Your Startup Hiring Plan Made Simple

I’ve been working on an easy yet powerful financial template for startups at Rocket Pro Forma, and one of the tabs is your startup Hiring Plan. The main expense for many startups is salaries.

It's also a huge responsibility to hire people! You're making a promise that you'll have enough money to keep them employed. That's why it's so important to be able to look into the future and plan your cash flow. I messed this up early in my career and ended up having to fire some terrific people. Trust me when I tell you that I still feel awful about it 20 years later.

Today I’m going to share my simple spreadsheet so you can plan your hiring for the next three years (and click to grab your own copy of the Hiring Plan tool).

Here’s a quick video walkthrough:

Here’s what the hiring plan tool looks like:

Instructions for Creating Your Hiring Plan

1. Only fill out the cells shaded in blue. Everything else is calculated for you.
2. Change job titles as needed. You can also write people’s actual names in where appropriate.
3. Enter the annual salary in thousands, so type 75 if you mean $75,000. Skipping the extra zeros keeps your hiring plan easier to read at a glance.
4. Enter a start month between 1 and 36 (three years)—or leave the start month zero to not hire that position.
5. You can change the Cost Type if needed (but don’t tell anyone I let you edit something that wasn’t blue).

You’ll see the monthly cost displayed as a green line for each filled position. This lets you scan your hiring plan at a glance like this:

Wow?that’s tiny! I like to do my hiring plans on a large monitor, which makes it easier to zoom out. But you can see the green horizontal lines that show where you’re hiring people.

Scroll down to the bottom of the sheet and you’ll see totals for salary and headcount broken out by cost type (COGS = Cost of Goods Sold, S&M = Sales & Marketing, R&D = Research & Development, G&A = General & Administrative).

Then we can start doing sanity checks:

Are you trying to hire too many people at one time?

If you’re currently two people and you’re trying to interview and onboard four new team members in a month, that’s simply not realistic. Take a moment to spread your hiring out over multiple months.

See how in the picture above I’m trying to hire four people in month 15 (month 3 of year 2)? That may be too aggressive, in which case I can move two of them to the following month.

Are we budgeting realistic salaries?

Founders often underestimate what they need to pay to hire people, especially in 2021. It's true that startups can use equity / stock options to reduce the salaries of key team members, but everyone needs to eat and pay their rent.

Check out these free resources to look up salaries by job title and location:

1. Robert Half Salary Calculator - Scroll down to the Salary Calculator section
2. Leapros 2021 Interactive Salary Guide - Includes both location and company size.

I also think that it's important as entrepreneurs to get in the habit of paying ourselves, even if it's a small amount at first. We can then figure out how to grow our salaries over time. But if we don't start paying ourselves at first we often go too long without paying ourselves—because we build the opposite habit. And if we're not paying ourselves we're actually creating an expensive hobby or weird charity instead of a business.

Remember that we improve what we measure. And paying ourselves even a small salary is a form of measurement.

Are we hiring the right number of people?

What if we've never managed a team of people before: How do we know how many people to hire?

One of my favorite metrics (which I've built into my free Financial Projections Canvas) is Average Annual Revenue per Employee. To calculate it, we divide the Annual Revenue by the Number of Employees at the end of the year.

For example, if we're expecting to have $1 million in annual revenue and 10 employees in month 12, that would give us $100,000 in Average Annual Revenue per Employee. If we're expecting to have $2 million in annual revenue and 10 employees in month 12, that would give us $200,000 in Average Annual Revenue per Employee.

I expect most companies to eventually fall into the $200k to $500k range for Average Annual Revenue per Employee. Don't worry so much about year 1, especially if you're raising money to hire more people than you could otherwise afford. But by year 3 of your startup financial projections you may want to fall into the target range of $200k to $500k.

This is a powerful tool that allows us to figure out how many employees we should have at the end of each year. If we think we'll make $1 million in revenue and we target $250k Average Annual Revenue per Employee, we'll need to end that year with 4 employees. If we think we'll make $3 million in revenue and we target $300k Average Annual Revenue per Employee, we'll need to end that year with 10 employees.

Hugely profitable companies (think Apple and Google) do over $1 million in Average Annual Revenue per Employee. Check out my deeper dive on Average Annual Revenue per Employee.

Are we hiring the right roles?

How do you know which people to hire? I've included some job title suggestions in the Hiring Plan, but specific recommendations are beyond the scope of this article.

In short, you need to hire for:

1. Sales & Marketing
2. Product Development
3. Customer Service and possibly Onboarding / Fulfillment
4. Management, Operations, Finance
5. Legal and Human Resources (HR), especially as you get bigger

Find people who have done this before—in your industry—and ask them who to hire. Have them sanity-check your hiring plan.

Next Steps

Grab the Startup Hiring Plan tool?and let me know how it goes! And email me with your questions.

As always, it's best to spend an hour putting in something. Don't worry about whether your answers are exactly correct. The first job is to connect the dots in your head, and this will tell you which questions you need to be asking. From there, you can start to research the correct answers.

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Mike Lingle is obsessed with helping founders grow their businesses. I'm a serial entrepreneur, mentor, and entrepreneur in residence at Babson College and Founder Institute. Check out Rocket Pro Forma if you want to quickly create your financial projections.