doing math

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Hiring Math

level 33 course

What a hire really costs and how much new business has to pay for it.

Pen and paper is fine · no calculator needed why?

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Opens at level 33.

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Builds on: Pricing Decisions (not open yet)

the lesson

The idea, the techniques and a tip for each skill, right here. The Learn page adds worked examples for every skill and untimed practice.

Read the lesson · about 3 minutes

The idea

A hire costs more than the paycheck. Payroll-related costs add an assumed percent on top of wages, and tools and training add more.

To pay for a hire, new customers must bring in enough contribution, not revenue, since serving each one has its own variable costs. People are also paid for more hours than they can bill, so the billable hours have to carry the rate.

A business whose owner works unpaid is less profitable than it looks. Charge a fair cost for that work to see the real picture.

Techniques

The full cost of a hire

A wage, a payroll percent and extras like tools.

  1. Multiply the wage by 1 plus the payroll share: × 1.2 for 20%.
  2. Add the monthly extras, like tools.
worked example

Example: A new hire's wage is $3,000 a month. Assume payroll-related costs add 25% on top of wages, plus $200 a month for tools. What is the monthly cost of the hire?

  1. $3,000 × 1.25 = $3,750.
  2. $3,750 + $200 = $3,950.

Answer: $3,950

Customers to cover a hire

How many new customers pay for a hire.

  1. Divide the hire's monthly cost by the contribution per customer, not the price.
  2. Round up to whole customers.
  3. This assumes the demand and the capacity are there.
worked example

Example: A hire adds $3,950 of monthly cost. Each additional customer pays $400 a month and contributes $150 before that cost. How many additional whole customers are needed to cover the hire?

  1. Use the $150 contribution, not the $400 price.
  2. $3,950 ÷ $150 ≈ 26.33, so round up to 27.

Answer: 27

Rate for the billable hours

Only part of the paid hours can be billed.

  1. Billable hours: paid hours × the billable share.
  2. Divide the revenue target by the billable hours, not all paid hours.
worked example

Example: A technician is paid for 160 hours a month, but only 60% of those hours can be billed. To bring in $7,680 a month, what hourly rate must the billable hours carry?

  1. 160 × 0.6 = 96 billable hours.
  2. $7,680 ÷ 96 = $80.

Answer: $80

Tips by skill

  • TipCustomers to cover a hire: Divide the hire's monthly cost by each customer's contribution, not the price, and round up.
  • TipThe real monthly cost of a hire: Multiply the wage by 1 plus the payroll share, like 1.2 for 20%, then add the tools.
  • TipRate needed with non-billable time: Find the billable hours first: paid hours × the billable share. Divide the target by those hours.
  • TipProfit after paying the owner fairly: Subtract the fair cost of the owner's work from reported profit. If that cost is bigger, the answer is negative.

Watch out for

  • Using the wage alone. An employee costs more than the paycheck.
  • Dividing a hire's cost by the customer's price. Each customer's variable costs come out first, so use contribution.
  • Dividing the revenue target by all paid hours, as if every hour could be billed.
  • Counting the owner's cash withdrawals as the cost of their work. Withdrawals are distributions, not wages or expenses.

skills · practice stats

From rounds of this course only: box, review and test-out answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

rest ladder

Win 3 of your last 4 rounds and the course rests. A win is 90% right, within 2× the round's par. Pass the review when it comes back and the next rest is longer.

  1. 1 day
  2. 3 days
  3. 7 days
  4. 14 days
  5. 30 days
  6. 60 days
  7. mastered · every 90 days

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