Hello, I am visiting from the Landscape Architecture world. I am wondering if there is an industry metric or KPI that indicates when to hire more staff, backed by data? For instance, is there a best practice of "when staff utilization exceeds XX%, you should consider hiring"?
What does your firm use as a metric? Do you wait until everyone feels too busy to hire, or do you wait until a big contract comes in?
You can't grow revenue if you don't grow capacity first. This is a fundamental principle of business. So you need to figure out what your target revenue is 12 months out at least, and then hire enough people to do that work now.
Thanks for this reply. When you mention target revenue are you using signed work + unsigned work/proposals to make that calculation?
Aug 29, 24 12:54 pm ·
·
gwharton
Target revenue is your strategic goal for revenue in the next year or two, regardless of whether or not you have committed contracts for it or not. "How much revenue are we intending to make next year?" As an example, let's say I currently have a practice where I made $1 million in gross revenue this year, with a staff of 3 (this is a net revenue per person NRPP of $333,333, which is then roughly a net multiplier of 3 if their comp is $110K each). Next year, I want to grow that to $2 million. Assuming the multiplier and NRPP stay the same, that means I have to hire three people NOW, and also go get the work to generate that revenue, either at the same time or after. This is an iron law of running a professional service firm: you cannot bill for work you haven't done, and you can't do it unless you have people available to do it. And generally, you can't even GET the work unless you have the capacity to do it in the first place.
In my opinion - If you're going to hire for a 'big project' you need to do so at least 6 months prior to the project starting. Preferably nine months. That will give you the minimal amount of time to train and integrate the new team member into your firm.
I may be completely off base with this. However, I've been on teams when firms hired someone just before a 'big project' started. It's always a struggle to train a new hire and meet project deadlines.
6-9 months is quite a long time to hire BEFORE a project comes in, but is probably ideal. Our work (mostly international) can be so fickle sometimes that we can afford to hire only 1-2 max people in anticipation of a project. Things turn on a dime...
Chad - I design environmental mountain homes and will soon be manufacturing in NM transportable & expanding homes (Northstar MicroHomes) which can be recessed within two hours and get out of danger (fires, floods, etc.) - John T. Keliiaa at BluecornGroup@ yahoo.com - I believe we are on the same wavelength ...
sameolddoctor - it's certainly tricky. Ideally you would only hire after you get the job. You'd also not fire after the job is done.
As most of you know, taking on new team members is the single biggest expense most firms will incur. Depending on experience, it takes 4-9 months before a new team member will be as productive as the rest of the team. Excluding productivity, it can be challenging to find people that work with your teams culture and personalities.
Aug 29, 24 10:00 am ·
·
ellerystudio
I agree it's good to bring in people before they are needed, but we are a small firm (less than 10 FTE), so hiring each additional employee is a bigger chunk percentage wise.
We want to see enough available money in 12 consecutive months of our upcoming revenue forecasts to fund the monthly expense of the new person. That means we can afford them now and have a multiple month runway to bring in a flow of subsequent work for them.
This makes sense. Do your forecasts include both active/signed work and unsigned proposals, discounted at some percentage based on probability?
Aug 29, 24 12:51 pm ·
·
reallynotmyname
Exactly. The forecast is in tiers: 1) Real work (= signed contracts, written notice to proceed, etc) 2) Possible stuff (= pending proposals, repeat client says they will have something for us, etc.) and 3) X items (= stuff we have to chase and may or may not get). We try to budget operations within tier 1 revenues and the smallest reasonable fraction of 2. Also sometimes a tiny of of 3. Some amount of 2 and 3 will usually become real, but you never quite know.
My business model may be some what different than most. I'm associated with several colleagues and friends. We are all senior professionals. We all have our own practices. All know each other. We all Trust each other. And at this point all remotely from each other. If I get a call for for a proposal, I make my evaluation and call who I think I need and we generate a proposal. Some of us are focused on the excellent execution of CD's, some on Design - etc. What I am trying to explain is my practice can expand or contract - to some reasonable degree- in a matter of days. Always some overlap. We have been doing this for at least 25 years and it works. I'm currently in consideration for a fairly big project (for me) and the client suggested we meet at my office. I chuckled and explained that's fine but you will be sitting at my dining room table. They get it. And are fine with it. Covid changed a lot. In my mind, the need for the traditional business model is long over if you are going to make it in this business. The problem is trying to find a way to integrate younger professionals and let them grow. I care a lot about this but haven't figured it out yet.. Joining an atelier in the 21st century is something of a mystery to me. If someone has some Ideas - I'm happy to listen. Technically I see it - personally it needs to hold some weight..... Regards everyone and all the best
A positive result of Covid is that you no longer have to have a downtown office filled with minions in order to be perceived as legit by the clients. That said, a lot of our competitors with principals in the boomer age bracket are sticking to that model. A room full of junior people operating under the physical surveillance and control that a mandatory in-person office provides is the only way their firms can work.
