One of the biggest challenges I see is that a business gets busy—so busy that everyone is buried in work—and the immediate fix seems to be “Let’s hire more people!” But piling on more cooks doesn’t always solve the problem. Sometimes it adds complexity, plus the new hire needs oversight and training. You end up more swamped than before.
Below, I break down when to hire, why over-hiring can hurt your margins, and how to ensure each team member drives profitable growth.
Why More People Might Not Solve the Problem
Adding extra staff just because you feel busy can backfire. If you bring on someone new without a plan, you increase overhead and have to manage another person—which is the opposite of the relief you were hoping for. Now you’re doing your own work plus training them.
When to Hire?
Figuring out the right time to hire is tough. People are often your biggest (and most expensive) tax deduction. Yet the ROI on that hire isn’t always clear.
In Greg Crabtree’s “Simple Numbers 2.0,” he explains this well: whenever you hire, you face a “training zone” before a new person starts generating profit. Over time, a good employee grows their skills and becomes more valuable, but at some point, if they stop developing, they drift into the “replacement zone,” where their pay no longer matches the value they bring.
Think of it like this:
- Training Zone (Months 1–3, for example): You’re paying the employee’s salary, but they’re still learning, so no net profit from them yet.
- Productive Zone: They’ve mastered their role, and now you start seeing profit on the wages you’re paying them.
- Replacement Zone: After a few years, if their performance and skill sets haven’t improved further, they might be underproducing for their pay scale.
The key is to help employees get out of the training zone as quickly as possible and keep advancing, so they don’t sink into the replacement zone.
Growth or Bloat?
It’s surprisingly easy to grow your top line while your bottom line slips. I call it “bloat”—you’re adding revenue but somehow losing profit margin. I often see business owners defend it by saying, “We need these hires if we want to grow.” But if your fundamentals aren’t profitable, you’re scaling a broken system.
You’re essentially working harder for lower margins—and that’s not fun for anyone. The market wants what it wants, but you need to find a way to deliver profitably. Otherwise, you’re just piling on more tasks for the same (or even less) payoff.
Hiring All-Star Players
When you do decide to bring in someone new, go for an A player. Look for people with a growth mindset (shout-out to Carol Dweck’s book “Mindset”), meaning they see challenges and mistakes as chances to improve, not as dead ends. You need problem solvers who don’t need babysitting and who proactively learn and grow.
It’s often worth paying 20–50% above market if that person can handle 4–5 times the workload of a cheaper hire. And don’t forget the value of not having to micromanage or spend countless hours training them. Ask yourself, “Will this person raise our team’s talent density or lower it?” Each new hire should raise the bar.
The Numbers: Labor Efficiency Ratio (LER)
Because I’m a numbers person—though I’ve got plenty of empathy, too—I like to base decisions on data. LER (Labor Efficiency Ratio) is one of the most straightforward ways to measure labor productivity:
LER=Gross Profit / Labor Cost
A higher LER means you’re getting more gross profit per dollar spent on wages. If you know your profit goals and fixed costs, the rest is about labor. For example, if you want a 15% pretax profit margin but can’t get there with your current wage structure, you either need to become more efficient or charge higher prices.
It makes zero sense to shrink your profit margin just to expand your team. If the hire isn’t paying off—and the numbers show it—then it’s just an added drain on your bottom line.
Conclusion
Before you bring on that next person, ask yourself if you’re really solving a capacity issue or just adding “too many cooks in the kitchen.” Will this hire bring genuine, profitable growth—or will they just bloat expenses? And do you have the facts to prove they’re an A player who justifies their cost?
Take a hard look at your LER, your margins, and your strategy. If it all adds up, great—pull the trigger on that hire. If not, hold off. A thoughtful approach today could save you from big headaches (and big bills) tomorrow.