Factors affecting how many employees to hire

As a business owner, you need to make a thoughtful decision about how many employees are needed to serve your business and keep it growing at a healthy pace. These are a few of the factors to consider when determining how many employees to hire for your company:

Monthly revenue

One concrete way to determine how many employees your business needs is to look at your revenue per employee. Revenue per employee is a ratio used to determine exactly how much money a single employee is bringing in for the company. To calculate the number, divide the total revenue of your business in a given month by the number of employees.

You can use this ratio to compare your revenue per employee to other companies in the same industry that are doing well to see how your business measures up. If your number is significantly higher per employee than similar businesses, you may have the financial growth room to bring more employees on board.

Company culture

While there are other objective metrics for determining how many employees to hire, company culture is a more subjective consideration. Nevertheless, it’s an important factor when deciding whether you’re ready to bring new employees in.

If you’ve worked hard to cultivate a company culture that ensures everyone respects each other, gets along, collaborates and feels valued, you need to be cautious about how quickly you introduce new hires to the mix. Although a larger company often has more structure and therefore a more embedded sense of culture, in a small business you need to work harder to maintain what you’ve established.

Bringing in one or two new employees at a time makes it possible to integrate them properly and ensure that your current employees continue to feel that their efforts are appreciated. If you decide you have room to expand and bring in a whole new department at one time, you may completely shift the company culture based on how the new hires interact and the energy they bring to work. Your attention will also be focused more heavily on them, which may make existing employees feel forgotten.

Benefit plans

The benefits that you offer your workers may factor into how many employees you feel your business needs. While a small business health insurance plan is often considered applicable if you have between one and 50 employees, the number of workers you employ may impact the amount of coverage you can offer employees beyond the mandatory 95% health coverage that small business employers must provide per the IRS.

Insurance companies frequently offer more comprehensive benefit plans at a lower rate if you have a higher number of employees joining the plan. This can mean that having a higher number of workers allows you to provide them with dental, vision or massage therapy coverage without breaking the bank. Better benefit plans can make your company more attractive to prospective employees and help retain the workers you already have on staff.

Maximizing productivity

The revenue per employee calculation can help determine whether your employees are operating at a productive rate for your company. If your revenue per employee is significantly lower than comparable companies in your industry, you may have too many employees on staff to be productive because you’re not bringing in the required quota per employee. In that case, it may be time to consider downsizing your staff until you can get your revenue per employee up to industry standard. This ensures your business remains profitable.

Determining the number of employees needed

Part of determining how many employees your business needs is at your discretion, but there are more technical ways to decide if you need to grow or downsize your current staff. A few things you can do to begin the process of figuring out the optimal number of workers for your company include:

• Looking at your KPIs
• Reviewing your current employees
• Considering your needs and areas where staff are over or underworked
• Analyzing employee ROI

When you take time to go through each of these processes, you’ll gain a clear picture of how your company is operating currently and whether you need to bring in additional workers to increase your profit and productivity or trim in certain departments.

Examining your KPIs

KPIs are Key Performance Indicators. When you access this data in chart or graph form, you can see a measurement of the performance value of your business and the employees within it. There are five critical KPIs, which are:

• Revenue per client
• Average attendance
• Client retention
• Profit margin
• Average daily attendance

When determining whether your current employees are operating productively or if you have room for growth, you’ll likely find it most useful to focus on financial and customer metrics. These metrics indicate efficiency per customer and provide you with your net profit margin.

Reviewing current employees

To decide if your company needs to contract or expand in its hiring processes, it’s necessary to undergo a detailed review of how your current workers are performing. You can do this by calculating revenue per employee, and you should also take time to sit down with each employee to discuss their goals and concerns. They’ll be able to tell you if they’re spread too thin in a specific area or if they’re not feeling challenged enough and would prefer to take on more tasks themselves.

Consider your needs

While listening to your staff is important, you also need to examine your company’s needs from your perspective as the owner or manager. If some workers are telling you they’re overworked when others doing the same tasks aren’t, perhaps it’s time to bring in new hires to replace employees who are underperforming.

Analyzing employee ROI

To see how your employees are performing, you can use online tools, such as a People Scorecard, to analyze the dollar return you’re getting on your investment per employee. Valuable information you’ll gain by doing this includes:

• Income/hour paid
• Labor cost/hour paid
• ROI on total labor cost/hour paid

Utilizing concrete methods of calculating how much of your investment in current employees you’re actually getting back is a great way to see whether you need to reorganize, expand or trim your workforce.