The 4 hiring mistakes that cost me $20k (and how to avoid them)
I still remember getting my first freelance editing client in May 2013 — the moment I got off the phone I started dancing around the house.
I thought, “This is it. This is proof that I can do this.”
And for the next year or so, things went swimmingly. My first few clients were thrilled with my work and started referring more clients, who then started referring even more. Within six months, I had a steady stream of clients and was earning enough to pay the bills, quit my job, and even spend four months working abroad.
Me visiting Petra in Jordan! I worked during the mornings so I could spend the afternoons exploring.
Then word started to spread, and I began booking out in advance. Four weeks, six weeks, two months… I started sending emails like the one below, and I decided it was time to get help.
It’s a great feeling to always have work in the pipeline.
Then came trouble. I had thought that with a mini me (or a couple of them) we’d be able to take on more work, earn more money, and launch new products and services. Before long, we could take over the world!
Instead, hiring someone made things worse. I found myself working 80 hours a week, putting over $20k of my personal savings into the business to stay afloat, not paying myself for six months straight, and ending up emotionally and physically exhausted.
Looking back, I made four crucial hiring mistakes. The lessons I learned from them allowed me to reclaim my time, start paying myself a salary, and start loving my business again. So let me share everything with you.
Hiring mistake #1: Growing too big too fast
My first mistake was taking too much on at once.
I posted a job ad on Australia’s largest online job board with the intention to hire one person. It turns out, though, there are a lot of editors and writers looking for work. I received 165 applications in four days (at that point I took the ad down because I’d stopped looking at the new applications). Within a week, I had interviewed eight people. I found two I loved and decided to hire both of them.
The problem? Two people cost twice as much as one. Two people take twice as much time to train. And two people need twice as much work coming in.
While taking on my first hire would have been a challenge, hiring two at the same time was too much right out of the gate.
The lesson: Start small
Employees can put a lot of strain on a new business when it comes to your time, money, and energy. Lower your risk by starting small — get someone part time, consider an unpaid training period, or trial potential employees as freelancers before you commit.
Then, if things don’t work out, you’re not putting your business on the line.
Hiring mistake #2: Not getting more leads first
Although business was good, when I decided to grow my team, I hadn’t done anything to boost the number of leads coming in the door. We were still dependent on referrals, and I had no idea how to bring in more work.
This had never been an issue for me as a solopreneur — if I was booked out six weeks in advance, then I didn’t need to worry about new work coming in for another eight weeks (which it always did). With three of us, that exact same workload would only last two weeks.
Ultimately, I couldn’t promise my new staff consistent work, and there were even times when I didn’t have enough to do.
The lesson: Make sure you have enough business before you hire someone
If you’re getting booked out in advance, that’s fantastic! But are you the one actively generating that business, or are you just benefitting from an upswing in the market or some unexpected referrals?
Until you can consistently generate your own leads, hold off on growing your team. Instead, start by raising your prices.
If you’re still getting booked after you increase your rates by at least 25%, you’ll have enough profit built in to free up some of your time. Then you can start actively generating business, rather than spending all of your waking hours working with clients and trying to stay on top of administrative tasks.
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Hiring mistake #3: Not running the numbers
This is the biggest mistake I made — I never calculated how much employees would actually cost.
When I hired my staff, I was charging $1,800 for our standard edit (my core product offering). I hired them at $28 an hour and thought it would take about 30 hours to edit a book, so the total cost of an edit would be $840, leaving me with a nice profit margin of $960.
I discovered two problems with this formula.
First, I’d never measured how long it actually took me to edit a book. It wasn’t until their timesheets started coming in that I realized an edit took between 40 and 50 hours (and sometimes longer). This took my expected cost per edit to $1,400 ($28 x 50 hours) and my expected profit down to $400.
Part of it was because they were new. However, the real issue was that I hadn’t been accurately measuring how long it took me to do an edit, which meant that number was optimistic to begin with. On top of that, I hadn’t factored in the amount of work that goes around an edit (client calls, documenting and explaining the changes we’ve made, final read-throughs, and more), which added to the total tally.
Second, I didn’t think about all of the additional costs that come with hiring employees beyond their hourly rate. These included:
- Benefits: In Australia we have to pay Superannuation and WorkCover (the equivalent of 401k and disability insurance in the US). Costs I hadn’t factored into my edits.
- Taxes: Aussie business owners need to start paying a 10% sales tax once our revenue goes above $75,000 a year. This would take another $163 out of my editing margin.
