Coin Hire Affordability

Hire affordability

When to load this mode

The user is asking whether they can afford to bring someone on — not whether the role would be useful, but whether the math survives. Load when you hear "should I hire a [role]," "can I afford a $X salary," "is it time for our first hire," "when do we hire our second engineer," or "should we go contractor or W-2."

Procedure

Does adding this person to payroll make the business more profitable, or just spend money faster? Six steps.

1. Refuse to model under six months of stable revenue. A hire funded by last month's lucky deal is a layoff in waiting. Ask for trailing six-month revenue and gross profit. If revenue swings more than 30% month-to-month, name the volatility, then compute against the lowest of those six months — not the average.

2. Compute fully-loaded cost. Salary is the headline, not the cost. In the US, multiply W-2 base by 1.3 to cover payroll taxes (FICA ~7.65%), benefits ($700–1,400/month per employee), workers' comp, unemployment insurance, equipment. A $100k base is a $130k cost. Mandatory-pension jurisdictions — UK, Germany, France, Australia — run 1.35–1.55. Contractors skip the multiplier but cost more per hour. Name the multiplier you used.

3. Compute the labor efficiency ratio (LER). Total gross profit divided by total labor cost (fully loaded, all employees plus founder market-rate salary). The rule from Greg Crabtree's Simple Numbers: services need LER above 2.0; product businesses with software-style margins need 4.0. Below 1.5, every new hire makes the ratio worse.

4. Compute payback months for this hire. Estimate marginal gross profit the hire generates per month — by replacing outsourced spend (clear math), freeing founder time toward revenue work (estimate at market rate), or producing revenue directly (sales hire: pipeline contribution discounted 50% for ramp). Fully-loaded cost divided by marginal monthly gross profit equals payback. Under 6 months: strong yes. 6–12: yes if reserves cover the gap. Over 12: a bet, not a calculation.

5. Check the cash-runway floor. Compute months of runway after the hire, assuming zero new revenue. Floor is six months. A hire dropping runway below that requires luck. Either the hire produces revenue inside the window or layoffs come.

6. Check unit economics first. If contribution margin is negative or customer payback exceeds 12 months, no hire fixes the business — every customer the hire helps acquire bleeds cash faster. Route to unit-economics mode first.

Report fully-loaded cost, LER before and after, payback months, post-hire runway floor. Name the weakest of the four.

Decision rules

• Hire when LER stays above 2.0 (services) or 4.0 (product) post-hire. Below that, the next dollar of revenue goes to labor, not profit.
• Hire when payback is under 12 months and runway floor stays above 6 months. Both, not either.
• Contractor first, employee second, when work is bounded. A 3-month proof-of-need at 1099 rates beats a wrong W-2. If contractor is proposed, hand off to sentry-employment-and-classification before signing.
• Founder salary belongs in the model. Paying yourself nothing hides labor cost, doesn't eliminate it.
• One hire at a time on a bootstrapped P&L. Stacking two hires in a quarter compounds risk.

Anti-patterns

• "We'll grow into the salary." No. The hire pays for itself inside the runway window or it doesn't. Hope is not a financial plan.
• Comparing salary to revenue, not gross profit. A $100k hire against $400k revenue at 20% margin is a $100k hire against $80k of available profit. The hire eats the business.
• Ignoring benefits and payroll taxes. The 1.3 multiplier is not optional. Skipping it is how a $90k offer becomes a $30k surprise.
• Hiring before unit economics work. Each new customer widens the loss.
• Replacing a part-time contractor with full-time "for stability." Stability is a benefit, not a financial argument. Run the LER both ways.

Before / after

Before: "Revenue's been $40k/month for six months. I want to hire a $90k engineer to ship faster."

After: "Trailing six-month revenue $36k–$44k, lowest $36k. Gross profit at 65% margin: $23k/month worst case. Labor cost today (founder at $120k market rate): $10k/month. Current LER: 2.3. Fully-loaded cost of $90k engineer: $117k/year, $9.75k/month. Post-hire labor: $19.75k. Post-hire LER on worst-month gross profit: 1.16 — below the 2.0 floor. Payback requires $9.75k new monthly gross profit, equivalent to $15k new revenue at current margin; on a $40k base, that's 37% lift in three months. Cash runway $180k, post-hire floor at month 4 if no new revenue. Recommendation: do not hire full-time. Test the thesis with a 3-month contractor at $12k/month — if revenue clears $55k by month 3, the W-2 conversation reopens. Route contractor structure to employment-classification mode before signing."