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Can I Afford to Hire an Employee?

Hiring and training new employees can be a huge cost for employers. As a business leader, it is important to determine the cost per hire, be aware of the numbers, and be able to face the hard questions. Knowing more about these three points can help employers better budget for both hiring and retention rates.

In this blog, we go over:

If your company is not hitting all the right numbers you’d like to be or not at the status hoped, mirror companies that are doing well in the same industry and figure out what they are doing to generate the expected outcome.

In this video, Rayce Rollins walks you through a hiring methodology that you can use before you hire your next employee. Here is the three-step process:

Total Cost for Hiring New Employees

Business owners, ask yourselves “how much does an employee cost?”. There’s more to having an employee than to just pay the salary. The company also pays mandatory costs such as: tallying up the salary, taxes, retirement contributions, additional licenses, bonuses, software expenses, and other variable costs needed in order for the employee to work efficiently. According to the Small Business Association, “there’s a rule of thumb that the cost is typically 1.25 to 1.4 times the salary, depending on certain variables”. So, if you pay someone a salary of $35,000, your actual costs likely will range from $43,750 to $49,000. To gain a better understanding of your specific cost per hire, here’s a free calculator to determine if you can afford a new employee.

Check Key Metrics

Having an employee on board is not very cheap. Look at your Runway. How many months of cash do you have in the bank? If hiring another employee lowers your runway too much, you're not in a position to hire. Before even thinking about bringing on a new employee, check to make sure your cash flow is consistent enough and sufficient to keep someone. A good measure is 6-12 months of cash. We also discuss Revenue / Employee and Sales Cycle in the video. Revenue per employee is calculated as the company’s total revenue divided by its current number of employees. This is also another important metric to roughly estimate how much money each employee generates for the firm. Check back at the video for a more clear example.

Asking the Hard Questions

Every business owner/entrepreneur faces making the hard decisions and answering the hard questions. Sometimes it may seem impossible and you don’t know all the answers. Having someone on the team that financially understands what’s going on in your business can help lessen the burden of the tough questions you may come across.

  • Do we really need to hire or can we automate certain processes or outsource other activities?

  • Are my current employees engaged and enabled? If your current team isn't productive, adding to the roster will only exacerbate the problem.

  • Do you have an employee onboarding plan in place? New employees typically don't add value for a few months. They need training and guidance.

  • Are you in a position to provide such guidance?

Hiring employees can make or break your business. Overhiring will drain your resources, and under-hiring will stunt your growth. Finding the right time and way to hire is one of the biggest differentiators between winners and losers. Schedule a free consultation today with us to help give some further insight into your business.

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