From the course: Revenue, Staffing, and Expense Models Explained

Contractor vs. employee

From the course: Revenue, Staffing, and Expense Models Explained

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Contractor vs. employee

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- When trying to determine whether or not you should hire somebody I want you to consider a couple of things. I like to do what I call a staffing ROI. Or a staffing return on investment of that individual employee. So you want to hire that employee and you say this employee costs me this much but how much revenue can that employee actually create? If they can create more revenue than they cost then it may be a worthwhile hire. Now I will say that not on every employee can you do this. But on a lot of employees you can. So let's say, for an example, that you have a consulting business and you want to bring on a new consultant. So their salary is $100,000. The other thing I want you to consider is what's their utilization rate. Utilization rate is how much can you actually bill them for. How much can I bill them out at? And that utilization rate in this particular service business is 80%. So when they're fully ramped, they'll be at 80%. So I know from that calculation and their bill rate if I calculate their bill rate, I can bill them at about $200,000 a year but they only cost me $100,000 a year so I'm in pretty good shape there. In that case, I would hire that staff member. I would bring that person on.

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