Ruth King
Contributing Writer
Profitability Revolution Paradigm

You think you need to hire another technician, a dispatcher, a parts runner, or a person to do some other function.

Can you afford to hire that person?

The answer can be found using a quick calculation.

If you are hiring field personnel, ie. revenue producing personnel:

Total the costs of that person’s anticipated yearly wages plus benefits plus truck costs. Take this sum and divide it by 1 minus the gross margin of the department that he will be working in.  That’s the amount of revenue that you must increase to afford this person.

For example, assume that you are considering hiring a new service technician. His yearly wages plus benefits plus truck costs are anticipated to be $80,000 per year.  The gross margin of the service department is 52{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f}. The revenue that he must generate, at a minimum is, $80,000 divided by 48{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} or $166,667.

Is this feasible or not?  Do you have the marketing in place to make this happen?

If you are hiring an office person, ie overhead personnel:

Total the costs of that person’s anticipated yearly wages plus benefits.  Take this sum and divide it by the gross margin of the company (assuming the person will work in more than one department) or the gross margin of the department she will be working in.

For example, assume that you are considering hiring a receptionist.  Her yearly wages plus benefits are anticipated to be $30,000 per year. The company gross margin is 32{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f}. The additional revenues the company must generate to cover her salary are $30,000 divided by 32{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} or $93,750.

Is this feasible or not? Can you generate the additional revenue or can this person make existing personnel $93,750 more productive?

These quick calculations give you an idea of what revenues must be generated or what increases in productivity are necessary to hire additional personnel.  If you don’t think this is feasible, then don’t hire that person!