Do you really need to hire someone?

Agency directors should ask themselves this question more often.

"Do I even need to hire someone?" is a question agency directors should ask themselves more.

Back when NOVOS was hiring two people a month consecutively for 14 months, a large proportion of this hiring was necessary to keep up with demand. Still, a small proportion was not, so I've been guilty.

It's a question we're currently asking ourselves for my interior design agency, The Living House. We've had a great start to the year, and it's time to start thinking about what's next and whether we need to hire our first full time staff. Later, I outline the decision-making process we're going through regarding hiring, along with our conclusion.

Below is everything that has gone into this decision, as well as more from my experience of running and coaching agencies.

Whether it's your first member of staff or your 50th, I see way too many pitfalls in agencies' approaches towards hiring staff.

To help you answer this question more confidently, i've split my approach into two parts:

  • Qualitative assessment: solopreneurs should focus more on this. It can also be handy for larger agencies that may have a department with a headcount of 1 and are thinking of expansion.

  • Quantitative assessment: this approach should be used more by mature agencies looking to scale and require complex data to make their decision. Again, it can benefit a solo freelancer to get even more confidence behind hiring their first staff member.

Part 1: Qualitative assessment

As referenced above, this is a section solopreneurs do not focus on enough. They get busy and hire without doing enough of a qualitative assessment to understand 'Is this what I want to do?' and as a result, there are so many 'accidental agency owners' in the world. Most are incredibly stressed because, deep down, they don't want to run a multi-person business, and they miss doing the actual work (which, more often or not, was their passion).

I've also seen larger agencies be guilty of lacking this qualitative assessment, particularly in one person's department. These are typically back-end departments, e.g. project management, operations or support functions like design, data, etc. A 'luxury' hire in these departments can significantly impact your margins as they aren't directly contributing to the agency's delivery.

It's easy to hire a department lead, an exec, or an assistant to manage; there's little logic to why you do this other than to give the perception of their role and department growth.

I've been guilty of this; we've scaled up a three-person data team, but now we only have one, delivering considerably more output than the three-person team. I've hired three writers when we only needed two. At one point, our operations team was four people; it's now two, and we're double the size.

If you are thinking about hiring someone, and if it is your first employee, it's naturally going to be a decision full of anxiety and doubt.

Below are five more questions to ask yourself to assess whether you should hire someone.

1) Am I ready to invest time in training and onboarding?

Hiring someone is just the beginning. You'll need to invest time in training them about your business processes, expectations, and the quality of work you deliver. Ask yourself if you're ready to dedicate this time, understanding that it might temporarily reduce your own productivity.

2) Can I afford the financial cost of hiring someone?

Beyond salary, consider the costs associated with employment or contractor fees, software licenses, and any additional resources they might need. Do you have the financial stability to cover these costs without overstretching your budget? Retainers help massively with this, of course; see more information below.

3) Am I prepared to manage and lead someone?

Managing people involves more than delegating tasks; it's about motivating, providing feedback, and sometimes having tough conversations. Reflect on your readiness to take on these responsibilities. Are you prepared to be a mentor and leader, not just a boss?

4) What is my plan for communication and project management?

Effective communication and project management are critical to a successful collaboration. Do you have systems in place (like project management software) to keep projects on track and facilitate smooth communication? How will you ensure that your new hire is aligned with your goals and working efficiently? How will you assess that the new hire is delivering the output you expect?

5) Do I have a clear understanding of what I need help with?

Identify the specific tasks or areas of your business that require additional support. Is it administrative tasks, client management, or a service that complements your offerings? Having a clear idea of the role you need to fill ensures you look for the right skills and fit for your business. I outline my recommend 10-person agency team and how to achieve this using an 80/20 framework, in my course:

When it comes to finances, you must consider the next 3-6 months.

If you don't operate with retainers, it can be challenging to know, and you'll need to rely heavily on experience and data, something you'll only have if you've been running your operation for multiple years.

A friend of mine was a solopreneur and hired his first member of staff. He needs retainers and projects. The stress and worry of having someone else be responsible for them financially caused a considerable amount of anxiety for him that stretched beyond just business and started to expand into other areas of life.

