Creating ROI When Hiring Contractors
Episode 530: Show Notes
When you start the hiring process it can be a challenging time with a lot to think about. There are a lot of decisions to be made about how or why you hire someone at a certain point in your business. We have talked about it in the past but today we want to talk about why it is important that you think first about how and where you will get a return on your hire rather than hiring to save time. This is because we know what hiring to save time looks like and we are in a different space to be able to talk about it. So many people only hire to save time and they should be thinking about it in a bigger way.
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We want to have this conversation coming from the space of how we think about it now with Boss Project and lessons we have learned, but also there are one-off hires that Emylee has done for her earring business. She hired for stuff she knew she would save a ton of time on. She also wasn’t the best one to do these tasks and if they were done, she would make money faster. So it is interesting how this question of hiring can be viewed in different scopes based on where you are at in your business.
The Value of Hiring Early and How To Judge If A New Hire Is Working
When we were first starting to grow our business, one of the first hires we made that made an impact was at a time when we needed to optimize our customer service, and we hired somebody to manage our inbox. In retrospect, we feel we took too long to start hiring people because we could have outsourced a lot of work we were doing at the time. When one starts a business they realize how much other work outside of the service the business offers is required to keep the business running. If we could go back we would ask ourselves how we could adjust our workflow by adding software or new hires so we could focus more on what brings in the actual money. Sometimes one can procrastinate before doing the necessary work required to keep a business running because of the unfamiliar steps involved, but if you can hire somebody to handle these you can focus more on the service you want to offer. There is a unique opportunity as you start your business to hire for skills you don’t have! When we start businesses, we can get so focused on the things we need to get off our plate we forget to think about what that means from the perspective of time. While it is important to save time, time is not always your most important resource. Sometimes you need a skillset you don’t have to bring in the ROI. We have realized an important thing in this respect. Before you decide on hiring, ask yourself if you are hiring to save time. If so, ask what you will do with that time. If you are hiring somebody to help grow your business, you need to have a way of knowing if the hire is working or not so you know when to cut your losses. You can do this by setting a date by which you intend to meet an ROI goal. If you do not meet it by this date, you know to cut your losses.
Measuring The Success of A New Hire Using LTV and CPA
In the past, we have struggled to measure when to hire and how to judge whether a new hire is working. There are so many facets to measure that it can feel like a gamble. There are a few important numbers to keep in mind though that can help you know whether a new hire will be worth the extra cost. The first is customer LTV which stands for lifetime value. This number tells you how much you make per customer on average. The second number is CPA or cost per acquisition. This figure tells you how much you have to spend on average to get a new customer. You can look at a new hire as falling under CPA because your end goal with that hire is to help you acquire more customers. So when you are about to hire someone, include their fee in your CPA and if it ends up being more than your LTV, this is a red flag telling you that hiring them is not worth it. You need to ask yourself if you can break even on the front end with this person. Without clear figures for CPA and LTV, it is hard to decide on new hires, but the only way to get these numbers is by making a few sales. This puts new business owners in a tricky position because while hiring might help their business grow, they have no way of predicting this at first. If a new business owner has managed to predict if a new hire will be worth it, another issue is that they may not be able to afford it. Some new businesses might be able to afford a slight loss as they get off the ground though, and this is called cash burn. If you are brand new and have some cash to burn, you should look for a 2X return in the first 30 days of making the hire.
Remembering To Assess Your Business on Its Own Terms
Different business models will require different forms of decision-making. Lots of people like to look at Facebook advertising as an ATM and we are here to tell you that it is not. You could spend a whole bunch of money on an ad campaign and it could fall completely flat. This means that you would have just pushed your CPA up by a huge amount. On the other hand, if you have a high-end product with a high LTV, you could hire somebody and only need to make one sale a month for it to be worth it. While you can run the numbers and do the math on a new hire all day long, it can still get a little murky. Maybe the new hire doesn’t make sense financially at first but the signs point to the fact that they will eventually! For us, the best we can do is break even from the very beginning, but each business will be different. As we said, some of you need to be aiming for 2X return out the gate and be brutal about potentially firing a new hire from the first moment. Another mistake we see people make is hiring for a skill they don’t understand and then just bleeding money. So there is some value in learning a skill yourself before hiring. A lot of people get flustered and think they need to do X for their business to work and often this is related to content creation. While we create a lot of content in our business, we are here to tell you that you don’t need to do the same. What many clients want to see is you producing good results. Emylee feels that content is important for her business, but she doesn’t need to put out as much as she and Abagail do for Boss Project. A strategy involving putting out a few pillar pieces per year will work just fine for her. Content is a long game and can actually be a distraction for new business owners. SEO used to be a very important strategy and still is but these days it is possible to make one TikTok video go viral and get your traffic that way! So don’t go out and hire a content person just because you think you need to be making content all the time.
Final Thoughts and Things To Remember When Hiring A New Staff Member
All of this is to say that when you think about hiring you need to ask yourself a few questions. Ask if it is about saving time or if it is about growth. If it’s about saving time, ask if you will utilize that time in a way that justifies the cost? If all it does is improve your lifestyle by giving you time to relax, that is fine! Taking breaks is valuable and you need to know and respect your limits. You will see the results of taking more time to reset in the long term in any case. If you are trying to save yourself time so you can use it to work on other things, it is a great idea to measure what you do and the results of it. Sometimes the person you hired can do the job you used to do quicker, so you end up saving money as well as time. The last thing is to keep an eye on your analytics and set your new hire up for success. Make sure there is an alignment between what you are hiring for and the skillset your new hire has, as well as an alignment in your purpose. We have done past episodes on our hiring process so make sure you search this keyword on our website. Happy hiring!
Quote This
When you start to think about hiring, figure out if it is about saving time or about growth.
Highlights
The Value of Hiring Early and How To Judge If A New Hire Is Working. [0:03:47.1]
Measuring The Success of A New Hire Using LTV and CPA. [0:11:50.1]
Remembering To Assess Your Business on Its Own Terms. [0:22:53.5]
Final Thoughts and Things To Remember When Hiring A New Staff Member. [0:37:50.2]
ON TODAY’S SHOW
Abagail & Emylee
The Strategy Hour Podcast
We help overwhelmed and creative entrepreneurs break down their Oprah-sized dreams to create a functioning command center to tame the chaos of their business. Basically, we think you’re totally bomb diggity, we’re about to uplevel the shiz out of your business.
KEY TOPICS
Hiring, ROI, Saving time, Growth, Lifetime Customer Value, Cost Per Acquisition, Predictions
