How to know whether a new hire pays for itself
A new employee costs much more than the salary, and it takes months before they perform at full speed. Before hiring, work out how much the person needs to generate each month to cover their cost and how long it takes to recover the hiring and training investment.
The full monthly cost
Monthly cost = salary × (1 + payroll taxes and benefits %) + other benefits. Payroll costs include employer taxes, paid time off, mandatory bonuses, retirement contributions and insurance, and often add 20% to 50% to the salary.
Salespeople: break-even sales
Minimum sales = monthly fixed cost ÷ (contribution margin − commission with payroll costs). Commission is variable pay, so payroll costs apply to it too.
| Item | Value |
|---|---|
| Fixed cost (salary + payroll costs + benefits) | $5,000 a month |
| Contribution margin | 35% |
| Commission with payroll costs | 6.5% |
| Minimum sales | $5,000 ÷ 28.5% ≈ $17,500 |
The learning curve
Most hires take 3 to 6 months to reach full productivity. During that time they cost the full salary but generate less, so the cumulative result dips before it turns positive. Good onboarding and clear targets shorten the dip.
Other roles
For roles that do not sell, estimate the gain: new revenue they enable, hours freed for higher-paid staff, or savings. If the gain does not exceed the full cost, consider part-time help or outsourcing.