Much like general contracting A/E firms run in the negative until profit arrives at the end of the project - this involves much financial risk because the project may cease to exist for a multitude of reasons (as we all know) - believe it or not all professional service provides are a legal business entity - if you take a hit be sure you have an operating reserve or enough in your retained earnings account - god forbid you have to liquidate assets or worse ...
My two cents is if you don't have a contractural agreement don't take on financial liabilities (employees) on the prospect of future work ...
your last sentence hits the spot for me - yup exactly
Aug 29, 24 12:14 am ·
·
gwharton
"My two cents is if you don't have a contractural agreement don't take on financial liabilities (employees) on the prospect of future work ..."
This is a very common attitude, and it is the exact reverse of good strategic business practice if you want to grow revenue and profit. To grow your business, you have to invest in it first. How do you expect to win those contracts for future work if you do not have the capacity to deliver them?
This unfortunately seems like the reality. But the tail wags the dog if it takes a couple months to find a hire, the project is already well underway.
Aug 29, 24 12:54 pm ·
·
gwharton
That's why you need to hire 9 to 12 months in advance of when you intend to get the project, not wait until you have a contract and scramble to hire people to deliver it. That's how real businesses work.
I've worked for sole architects and large firms with 80+ employees including in Las Vegas and Phoenix when the A/E/C fields exploded - when AutoCAD and Revit employees where hired sometimes an AutoCAD test was given before a new hire - I saw people dismissed after a few days if they didn't perform up to the level of their positions (probationary period) - perhaps someone can explain to me what is happening for the 7-9 month period before you intend to get the project (and exactly what does that mean?) - in Phoenix many projects were re-use strip shopping centers, apartments, and office building-to-condo conversions - the mid-sized firm I worked for hired six highly-experienced drafters in one week because they had the project commissions (signed contracts and retainers) - many staff came from out-of-state like me - the jobs were posted on the AIA website ...
When you are working 60 hrs a week and have six months work out in front of you. Also knowledge or expectation you could get more work once your time is free to chase down leads with an employee.
When to hire more employees
Hello, I am visiting from the Landscape Architecture world. I am wondering if there is an industry metric or KPI that indicates when to hire more staff, backed by data? For instance, is there a best practice of "when staff utilization exceeds XX%, you should consider hiring"?
What does your firm use as a metric? Do you wait until everyone feels too busy to hire, or do you wait until a big contract comes in?
You can't grow revenue if you don't grow capacity first. This is a fundamental principle of business. So you need to figure out what your target revenue is 12 months out at least, and then hire enough people to do that work now.
Exactly what I did yesterday when I determined to change my part-time person to full-time.
Thanks for this reply. When you mention target revenue are you using signed work + unsigned work/proposals to make that calculation?
Target revenue is your strategic goal for revenue in the next year or two, regardless of whether or not you have committed contracts for it or not. "How much revenue are we intending to make next year?" As an example, let's say I currently have a practice where I made $1 million in gross revenue this year, with a staff of 3 (this is a net revenue per person NRPP of $333,333, which is then roughly a net multiplier of 3 if their comp is $110K each). Next year, I want to grow that to $2 million. Assuming the multiplier and NRPP stay the same, that means I have to hire three people NOW, and also go get the work to generate that revenue, either at the same time or after. This is an iron law of running a professional service firm: you cannot bill for work you haven't done, and you can't do it unless you have people available to do it. And generally, you can't even GET the work unless you have the capacity to do it in the first place.
In my opinion - If you're going to hire for a 'big project' you need to do so at least 6 months prior to the project starting. Preferably nine months. That will give you the minimal amount of time to train and integrate the new team member into your firm.
I may be completely off base with this. However, I've been on teams when firms hired someone just before a 'big project' started. It's always a struggle to train a new hire and meet project deadlines.
6-9 months is quite a long time to hire BEFORE a project comes in, but is probably ideal. Our work (mostly international) can be so fickle sometimes that we can afford to hire only 1-2 max people in anticipation of a project. Things turn on a dime...
Chad - I design environmental mountain homes and will soon be manufacturing in NM transportable & expanding homes (Northstar MicroHomes) which can be recessed within two hours and get out of danger (fires, floods, etc.) - John T. Keliiaa at BluecornGroup@ yahoo.com - I believe we are on the same wavelength ...
sameolddoctor - it's certainly tricky. Ideally you would only hire after you get the job. You'd also not fire after the job is done.
