When does a new hire start paying for themselves?
One senior hire, one year, and the ramp nobody puts in the spreadsheet. 70 times in 100, a good hire loses money in the year you make them, and knowing that in advance is the difference between carrying it and being surprised by it.
Words on this sheet
- Contribution: What is left of the income after the costs that come with it, before the fixed costs are paid.
Marketing Intermediate Monte Carlo Pro engine
After you install, this is the model to open.
Is the Next Hire Worth It?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
The answer
- Year one
- -$7,900 mean contribution across 20,000 simulated years
- Does not pay back
- 71% of first years, on a hire called break even
- The bad case
- -$30,500 P5, when the ramp runs long
- Year two, same hire
- +$31,500 no ramp, no recruitment fee
A senior account director at $96,000 all in, plus a $14,000 recruitment fee. At 105 chargeable hours a month, a $145 rate and 72% of hours actually billed they earn $10,962 in a full month, and after a four-month ramp at 45% of that they bring in $107,428 in year one against $110,000 of cost. The hire loses $2,572 and everybody in the agency calls that roughly break even.
Click Run with the billed share, the ramp length and the monthly hours on ranges. Contribution in year one averages about negative $7,900 with a median near negative $8,100, a P5 around negative $30,000 and a P95 around positive $14,900, and the does-not-pay-back flag comes back at about 0.72. 70 times in 100, a good hire costs the agency money in the year you make them.
That is not an argument against hiring, it is the number the owner needs in order to know whether the agency can carry it, and the honest framing is that this is a year-two decision funded out of a year-one hole. Prove the second half of that sentence: rerun with the ramp set to zero months and the recruitment fee to nothing, which is what year two looks like, and contribution averages about positive $31,400.
So the hire is worth roughly $31,400 a year and costs roughly $7,900 to start. The tornado ranks the ramp first at about negative 0.60, the billed share second at about 0.59 and the monthly hours third. That ordering is worth stopping on, because the ramp is the only one of the three that is decided at the offer stage. Test it. A candidate who arrives with work behind them has a much shorter ramp, so change the ramp distribution to a discrete 1, 2 or 3 months at probabilities 0.35, 0.45 and 0.20 and rerun: contribution turns positive at about $6,600 and the chance of not paying back falls from 0.72 to about 0.31.
Two months off the ramp is worth about $14,500, which is what you should be willing to pay in extra salary or in a search fee for someone who brings a book with them. What the model cannot tell you is the question underneath the question. It prices the capacity a hire adds, not the demand for it, and it assumes there are 105 chargeable hours a month waiting to be filled.
If the retainer book does not cover the year then this is not a hiring problem at all. To make it yours, take the rate from your own grade card and the billed share out of your timesheet system, and set the ramp from how long your last three senior hires actually took.
The model
It arrives on a tab called Template: Is the Next Hire Worth It:
| Salary, on costs, tools and desk for the hire ($ a year) | 96000 |
| Months before they are billing at full rate | 4 |
| Chargeable hours a month at full rate | 105 |
| Blended rate charged to clients ($ an hour) | 145 |
| Share of their hours that are actually billed | 0.72 |
| Fee earned in a full month ($) | 10,962 |
| Fee earned during the ramp, share of a full month | 0.45 |
| Fee in year one ($) | 107,427.6 |
| Recruitment fee ($) | 14000 |
| Cost in year one ($) | 110,000 |
| Contribution in year one ($) | -2,572.4 |
| The hire does not pay back in year one (1 = yes) | 1 |
| Months of fee needed to cover the year one cost | 10.03 |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- A product launch risk register pricing five ways a launch goes wrong against mitigation cost, from a calendar invite to production fixes. Free template.What Could Go Wrong With This Launch?
- The pipeline says you beat target. Will you?Will the New Business Pipeline Deliver?
- Can you hold the cost per customer you promised?Will the Campaign Hit the Cost Per Acquisition?
- What would have to change for this channel to pay?What Conversion Rate Makes This Channel Work?
- The winner got more opens. Did it get more clicks?Which Subject Line Won?
- Is a pitch you probably lose still worth entering?Should We Pitch for This Account?
Every model like this one, and the method behind them: Monte Carlo simulation.