One of the most agonizing decisions that a business owner has to make is deciding when to hire a new employee. It’s a huge risk! You’re bringing on additional salary, you have the cost and distraction of the search, there’s training the new person… And what if they don’t work out? It’s a difficult process
On the other hand, if you have work coming in and paying clients, that have given you their money, but you don’t have enough people to service them, you have a different problem. You’re risking disappointing customers, losing out on referrals and you end up spending your nights and weekends digging yourself out of that hole.
So how do you know if it’s time to hire a new employee and if it’s time to take the leap?
What does your GUT say?
Sometimes it’s not just about the numbers; you can tell your team is stressed out. Maybe they are making more mistakes than normal, or getting a little edgy with one another. Maybe they groan when you bring in a new client. Or maybe it’s the other end of the spectrum: Your team is cooking along and so is your marketing and sales engine! Usually you’re closing deals once a week and you’ve closed two each the last three weeks! The bottleneck is right in front of your eyes.
The problem with using your gut for this decision is that by the time your gut knows it’s time to hire, it’s too late. Typically it takes about 12 weeks from the time you decide you need to hire until you have someone in-house and ready to work. If you get really lucky you might do it in 8 weeks, but if your team is stressed now, you need help sooner than two months from now!
What do the numbers say?
Hiring a new person is a matter of supply and demand. Do you have enough supply (people) to meet your client’s demand? This is a problem we can solve on a spreadsheet! Click here to download a worksheet I created to help you evaluate if you can afford to hire a new employee.
First, figure out the demand.
First, let’s see if we can forecast the demand on our team’s time. If your business sells your services by the hour this is pretty straight forward. Start a spreadsheet with your clients down the left side and the months along the top.
Now forecast how much you intend to bill each of your clients over the next several months. It’s usually easiest to forecast in dollars. Next, add some rows for clients you have in the pipeline – what’s out there that you have proposed on, or that is close to closing? Add those clients, and forecast their sales. For deals that aren’t yet closed I add a confidence factor.
So if I’ve sent a proposal, but haven’t heard back, I’ll weight that at 50 percent chance to close. If it’s a discussion leading to a proposal, I might weight it at 30 percent chance to close. For the prospects, I multiply my forecast of the client’s billing by the percent to close. That’s how I measure my “demand.”
Once you have all the rows worked out, total up each column. This should give you your expected billings for each month. Divide this number by your hourly rate, and you have an estimate of the number of billable hours needed to be available so you can bill the determined hourly rate. This is the demand on your hours.
Next, figure out the supply.
Create another table; this time with your employees down the side and the months along the top.
For each employee we need to figure out what percentage of their time is billable. I usually figure that lower level employees who are 100 percent focused on billable work can actually bill about 85 percent of their total time without overtime. Team leaders might be 65 percent, Managers 50 percent, etc. Next, figure out how many hours there are in each month (working days * 8) and multiply it by each employee’s billability. The result is the number of hours each person has available to bill.
Now let’s compare the demand to the supply. If your demand exceeds the supply, you need folks to work overtime. If the forecast shows this trend continuing for a couple of months, it’s likely time to hire.
Do we have the skills?
There is also an issue of skills. You may have enough hours in aggregate, but if some work requires a particular skill, and you don’t have enough people with the skill, you can still end up with shortages.
Be sure to screen your new hires based on their skill set — not just past experience if they will fit well within the existing office culture. Don’t be afraid to ask for a portfolio, examples of past work, or a skill-specific reference.
Are you ready to hire? If the answer is yes, make sure you do your homework so you can get your hands on the best people.
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