Making Your Hires Profitable- Understanding When To Make The Next Hire

One of the most common topics discussed in running a profitable business is when to make the next hire and what should be the role of that next hire. Many firms are reluctant to make that next hire trying to balance the cost of the hire with capacity. The juggling act is to hire before you hit capacity, the point at which you can’t service any more clients but not too far ahead of the curve that you can’t afford to pay the new hire (revenue that covers the cost). The solution lies in hiring when you reach 80% of capacity and making sure that the position you hire for is creating leverage for your professional staff. The most successful firms achieve scale by leveraging administrative, support, and technical staff to give advisors more time to spend on high-value work, such as bringing in new business and managing client relationships. Thus, the ratio of support staff to professionals grows in a predictable fashion as the firm grows.

We begin to see the initial stages of leverage as firms reach $500,000 in revenue (see diagram) , at which point they begin to add administrative and support staff members. At $1 million, we see the first nearly full-time head count in the service advisor category. With two or more lead advisors in the firm, this new role is focused on helping them manage existing relationships. When firms grow to about $2 million in revenue and more than three lead advisors, firms create leverage for the service advisor by adding a third level of support advisors. This third level in the advisor structure is focused on data gathering, modeling, case design, scenario building, plan development and presentation development. With this kind of leverage in place, each task gets managed (or delegated) to the most appropriate level of the firm’s cost structure. This is an important point, as successful firms set specific metrics for when and why they need to add these positions.

Growth at advisory firms tends to be systematic and predictable, which in many ways can make human-capital planning and management that much easier. The key to making the right hiring decision for you is holding fast to the firm’s strategic goals, and leveraging your staff to deliver most efficiently on the firm’s vision, mission and the “value promise” made to your firm’s clients.