As businesses grow and expand their customer base, adding new employees eventually becomes a must. Certainly there are economies of scale in any business, but at some point, your current staff simply won’t be able to handle all of the activities of your growing business. When thinking about hiring a new employee, two questions are key: “When?” and “How much?”
How Much Does it Cost to Hire?
Being able to accurately measure the cost of adding a new employee makes the decision of whether to hire much easier to square with your projected increase in revenue. If your projected revenue growth is $250,000 per year but it’ll cost you $300,000 to staff that growth, you may need to reconsider your strategy. Jason Hesse discusses this question in Forbes and provides hiring advice by pointing out that the cost of a hire goes far beyond the employee’s wage. There are a variety of other considerations to keep in mind: benefits, recruitment costs, space and equipment for the new employee, etc. The University of Minnesota has a useful worksheet to help categorize and add up the various elements of overall hiring costs.
There are no one-size-fits all numbers to plug into your calculator when computing the cost of adding a new employee, so benchmarking similar businesses or keeping track of your costs from previous hires can help flesh out the inputs. One thing to note is size does matter when it comes to hiring costs.
Hesse cites a report by the Centre for Economics and Business Research (CEBR) and the UK’s Federation of Small Business, which notes that administrative and overhead costs – complying with government employment laws and regulations, for example – become less onerous as a business grows, meaning that it generally costs more for a five-person business to hire someone than for a fifty-person business.
When Do you Need to Hire?
As David G. Javitch writes in an article for Entrepreneur, existing employees are often the best barometer of when to hire a new staff member. For the business owner, it’s always a goal to increase revenue and keep costs low, but eventually, your employees will start to get burned out, feel overworked and become less productive or even quit. Additionally, if after taking a hard look at your current employees’ qualifications you see a need for additional skills or knowledge, it may be time to go out into the labor market and find the employee who meets those needs.
In addition to your employees, take a look at your growth and goals for growth. Javitch suggests looking at your current revenue and sales growth. If you are observing an increase in growth, and it looks like more than just a seasonal or temporary trend, it’s probably time to take on additional staff to support that growth.
Tools and Apps to Ease the Pain
Of course, in these technology-fueled times there are plenty of opportunities to turn to technology to help lighten the load when it comes to the need for staff. For instance, virtual phone systems like those we provide can make your small business look big while minimizing the need for staff. There are many other options as well. In fact, we recently gathered input from a variety of virtual businesses about what helps make their companies hum.