Why Hiring Your Next Person Can Make You Less Profitable (At First)
You're flat out. The phone won't stop, jobs are stacking up, quotes are going out late and you're working nights to keep up. The obvious answer is to put someone on.
So you do. And three months later you're busier than ever, the bank balance is lower than before, and you're wondering how adding a person made things worse.
I see this pattern a lot with owners around Moreton Bay, especially in the trades. The hire usually wasn't wrong. The plan around it was missing.
What actually happens in the first 90 days
When a new person starts, the costs arrive straight away and the benefits arrive later. That gap is where the profit goes.
Wages go out every week, but the extra revenue lags. It often takes 6 to 12 weeks before a new hire is producing enough work to cover themselves, and invoices then take another 30 days or more to turn into cash.
Your own output drops. You spend half your day training, checking work and answering questions instead of quoting, selling and doing the high-value jobs only you can do.
Rework creeps in. A new person doesn't know how you like things done yet. Callbacks, fixes and wasted materials all come off your margin.
Cash gets tight at the worst possible time. You feel the busiest you've ever been, right when the account is under the most pressure.
None of this is a reason not to hire. Growth needs people. It's a reason to go in with your eyes open and your numbers ready.
The 3 numbers to know before you hire
1. How much extra revenue the new person needs to bring in
Most owners compare the wage to the work they think the person will do. That's only part of the picture. The real cost of an employee includes superannuation (currently 12%), workers' compensation, leave, public holidays, training, tools, uniforms, a vehicle if they need one, and your own time managing them.
Then you have to remember you only keep your gross margin on the work they produce, not the full invoice.
A simple illustration: say a new tradie costs you $100,000 a year once everything is added up, and your business runs a 40% gross margin on labour. To simply break even on that hire, they need to generate around $250,000 in extra sales. That's often 2 to 3 times their wage. If you don't have that much extra work coming through the door, the hire will cost you money, not make it.
Work out your own version of this number before you advertise the role.
2. How long until they're fully productive, and whether your cash can carry the gap
Be honest about the ramp-up. An experienced tradie who already knows your type of work might be fully productive in a month. An apprentice or someone new to your systems could take six months or more.
Multiply the weekly cost of the new person by the number of weeks they'll be under full productivity. That's roughly the cash buffer you need to get through the gap without stress. If you don't have it, you either need to build it first, line up a facility with your bank, or start with a smaller step such as a casual or a subcontractor.
3. Whose time gets freed up, and exactly what it will be used for
This is the one most owners skip, and it's the one that decides whether the hire pays off.
If you hire a tradie so you can get off the tools, what will you do with those extra hours? If the answer is "catch up on everything", the hire won't lift profit. If the answer is "quote 10 more jobs a week, follow up every open quote within 48 hours and visit our three biggest builders every fortnight", now you've got a plan that turns freed-up time into revenue.
Write it down. Put it in your calendar. The value of a new hire isn't only the work they do. It's what you do with the time they give back.
Signs you're ready to hire (and signs you're not)
You're probably ready if:
You've been turning work away or pushing jobs out for more than a couple of months
Your margins are healthy and you know them by job type
You have a cash buffer to carry the ramp-up period
You have clear, written ways of doing the core jobs so a new person can learn them
Hold off, or fix something first, if:
You're busy but profit hasn't moved, which often points to pricing or job mix, not capacity
Cash is already tight before the new wage lands
Everything lives in your head and nothing is written down
The extra work is one big job, not a steady pipeline
Make the hire part of a plan, not a reaction
The owners who hire well treat each new person as an investment with a target return. They know what the hire needs to produce, how long it will take, and what they'll do with their own time once it's freed up. They check those numbers monthly, and they adjust early if things drift.
The owners who struggle hire because they're exhausted. The busyness is real, but without the numbers behind it, they end up with a bigger, busier version of the same problem.
Frequently asked questions
How much does an employee really cost in Australia on top of their wage?
Once you add superannuation (12%), workers' compensation, annual and personal leave, public holidays, training, tools, uniforms and any vehicle costs, many small businesses find the true cost lands well above the base wage. Work through each item for your own business rather than relying on a rule of thumb.
How do I know if my business can afford to hire?
Check three things: whether there's enough steady extra work to cover the full cost at your gross margin, whether you have the cash to carry the new person until they're productive, and whether you have a clear plan for the time the hire frees up.
Should I hire a subcontractor or an employee first?
If the extra work is uncertain or seasonal, a subcontractor can be a lower-risk first step while you prove the demand. Once the work is steady and you want consistency in how jobs are done, an employee often makes more sense. Get advice on the employment and contractor rules that apply to your situation.
Want help running the numbers?
I'm Micheal Parker, a Commercial Strategist based on Bribie Island and President of the Pumicestone Chamber of Commerce. I work with established Moreton Bay business owners, many of them tradies, to lift profit and get their time back.
If you're thinking about your next hire and want to know whether the numbers stack up, book a 15-minute intro call and we'll talk it through.
