Growth · 2 min read ·
Can your business afford another employee?
What a hire costs fully loaded, what it has to produce, and what it does to cash first.
You are turning work away, or you are doing it yourself at eleven at night. Either way the answer feels obvious: hire someone. Before you post the job, there are three numbers to look at. Sometimes they say yes. Sometimes they say not yet.
What the role really costs
The salary is the starting point, not the total. Add payroll taxes, workers' compensation, benefits if you offer them, a vehicle or tools, software seats, training time, and the hours you or a manager spend supervising. A fully loaded cost is commonly 20 to 30 percent above the wage, and in the trades it can be more. Run the real number.
What the role has to produce
Divide that fully loaded cost by your gross margin and you have the additional revenue the hire has to bring in, or free you up to bring in, just to break even. If a new technician costs $75,000 loaded and your margin on labor is 40 percent, that person has to add about $190,000 of billable work before the business is ahead. Say that number out loud. Then ask whether the work is really there.
What it does to cash first
A hire is paid from the first Friday. The revenue arrives after the ramp-up, after the job, after the invoice is paid. For most businesses that is a three to six month gap that comes out of the same bank account that funds everything else. This is the part owners skip, and it is the part that turns a good hire into a cash crisis.
One of our clients grew a four-person crew into a company of well over a hundred. Each stage of hiring worked because the crew was added against work already sold, and the cash to carry the gap was in place before the offer letter went out.
The alternatives worth pricing
Overtime for the people you have. A subcontractor for the overflow. A part-time or seasonal role. Raising prices so the same crew earns more per job. None of these is always right, but each of them should be priced against the hire before you decide.
What to do with this
- Price the role fully loaded, not at the wage.
- Divide the loaded cost by gross margin to get the revenue it must produce.
- Plan for three to six months of paying before the hire pays back.
- Price overtime, a sub or a price increase against the hire.
In practice
Where this played out
Construction / commercial contracting
Multimillion
dollar operation, from a four-person crew
From a four-person crew to a multimillion-dollar operation
Provided financial and operational guidance that helped a growing construction company develop into a multimillion-dollar operation while managing the complexities of union payroll, prevailing wages, and project accounting.
Read the case study
Questions this answers
Plan on the wage plus 20 to 30 percent for taxes, insurance, benefits, equipment and supervision, and more in the trades. Then add the months of pay before the role produces revenue.
When the work is already sold or clearly coming, the fully loaded cost is covered by the revenue it produces at your margin, and you have the cash to carry the gap until it does.
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