Q&A: How Do I Know When I’m Making Enough Money To Hire Help?

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The #insidemymicrobiz experiment has generated a lot of good questions from readers, so I’ll be sharing these Q&As on Fridays. Got a question? Hit me up on Twitter or email me: [shanna] at [this domain].

Hey Shanna,

Basically, the biggest question I’m having right now is looking at the Profit & Loss sheets and wondering what they should look like for me to be okay hiring another person? How much do you have to be making every month to be able to afford to hire another person in your business?

Ethan

Great question. However, I would argue that you’re coming at the issue from the wrong direction.

Obviously, you do need to be able to make some profit to be able to hire someone else. But if you’re even thinking about hiring someone else, then you are obviously making some money.

So what you need to look at isn’t necessarily “how much can I afford to pay someone?” it’s “how much more money will hiring someone make me?”

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Hiring For Different Reasons

The biggest issue I see microbusiness owners have is that they aren’t hiring a typical employee. The rule of thumb for hiring an employee is that they need to be able to make your business 3x what they cost you to keep them. However, most microbusiness owners shy away from having actual employees, and instead confine themselves to hiring contractors or subcontractors.

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So if you’re hiring a subcontractor to take over a billable aspect of your business, then the math is pretty easy. In fact, because you don’t have to pay things like Social Security and health insurance for contractors, I would be satisfied with “doubling your money.” Provided the contractor can work without too much input from you, if they’re bringing in twice as much as you’re spending on them, that should be fine. But, if you need to spend a bunch of time checking their work and providing feedback, that detracts from your billable hours, and so you might need something closer to 3x to make up for it.

An example from one of my businesses would be the SEO copywriting business I have. I hired writers to be able to scale, and with writers in place I was able to bid for more work. It’s important to maintain that 50% margin for a long-term arrangement– there’s a lot of friction involved in working with contractors, and in my experience, without that margin, you can run into your resentment rate fairly quickly.

Rule of thumb for microbusiness owners: any worker that comes into your business should bring in 2-3 times more money than they cost.

And by friction I don’t mean conflict– just the additional emails, explaining things in exacting detail, worrying over deadlines, more accounting to do, and planning for extra buffer time around everything. Sometimes contracting can feel like way too much trouble.

But What if You’re Hiring for Support Roles?

It’s quite a bit trickier to do the math when you’re hiring for a general purpose assistant. Whether that’s someone to answer your emails, schedule your tweets, or do your bookkeeping, they’re not ADDING money to your bottom line. So how do you assess what they’re bringing into the business?

This is tricky. In the first place, you want to make sure your cash flow can handle their services. Support people are always cheaper if they’re on retainer, but if you go this route, you’ll want to be pretty sure you can cover their wages for 3-6 months without too much difficulty. (If your cash flow always allows this, that’s fine; otherwise make sure you have a savings buffer, because you don’t want to cause difficulties for your assistant, who after all, is a microbusiness owner too.)

Otherwise, try buying 4 or 10 hour bundles and see what that does for your productivity. In my experience, not having your most hated tasks dragging you down gives you a huge burst of creative energy.

Maybe you’ll bill more hours, or maybe you’ll just love your life that much more that you feel it’s worth the investment, similar to weekly massages or outsourcing yardwork. If you have more time to enjoy your $1500 season lift ticket this winter, maybe it’s worth $500/mo for a VA.

For almost everything in relation to your business, if you’re going to get a decent ROI (return on investment) and it doesn’t conflict with your goals or values, then spending the money is a no brainer (provided you have it to spend).

But I’m Not Sure It’s A Good Idea!

If you’re not sure, sit your butt down in a chair for half an hour and do the math. Nothing is worse than waffling about whether it’s worth it. Figure out a list of things to outsource. Then figure out what you would do with the time you outsourced. Are you on track to make more money (or will your life be so much better you won’t miss the time spent?)

Sometimes you won’t have the demand for your services; if you free up that time, there’s no one to pay you. But maybe you could still use the time to create a new product, develop a new service offering, or improve your funnel so there will be greater demand in the future. In this case, your investment would pay off, but maybe it would be half a year or more down the road. In this case, you would need to make sure your cash flow could handle the expenditure.

If you don’t have the money right now but you’re convinced the ROI is there, make an effort to shift your expenditures around to free up the money. After all, if the ROI is there, you WILL make that money back. So prioritize it.

Thinking of hiring a VA? Click here for a free checklist to help make that process easier.

Ethan Waldman is the go-to tech wizard for microbusinesses and non-profits at Cloud Coach.

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2 thoughts on “Q&A: How Do I Know When I’m Making Enough Money To Hire Help?”

  1. I’m at a place in my business where I am totally the bottleneck and I can’t figure out how to hire people to help me. Sitting my butt down and listing all the ways hired help would free me up is one thing, and then doing the math to make sure they’d make me more profitable is another. 3x is a great goal. I’m going to sit my butt down right now. Thank you!

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