As most of you know, taking on new team members is the single biggest expense most firms will incur. Depending on experience, it takes 4-9 months before a new team member will be as productive as the rest of the team. Excluding productivity, it can be challenging to find people that work with your teams culture and personalities.
I agree it's good to bring in people before they are needed, but we are a small firm (less than 10 FTE), so hiring each additional employee is a bigger chunk percentage wise.
Then hire contract employees and be ready to pay 3-2 times the hourly rate.
Also, you don't hire them before they're needed. You hire them them when your 12 month outlook is beyond what your current team can handle.
We want to see enough available money in 12 consecutive months of our upcoming revenue forecasts to fund the monthly expense of the new person. That means we can afford them now and have a multiple month runway to bring in a flow of subsequent work for them.
This makes sense. Do your forecasts include both active/signed work and unsigned proposals, discounted at some percentage based on probability?
Exactly. The forecast is in tiers: 1) Real work (= signed contracts, written notice to proceed, etc) 2) Possible stuff (= pending proposals, repeat client says they will have something for us, etc.) and 3) X items (= stuff we have to chase and may or may not get). We try to budget operations within tier 1 revenues and the smallest reasonable fraction of 2. Also sometimes a tiny of of 3. Some amount of 2 and 3 will usually become real, but you never quite know.
My business model may be some what different than most. I'm associated with several colleagues and friends. We are all senior professionals. We all have our own practices. All know each other. We all Trust each other. And at this point all remotely from each other.
If I get a call for for a proposal, I make my evaluation and call who I think I need and we generate a proposal. Some of us are focused on the excellent execution of CD's, some on Design - etc.
What I am trying to explain is my practice can expand or contract - to some reasonable degree- in a matter of days. Always some overlap. We have been doing this for at least 25 years and it works.
I'm currently in consideration for a fairly big project (for me) and the client suggested we meet at my office. I chuckled and explained that's fine but you will be sitting at my dining room table. They get it. And are fine with it. Covid changed a lot.
In my mind, the need for the traditional business model is long over if you are going to make it in this business.
The problem is trying to find a way to integrate younger professionals and let them grow. I care a lot about this but haven't figured it out yet..
Joining an atelier in the 21st century is something of a mystery to me.
If someone has some Ideas - I'm happy to listen.
Technically I see it - personally it needs to hold some weight.....
Regards everyone and all the best
A positive result of Covid is that you no longer have to have a downtown office filled with minions in order to be perceived as legit by the clients. That said, a lot of our competitors with principals in the boomer age bracket are sticking to that model. A room full of junior people operating under the physical surveillance and control that a mandatory in-person office provides is the only way their firms can work.
Much like general contracting A/E firms run in the negative until profit arrives at the end of the project - this involves much financial risk because the project may cease to exist for a multitude of reasons (as we all know) - believe it or not all professional service provides are a legal business entity - if you take a hit be sure you have an operating reserve or enough in your retained earnings account - god forbid you have to liquidate assets or worse ...
My two cents is if you don't have a contractural agreement don't take on financial liabilities (employees) on the prospect of future work ...
your last sentence hits the spot for me - yup exactly
"My two cents is if you don't have a contractural agreement don't take on financial liabilities (employees) on the prospect of future work ..."
This is a very common attitude, and it is the exact reverse of good strategic business practice if you want to grow revenue and profit. To grow your business, you have to invest in it first. How do you expect to win those contracts for future work if you do not have the capacity to deliver them?
This unfortunately seems like the reality. But the tail wags the dog if it takes a couple months to find a hire, the project is already well underway.
That's why you need to hire 9 to 12 months in advance of when you intend to get the project, not wait until you have a contract and scramble to hire people to deliver it. That's how real businesses work.
I've worked for sole architects and large firms with 80+ employees including in Las Vegas and Phoenix when the A/E/C fields exploded - when AutoCAD and Revit employees where hired sometimes an AutoCAD test was given before a new hire - I saw people dismissed after a few days if they didn't perform up to the level of their positions (probationary period) - perhaps someone can explain to me what is happening for the 7-9 month period before you intend to get the project (and exactly what does that mean?) - in Phoenix many projects were re-use strip shopping centers, apartments, and office building-to-condo conversions - the mid-sized firm I worked for hired six highly-experienced drafters in one week because they had the project commissions (signed contracts and retainers) - many staff came from out-of-state like me - the jobs were posted on the AIA website ...
When you are working 60 hrs a week and have six months work out in front of you. Also knowledge or expectation you could get more work once your time is free to chase down leads with an employee.
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