As referenced above, we ask ourselves this question at The Living House. Our conclusion? No, we're not going to hire yet.

The big challenge with The Living House is projects, not retainers. Therefore, I foresee us being incredibly stressed, just like my friend, and not enjoying the growth and journey we're seeing.

As a result, we're going to tackle this approach in two ways:

  • 1) Create a waiting list rather than trying to take all business in one month. Calculate a cap and push the other clients into the next month. The list can help to create scarcity and demand in our service. We can charge premium rates for 'accelerated' packages, and it can also start to facilitate future income.

  • 2) Attempt to get a fixed rate of income each month. Can we get a monthly fixed income to cover our fixed costs if we can't charge retainers? The answer is a paid-for community membership.

Further questions would be:

  • What is my end goal? see more here:

  • Will I take a short-term hit financially to benefit the long term?

  • Do I enjoy working with people?

  • Are you just being pressured into hiring by society, friends, social media, or your internal brain?

Part 2: Quantitative assessment

I use data to inform decision-making across all departments in my agency; hiring is no exception.

Hiring your next employee, whether it's employee number two or employee number two hundred, always comes with a bit of uncertainty around timing.

The agency model lends itself to a balancing act between having capacity in your team and the demand for your services.

Too much capacity for too long means you could have been making more profit. Too little capacity means busy staff, which will no doubt have an impact on the quality of your work.

To decide when to hire, I use a metric called billable capacity.

To calculate, you first need to calculate each individual's bill rate or day rate. The day rate is the rate at which you bill your time to clients relative to their cost rate (their salary). You can do this by role instead of doing it for every individual in your team, e.g. any team member with the senior account manager title is billed at X rate, which will also be reflected in the salary bandings for that role.

To calculate the above, please see this post:

Billable capacity = (Day rate x days in a month) * Utilisation rate

For the days in a month, I just average this out to 20 days per month; there's no need to calculate this metric each month.

Next, you will want to use this metric to calculate the utilisation rate.

Utilisation takes into account how billable an individual role is. You shouldn't assume that a director has the same billable time as a junior. The further up the hierarchy you move, the more management time you need to factor into individual’s time.

Above, you will see a benchmark for utilisation rates across different seniority levels for an agency above £1m; this is from the WOW agency, which compiles data annually from many different agencies in their benchpress report. I'd recommend checking out their report every year to get the state of play for agency finances; they also have separate data for agencies under £1m.

Use a rate that is achievable per role.

If you don't know what's achievable you need to be leveraging time tracking to know where individuals time is going and how billable they are right now as a benchmark. If you don't have time tracking, I'd recommend starting at the low utilisation level for all roles.

What you can't measure, you can't improve, hence why you need time tracking in place (more on this in other posts!)

For a quick example, we will assume a junior operates at the following:

  • Day rate £750

  • Days in a month 20

  • Billable amount 80%

  • Billable capacity = £12,000

This tells us that this staff member should be billing at least £12,000 worth of client work monthly.

This is the starting point for building a forecast for your existing client income, pipeline, and team capacity.

So, in a nutshell, what we've done here is assign a monetary value to your staff's time, which can then be mapped to client income.

I have created a basic financial model for you here (you're welcome!).

In the document, I've outlined the above across multiple tabs; each tab has a description to walk you through what you can and can not change.

I walk you through this document in my course:

Using a simple example from the document, I've added a few scenarios of income and existing clients.

Now, why is this important?

Because it comes back to the original question right at the start of this post, "do I even need to hire?"

Once you've inputted your data, head to the summary tab.

In my example, you can see that June and August are negative capacity. However, when you look at September onwards, it's positive. Therefore, this model shows us that this negative capacity is only short-term, so you will unlikely need to hire as you could cover this period with a freelancer instead.

I describe the above example as the difference between capacity and resource planning. Too many agencies focus on resourcing over capacity—more on this in a future post.

So, to conclude, next time you are looking to hire, ask yourself the question, "Do I even need to hire someone?" and go through the qualitative AND quantitive analysis referenced above.

Once you've done that, you will be more confident that you are making the right decision. Making the wrong decision could significantly impact either:

  1. You, as an individual

  2. Your business's profitability

  3. The quality of your agency's work

All of which are pretty damn important if you ask me!