How to determine the number of employees you need

As a business owner or leader, you may decide how many employees to hire. Technical factors like recruiting budgets, forecasts and company objectives can influence whether you should grow or downsize your current staff.

The number of employees needed varies across businesses and industries. However, these steps may help you determine optimal staffing numbers for your company, including:

• Looking critically at your key performance indicators (KPIs)
• Reviewing performance reviews from current employees
• Considering your business needs
• Analyzing employee ROI

Examining your KPIs

KPIs typically help you understand how well your business, specific teams or even individual employees perform. Viewing KPI data in chart or graph formats can be especially helpful as you visually identify trends, successes and areas for improvement.

Let’s assess KPIs that can help you determine your hiring needs:

• Monthly revenue: Tracking your monthly revenue helps you understand your current cash flow and whether it can support additional salaries. If your revenue is growing steadily, you may have the financial capacity to expand your team.

• Revenue per employee: This metric measures how much income each employee brings in. A lower-than-average figure may indicate inefficiencies or overstaffing, while a higher number can suggest your current team is highly productive and may need additional support to sustain growth.

• Revenue per client: Revenue per client helps you assess whether your team manages accounts effectively. If this number starts to drop, it may indicate the need for more staff to help improve performance.

• Average daily attendance: Monitoring attendance helps you understand employee availability. If workers are frequently absent or have reduced availability, new team members may help maintain coverage and keep productivity steady.

• Client retention: Low client retention can signal customer service or fulfillment issues. If customers leave due to long wait times, missed deadlines or communication gaps, it may be time to increase your workforce to better meet clients’ needs.

• Profit margin: Your profit margin reflects how much revenue remains after expenses. If your margins are shrinking due to labor costs, you may need to delay hiring or adjust your workforce strategy to align with long-term financial goals.

Reviewing employee performance

To determine whether you need more employees or to improve efficiency with your existing staff, you might conduct a comprehensive performance review. 

You might schedule weekly check-ins to discuss workers’ goals and concerns. Let them know the company’s goals and how their role contributes to these objectives. You can also review individual goals and ways each person can meet them by creating a personal development plan (PDP). 

Quarterly performance reviews can help you find ways to improve processes and support existing employees for increased productivity. If you conduct this review and don’t find substantial opportunities to increase performance, you may need to hire more workers to support future growth.

Look for signs of over- or underworked staff

Monitoring your team’s workload helps you maintain productivity and make decisions that support employee satisfaction to help prevent burnout or high turnover. While the workload should be manageable, it’s generally important for workers to feel fulfilled by their job responsibilities. When employees feel challenged at work, it can also help improve morale and introduce growth opportunities, such as lateral or promotional growth. 

To identify whether your employees feel supported and to avoid imbalances in your workforce, consider patterns in:

• Attendance: While absences can result from personal or professional complications, a sudden increase in absences might indicate employees are disengaged.

• Missed deadlines: Frequently missed deadlines may indicate your team is understaffed.

• Overtime hours: When teams consistently work overtime to meet deadlines, you may need to hire more employees.

• Employee complaints: If you implement easy methods to collect employee feedback, such as one-on-one meetings or anonymous surveys, employees may request additional resources to get the job done or share concerns about team capacity.

Analyzing employee return on investment (ROI)

Consider the return your company receives for every worker you invest in with the following metrics:

• Business income per hour paid: This metric compares your business’s revenue to the workforce expenses by determining the business’s income and dividing it by the total hours worked. A high ratio can suggest strong workforce productivity.

• Labor cost per hour paid: This shows how much you spend on wages and related expenses for each hour worked. Monitoring this cost may help you assess the financial sustainability of your current team size and whether it aligns with your business’s profitability goals.

• ROI on total labor cost per hour paid: This metric calculates the return you’re getting for every dollar spent on labor. It helps you determine whether your employees are generating enough value to justify their cost and can guide decisions on hiring, restructuring or investing in training.

Other factors to consider before hiring more employees

When considering expanding your team, you might also look beyond bottom-line dollars and productivity metrics, such as company culture, benefit plans and leadership capability.

Company culture

If you’ve cultivated a company culture that encourages respect, collaboration and inclusivity and belonging, you may want to be intentional when introducing new hires. For example, you might host an informal social hour to introduce the new employee to the team, or schedule team-building activities to help build trust with new and existing staff.

Benefits plans

The benefits you offer workers may factor into how many employees your business can support. The size of your workforce may also play a role in what type of benefits you can provide. 

A larger workforce may reduce the per-person cost of benefits. Insurance companies frequently offer more comprehensive benefit plans at a lower rate if more employees join the plan. Those savings can reduce how much your employees must pay for premiums. 

Leadership capability

As your team grows, so does the need for effective management. Hiring more employees may require an expansion of your leadership team. Managers and team leads must have the time, tools and skills necessary to onboard and guide all new hires. If your current leadership doesn’t have the bandwidth, you may want to focus on building leadership infrastructure before expanding your workforce.