To recruit or not to recruit?
Working out when to recruit a team member can be a little tricky. The decision is made a lot easier if you know exactly how much more turnover is needed to cover the cost of that person. Here’s a useful calculation you can use to work this out.
You need to know your gross margin and the full cost of the new person.
For example let’s say your gross margin is 38% and you are thinking about hiring a new sales person for £2000 per month. If you divide the wage (£2000) by the gross margin (38 %) it gives you the breakeven point for your sales person i.e. £5263
2000/.38 = 5263
This means that if your new sales person can generate £5263 per month in additional sales they are self-funding. If £5263 in this example is a reasonable expectation and is possible within a reasonable time frame it’s a logical decision. If it’s completely unrealistic, then you know that too.
This calculation works well for fee earners, sales people and marketing resource. For support staff appointments you need to make a judgement call on whether the PA or Office Manager etc. will free up other team members to allow them to be more productive which in turn will pay for its self.
This calculation can be used for any expense and is a great tool to use before committing to any significant overhead expenditure! Have a play with it.