- Accounting: Thingsbecome official once you hire people! I hired a bookkeeper ($55 a week). That added an extra $244 an edit.
This means my “expected cost per edit” looked more like this:
In other words, I was losing $315 every time one of my team members did an edit!
But wait — it gets worse.
We also had a package that offered three rounds of edits at a discounted rate of $2,500, which quickly became our most popular offering.
The total cost of that package was $3,370, which meant a loss of over $870 every time one of my editors did the work.
When I added time spent on training and in team meetings, we were losing between $2,400 and $5,000 every month. Ouch.
The lesson: Run your numbers!
The cost of an employee isn’t just their hourly rate — there are several expenses that go along with it. Run your numbers, raise your rates so you can cover them, and consider ways you can keep those numbers down.
For example, can you engage someone as a freelancer instead of an employee? That will save you from some of the mandatory expenses for employees, and you may be able to negotiate a flat rate that you can take into consideration when pricing your services.
Here’s a four-step process you can follow to make sure that hiring an employee makes financial sense:
- Keep a timesheet for a couple of weeks. Measure exactly how many hours it takes you to do the work you want to outsource to your new hire.
- List all your “hidden” costs — administrative work like client calls or final revisions. Over time, these small tasks can take up a lot of hours, which means more money that needs to be paid to your new hire.
- List all additional costs you will incur from hiring your first employee, including taxes, extra accounting, and any benefits or bonuses you plan to offer.
- Calculate the total cost of your employee per hour, including administrative tasks and hiring costs, and then evaluate the cost next to your current pricing structure. Ask yourself: Can I cover the cost of this new hire? Or, even better: Will there be profit left over?
Hiring mistake #4: Forgetting to factor in training
Because we were losing money on every job, I kept up my own full-time editing workload to cover the shortfall. At the same time, I was training my team members, reviewing every book they edited, and occasionally re-editing their books when they got stuck.
Before long, I was working 80 hours a week, every week. I wasn’t spending time with my partner, and I went months without seeing my friends and family.
At the same time, I couldn’t pay myself because all of the money from the work I was doing was covering my employees’ salaries and the expenses that went with them. On top of that, over four months, I put more than $20k of my savings into the business to stay afloat.
I kept telling myself that it was only temporary — that my employees would get faster, that they’d soon be independent, and that I’d have my time back. But by the time we reached that point, six months had passed, I was burnt out, and I started questioning whether I was really cut out for this thing.
The lesson: Map out your training program
Figure out exactly how long it will take you to train your employees. It’s helpful to think about training in three separate buckets, like this:
- Group training: This might include orientation, general knowledge around how the company works, principles you work towards in your services, etc. If you have a remote team, like me, you can do this training as a webinar and record it for future employees, which will save time in the future.
- One-on-one training: Training my editors involved reviewing every book they edited, giving feedback, and workshopping different approaches with them. If there’s any way to automate this process, I haven’t found it yet. So whenever I start a new editor, I need to include this time in my schedule so I don’t over commit (it also influences when I hire new people).
- Cleaning up messes: Sometimes, shit happens. And, if it does, you’ll be the one to clean it up. If you hire the right people to begin with you shouldn’t have too many issues, but if you do they’ll be in these early days. (In my case, the messes were when my editors struggled with challenging edits and I needed to redo them.) Think about the potential messes your employees might find themselves in, and make time in your calendar to address them, just in case.
By considering this up front, you’ll avoid 80-hour weeks, burn out, and resenting your business altogether. And, if you build in some profit before hiring, you’ll also find it’s easier to make this time.
Remember why you got into business in the first place
The truth is, during all this mess, I had lost sight of why I started my business in the first place. I wanted to help entrepreneurs write great books, and I wanted the freedom and independence to manage my own time, to be able to work on creative projects, and to be able to travel.
By addressing these four hiring mistakes, I went from running in the red each month to enjoying a profitable business. I’m happy, my team is happy, and so are my clients. And once again, I’m thrilled about the future of my business.
Also my hours are down to 40-50 hours a week, with about a third of that time focused on ways we can grow the business with new products, services, and campaigns, rather than just trying to stay afloat.
Hiring people can catapult your business — or it can destroy it if you’re not careful. Avoid the mistakes I shared above and you’ll be in a much better position when you’re ready to grow your team.
Now over to you — have you been thinking about hiring employees? If so, what scares you most? Let me know in the comments, and I’ll try to give my two cents.