understand what they’re getting. Even the most lucrative program won’t give you a high ROI if you aren’t able to compete with local companies.

These people know their communities. What they need, what they want, and how best to give it to them. In a study of 1,000 employees for companies with over 5,000 employees, it was found that HR communication isn’t effective enough to enable employees to make smart decisions regarding their benefits and compensation programs. However, this same study also showed that HR communication is important to employees.

Despite this, only 30% were happy with communications. Further, less than 25% felt that the communication was effective in giving the knowledge necessary for employees to take action. Local companies don’t really have that problem because they know how to reach their employees.

Hiring Overqualified Talent

Different effects can occur from hiring overqualified candidates, where one is long-term and one is short-term. At the same time, hiring overqualified talent doesn’t always mean good things for the company. Consider candidates overqualified if they have more education than required for the position or too much experience in the industry. Either of these can indicate a “downgrade” as opposed to an “upgrade” in position.

The Center for College Affordability and Productivity report in 2013 found that 48% of employees with 4-year degrees are working jobs that require less education. In 2017, studies found that 1 of every 4 employees holding a 4-year degree was overqualified.

Paying More for Salary

Employers may find that having an overqualified employee means that the company has to put up more because of pay negotiations to match the experience of the employee. This leads to wasting time in the onboarding process when the employee leaves to take a better position. As such, most employers avoid hiring overqualified talent due to concern about these employees becoming bored and leaving the company once they find a better opportunity. Although an older study found that there is a direct correlation between overqualification and job dissatisfaction. These problems can lead to negative job attitudes. As a result, hiring overqualified employees can backfire.

Overqualified Employees Become Bored

It’s also possible that boredom can contribute to poor job performance. This is because the feeling or reality of being overqualified means the employee becomes bored, complacent, and acts on autopilot when working. At the same time, poor job performance caused by boredom contributes to perceptions of deprivation, where there is a belief by the employee that they are too good for the job, leading them to refuse to engage in their position or try to get other employees to do the work. These feelings can contribute to negative consequences in effective company culture, leading to negative well-being effects. When employees are overqualified, they may not think their job expectations have been met, which leads to dissonance, prompting them to view the job as being substandard.

It Affects Relationships With Other Employees

This can be especially problematic when considering relationships with other employees. For example, when hiring new employees, established employees tend to form first impressions in an effort to ascertain how the new employee affects workplace culture. When an overqualified employee enters the circle, established employees may view it as a threat to their future at the company in terms of their ability to advance. The perception includes established employees recognizing that a new hire meets all the demands of advanced positions. So, there’s no reason to promote someone. These types of perceptions can cause employees to leave the company.

Hiring Underqualified Talent

SaaS companies hire nearshore software developers
Young coder using computer and laptop when testing new program she wrote.

The last point is hiring underqualified talent. Just as there are concerns about hiring overqualified talent, the same is true for hiring underqualified talent. Apollo Technical said, “The average cost of a bad hire is up to 30% of the employee’s first-year earnings … [but] the average cost [could be] as high as $240,000 in expenses. Other costs may be indirect, such as lost productivity and higher costs associated with finding, recruiting, hiring, and training replacements.

Productivity and Time Management

While this may appear insignificant to some businesses, small businesses with small budgets have found this to be a significant problem that’s highly damaging to their bottom line. It’s not just money that can be lost though. It has been found 34% of CFOs said that bad hires cost them productivity and time management because managers are forced to spend more time managing poor performers. In fact, this extra time equals about a full day each workweek.

Cost for Hiring an Underqualified Employee

If that’s not concerning enough, there are some arguments that the average bad hire cost is much higher. In fact, people 75% of companies with bad hires said they lost an average of $14,900 per bad hire. Studies note that employees actively disengage cost employers from $450 to $550 billion in productivity annually.

Lost Productivity

The biggest problem with bad hires is simple: lost productivity. As a result, companies have problems reaching their objectives. This lost productivity doesn’t just impact the bad hire, but also those viewed as being “good” hires because they are likely impacted by the delays caused by the bad hire. For example, projects frequently have deadlines associated with them, but if your employees aren’t working together, it’s a lot harder for them to meet the deadlines, if they can at all, leading to dissatisfied clients.

Dissatisfied Clients

Dissatisfied clients lead to lost clients for SaaS companies. If employees are not acting productively, clients may be lost. This is also the case if work is provided, but is of poor quality. If enough of this occurs, the company can have significant financial consequences. These aren’t the only consequences. Besides financial consequences, the company could face having a bad reputation among clients. Thus, making them lose new clients and the ability to attract new clients. Bad and disgruntled employees are also a bad mix because they can provide bad reviews too, leading to a bad reputation as an employer. If these reviews are on well-known sites, such as Glassdoor, company ratings can be reduced, making it harder to retain and recruit new talent and harming the brand.

Decreased Teamwork

Decreased teamwork is another problem faced by hiring underqualified employees. In order for your company to achieve its goals in an effective way, all employees have to work together, not against one another. When there is a bad hire, the entire work environment can become ineffective. For example, many managers spend more time trying to increase the productivity of the employee. This often leads to higher employee turnover and lost time because of the ineffectiveness of the managers’ efforts.

Recruitment and Training Costs

Your recruitment costs may also increase. These costs can be tangible or intangible and extend further than just replacing the bad hire. You have to consider the costs of recruiting the original bad hire. As a result, there’s lost revenue.

The same considerations exist in relation to training costs. New hires, good or bad, need training to do the job. When quickly replacing bad hires, this training needs acceleration, leading to increased costs and high investment in the employee. However, even the most dedicated employee may need assistance with the learning curve because, let’s face it, even the most experienced person will have a learning curve at a new company. Thus, good onboarding is an important consideration.

Learn More About SaaS Companies Hiring Software Engineers

As seen, all three of the points are based on your talent. You don’t have to be scared of having good talent, but you do need to effectively capitalize on your talent. Moreover, talent doesn’t have to be in-house. There are many other options that can help you and achieve your objectives. As a result, you need an effective way to ensure you have the talent you need to run your business at a reasonable cost. Nearshore outsourcing is a great option, so contact us today. We’d love to talk to you about how we can help.

Rick Wallace

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