Tell me more ×
Answers OnStartups is a question and answer site for entrepreneurs looking to start or run a new business. It's 100% free, no registration required.
up vote 12 down vote favorite
1

I remember that Joel Spolsky said that for every 100k of yearly revenue, fogcreek will add another employee. And from my observation, this rule seems quite general among small software related business that is making real profit (all the startups that aren't making any money yet don't count).

One interesting corollary is that we can infer the revenue a company has by just looking at the head count of the company.

My question is, is there anyone who did a study on the relationship between the revenue and the company size? How valid is the 100k/employee rule?

share|improve this question
1  
I am pretty sure that the employees there get more than that - especially with the benefits and additional costs. FC would be losing money for sure if that was the policy. I'd imagine the number would be close to 250k or 300k to add another employee. I suspect though that one would prefer NOT to hire another employee - the goal is to hire when you need help - not just to share the revenue. – TimJ♦ Mar 16 '11 at 3:52

4 Answers

up vote 9 down vote accepted

Remember to include the overhead costs per employee. The actual cost to an employer, including taxes, benefits, insurance, offices, is roughly twice the salary of an employee.

I'd actually say 100k (I'm assuming USD, people should write the currency, this is an international site) is far too low, I'd go with more like 200k revenue per employee, at least.

share|improve this answer
1  
200K (USD) per employee is the average here. 100K is impossible to achieve here. Unless you hire all junior developers. – user3997 Mar 15 '11 at 10:49
1  
I think the number is somewhere around 3 times salary - so if the employee was earning $50K, the company would expect to bring in about $150K in revenue by hiring them. – Elie Mar 17 '11 at 4:37
up vote 11 down vote

I think Joel wrote that many years ago when developers got paid around $50-$60K per year, which seemed huge back then ... feeling old saying this.

I think your variables have just scaled up a little with time and inflation. As the others say these days probably more like $200K revenue per developer, or if you're looking to scale up fast and not take any profit out and have no extras then $150K could be suitable. (This is USD or AUD)

share|improve this answer
1  
Do you know how many years ago? – Abe Miessler Mar 16 '11 at 2:19
1  
+1 for rob. Figure on 200k nowadays with payroll taxes, salary, benefits, etc. – Michael Pryor Mar 16 '11 at 18:37
up vote 2 down vote

You probably mean in a software product startup, so yes it makes sense if you pay your employees less than 100K.

So it is perfectly valid.

In a physical product startup, it highly depends on your margin.

share|improve this answer
Yup, I mean software. – Graviton Mar 15 '11 at 10:45
up vote 0 down vote

If you could bring in $1M in revenue with 3 people, would you hire more just to fulfill this variable? No. The rule is meaningless. It may work for them, but I think he is leaving out the full story. $100K per developer seems really low. You would barely be able to pay them, plus their insurance and benefits on this figure. By the time you amortize the cost of sales and marketing people, administrative overhead and other costs of doing business you would be in the hole.

Add people when you need them, and when revenue will sustain it. I work with a software firm that has 9 developers and about $3M in revenues. It varies with every business.

share|improve this answer

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.