As a business coach, I’ve had countless conversations with business owners about hiring employees and a common challenge that comes up again and again is the struggle to know when to hire a new employee.
Does this sound familiar?
- You rely on your gut feeling, only considering a new hire when your existing team seems completely maxed out. If you’re a service business with field teams, you might wait until you’re booked out for weeks in advance before even thinking about adding another person.
- Or perhaps you’ve made a hire based on a hopeful projection, crossing your fingers that the revenue will magically appear to cover the new salary.
While gut feelings and hope can play a role in entrepreneurship, they’re not a sustainable strategy for smart hiring. Ad hoc hiring can lead to wasted resources, decreased productivity, and unnecessary stress. What you need is a clear, repeatable process to evaluate your situation and make informed hiring decisions that support your growth, not hinder it.
The Problem with “Gut Feel” Hiring
Relying solely on intuition or desperation often leads to one of two scenarios:
- Hiring too late: Your team is burned out, productivity is dipping, and customer service might be suffering because you’re understaffed. By the time you hire, you’re already playing catch-up.
- Hiring too early (or without a plan): You bring someone on board without a clear need or revenue to support them, leading to financial strain and potentially an underutilized employee.
Neither of these scenarios is ideal for sustainable growth.
A Smarter Way to Hire: Your 4-Step Evaluation Process
Instead of guesswork, let’s implement a strategic process. Here’s how to evaluate your business’s readiness for its next hire:
Step 1: Analyze Your Current Workload and Capacity
Before you even think about a new job description, dig into the data.
- Track workload: For each team member, what are they working on? How much time do they spend on core tasks versus administrative or less critical activities? Are there specific tasks or departments that are consistently overloaded?
- Identify bottlenecks: Where are the choke points in your processes? Is one person or department consistently slowing down the entire operation? This could be a strong indicator of where you need support.
- Assess existing team utilization: Are your current employees truly working at their optimal capacity, or are there inefficiencies that could be addressed internally first? Could cross-training or process improvements alleviate some of the pressure?
Action: Conduct a workload audit. This might involve simple time tracking for a week or two, or more detailed process mapping. Talk to your team. They often have the best insights into where the pressure points are.
Step 2: Forecast Future Demand and Revenue
Hiring should be proactive, not reactive. Look ahead to anticipate future needs.
- Project revenue growth: Based on your sales pipeline, marketing efforts, and historical data, what are your realistic revenue projections for the next 6-12 months? How much of that projected revenue is already “secured” or highly probable?
- Anticipate service/product demand: If you’re a service business, how many new clients or projects can you reasonably expect? How many hours or units of service will that translate into?
- Consider strategic growth initiatives: Are you launching a new product, entering a new market, or implementing a new system that will require additional human resources?
Action: Develop clear revenue and demand forecasts. Don’t just pull numbers out of thin air; base them on concrete data and your strategic plan. Be conservative initially—it’s better to underestimate and be pleasantly surprised than to overestimate and be financially stressed.
Step 3: Quantify the Cost of NOT Hiring vs. the Cost of Hiring
This is where the financial analysis comes in. Don’t just look at the salary; consider the total cost of an employee (salary, benefits, taxes, training, equipment, etc.) against the potential losses of being understaffed.
- Cost of not hiring: What is the cost of missed opportunities (e.g., turning down clients, delaying projects)? What’s the cost of employee burnout and potential turnover due to overwork? What’s the impact on customer satisfaction and your brand reputation?
- Return on investment (ROI) of a new hire: How will this new hire directly contribute to revenue generation or significant cost savings? Can they enable you to take on more clients, increase efficiency, or develop a new profitable offering? Aim for a clear financial justification. For instance, can this new sales person bring in enough new business to cover their salary plus X% profit? Can this new operations person free up a high-level executive to focus on revenue-generating activities?
- Breakeven analysis: How much new revenue or efficiency will the new hire need to generate or save to cover their fully loaded cost?
Hiring Benchmarks to Consider (for context):
While your specific situation will vary, understanding general industry benchmarks can provide a helpful starting point for your calculations and expectations:
- Average Time to Hire: Across all industries, the average time to hire (from candidate entering the pipeline to accepting an offer) can range from 24 to 36 days, though some sources indicate it can be up to 44 days. This varies significantly by industry and role seniority:
- Faster: Hospitality (14 days), Automotive (16 days), Home & Commercial Services (17 days), Food Services (18 days).
- Slower/More Specialized: Healthcare (49-56 days), Engineering (29-62 days), Government (40.9 days), Energy & Defense (67+ days).
- Why this matters: A longer time to hire means a longer period your existing team is stretched thin, or opportunities are being missed. Factor this lead time into your planning!
- Cost Per Hire (CPH): This metric includes all internal and external costs (recruiter salaries, job board fees, agency fees, advertising, interview time, onboarding resources, etc.). The average CPH in the U.S. is around $4,700, but this figure fluctuates widely:
- Entry-level positions in small businesses: $1,500 – $5,000
- Mid-level professionals in mid-sized companies: $7,000 – $15,000
- Specialized technical roles, healthcare, and executive positions: $15,000 – $30,000+
- Why this matters: Understanding CPH helps you budget accurately and assess the ROI of your recruitment efforts. Sometimes, a higher CPH is justified if it leads to a better-quality hire who stays longer and performs better.
- Employee Turnover Rates: High turnover can be a significant hidden cost. The average employee turnover rate across all industries can be around 3.3% per month (which translates to roughly 40% annually), with some industries experiencing much higher rates.
- Higher Turnover: Arts, Entertainment & Recreation (5.5% monthly), Accommodation & Food Services (5.2% monthly), Leisure & Hospitality (up to 79% annually in some reports), Professional & Business Services (up to 57% annually).
- Lower Turnover: While not explicitly stated for all, industries with highly specialized roles or professional services tend to have lower voluntary turnover due to the investment in hiring and training.
- Why this matters: Beyond the direct costs of rehiring, high turnover impacts team morale, institutional knowledge, and client relationships. Strategic hiring, which reduces the need for constant rehiring, contributes directly to your bottom line.
Action: Create a simple spreadsheet. List out the estimated total cost of a new hire, including the approximate time to hire and average CPH for your industry and the specific role. Then, detail the tangible and intangible costs of not hiring, and the projected financial benefits (ROI) of bringing someone on. The numbers don’t lie.
Step 4: Define the Role and Its Impact Clearly
Once you’ve determined that a hire is financially and strategically justified, clearly define the role.
- Specific responsibilities: What exactly will this person be doing? How will their day-to-day activities alleviate the pain points identified in Step 1?
- Key performance indicators (KPIs): How will you measure their success? What measurable outcomes will they be responsible for? This helps ensure accountability and clarifies their contribution.
- Impact on the team and business: How will this role integrate with your existing team? How will it contribute to your overall business objectives?
Action: Develop a detailed job description that goes beyond a list of tasks. Focus on the impact the role will have and the outcomes you expect.
Making the Smart Decision
Hiring is one of the most critical decisions you make as a business owner. By moving away from reactive “gut feel” hiring and embracing a structured evaluation process, you empower yourself to make strategic, data-driven decisions that fuel sustainable growth.
Remember, every smart hire is an investment in your business’s future. Stop guessing, start growing!
If you’re struggling with hiring and want to see how The Alternative Board can help you, contact me today!