The Wrong Question When Planning To Hire

Jul 6, 2025

“How much revenue do I need before I hire a new employee?”

This is a common client question I get from growing contractors.

I get that revenue is an easy number to find, especially when your bookkeeper is mediocre and six months behind.

But revenue is a poor indicator of whether you can or should hire. There is no magical revenue amount to justify your first or 15th hire.

All the revenue in the world, with no sustainable profit, will only lead to a world of hurt when you hire.

Focus on gross margin, cash flow and customer pipeline.

Gross Margin

Quickly, gross margin is calculated as your revenue minus your direct costs/cost of sales.

Gross Margin is the result of you and your team completing work.

If there isn’t enough gross margin, there won’t be enough to run and build a business.

Remember, your business is more than just knocking out the next job.

It might seem that you can cover that $27/hr 3rd-year electrical apprentice because you’ll charge $95/hr to the customer.

Gross margin calc

$95 (-) $27 = $68 or a 71.6% gross margin… Boom looks good.

But wait.

The true cost of $27/hr is closer to $32.50/hr, including just the mandatory payroll and workers’ comp requirements.

Check out our True Hourly Rate Calculator.

Second, it is unlikely your guys will be doing chargeable work 100% of the time. You want to bake a 70% utilization rate into your calculation.

This means your team is only making you revenue 70% of the time they’re on the clock.

Yep, 70%…

Apply the 70% utilization; $32.50/ 70% = $46.43

Finally, you have training, safety certificates, benefits, union fees (if applicable), uniforms, equipment and tools.

We’ll add $5.50/hr for training, safety and benefits.

New gross margin calc

$95 – $46.43 (Adjusted Wages) – $ 5.50 (Training + benefits etc.) = $43.07 or a 45% Gross Margin.

Before making a hire, ensure that your margins for current and future jobs are structured correctly.

More often than not, contractors need to increase their pricing **improve gross margins** to ensure that hiring makes sense.

Adding an employee that results in a gross margin of less than 50% will add more strain than help to the business.

Hiring will only make you more money when your gross margins are consistently healthy, between 60 – 70%.

You can’t fix a ” I don’t have enough money” issue with hiring more people.

Don’t stack low-margin jobs and expect to make the money you want.

Cash Flow

This is more straightforward.

If you have the right gross margin, assess your average available cash flow and the average time to collect customer payments.

If you skip paying yourself at times because your cash collecting is lumpy, adding another employee doesn’t make sense.

A consistent cash collection system that ensures 15% of your monthly cash needs are in your bank account at all times with no overdue AP, is a good benchmark.

So, if your monthly spend (including your compensation) is $75K, a consistent $11,250 in the operating bank account is a good start.

Ideally, you’ve saved some of your excess profits and have a runway to hire and train your new team members.

Check out our 7 Cash Flow Commandments to sharpen your cash management skills.

Additionally, if you have debt payments (whether it’s the Government, suppliers or bank loans), you need to forecast how adding a hire will impact your ability to make those payments.

Customer Pipeline

For some, their instant response when things get busy is to hire.

Before that hire makes sense, ensure your customer or job pipeline is consistently busy for the next 6 months and that your lead generation system is solid and predictable.

Adding an employee increases your capacity to finish jobs faster.

But if you don’t have the work to fill the new capacity, it doesn’t matter.

For project-based contractors, you want to look at:

Leads per month
Cost per lead
Lead conversion rate
Ave Lead Time (from signed contract to project start)
Ave job duration (time to complete a typical job)
Average job price (revenue per job/ revenue per hour)

You want to ensure that you can generate the correct number of leads to stack the jobs for the new capacity your hire creates.

If the new hire creates strictly new capacity (meaning it doesn’t reduce any of your time), ensure there is a proportional increase in leads.

However, if this new employee frees up some of your time, the growth in lead generation will be less significant.

Good luck with your next hire.

P.S. Email Crew@strucs.co with something you want me to talk about. I’ll add it to our list.

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We regularly share real insights from the front lines of the construction industry, drawn from hands-on experience, honest feedback, and what actually works.

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