As an agency owner, there are many crucial components to consider when estimating your costs of service. One of the most important is understanding how many people you need by line of business by month. To do this effectively, you will need to build a scalable org structure that helps guide you on how many people to employee based on revenue for each line of business. This blog post will provide four rules you should follow in order to create an effective hiring model for your agency and know when it’s time to take out costs.
Rule #1: Manager Can Have Multiple Direct Reports; Direct Report Can Only Have One Manager
The first rule is that a manager can have multiple direct reports while a direct report can only have one manager. This means that each team or line of business should have one leader who has multiple direct reports underneath them. For example, if your agency has five different lines of businesses, then it would make sense to have five separate managers with multiple direct reports below them in each line of business. This will help ensure that all the individuals within each team are focused on the same goal and working together towards achieving success.
Rule #2: Four to Seven Direct Reports per Manager
The second rule is that a manager should ideally have four to seven direct reports. Having too few or too many direct reports can be problematic because it decreases efficiency and focus within each team and makes it more difficult for managers to provide guidance and feedback in a timely manner. It’s important that each manager is able to manage their team effectively so they can continue moving forward with their goals and objectives without any major delays or disruptions. I personally believe that four or five direct reports is the perfect balance between being able to give your team direction, while setting your self up for scalability.
Rule #3: Set Title Structure Based on Seniority Level
The third rule is that there should be a set title structure based on seniority level within your organization. For example, executives should be at the top level followed by directors, managers, analysts, etc., depending on what roles are necessary within your organization. This helps ensure that everyone knows their place in the hierarchy as well as who they can go to for guidance or support when needed. It also allows you to better plan ahead for future hires since you’ll know exactly which titles need filling at any given time based on your current structure and needs.
Rule #4: Have Revenue Targets for Each Title Level
The fourth key principle is to assign specific revenue objectives for each respective position within the company. If a 50% gross margin is your desired outcome, then you must ensure that these goals are achievable by setting realistic targets. For example, if you pay a manager $100k per year and an analyst $60k per year and you have five analysts reporting into 1 manager, then the total cost for that group is $400k. $100k for the manager and $300k for the five analysts. Since the goal is 50% gross margin or better, you will want your revenue to be $800k or more. This means that the target revenue for an analyst is $160k per year ($800k divided by 5 managers) and the target for a manager is $800k per year.
Estimating the cost of service for any agency owner requires a clear understanding of how many people are needed by line of business each month. Developing an efficient and scalable organizational structure is the key to success in this endeavor. To ensure an efficient hiring model and maintain quality services from employees at all levels, the four rules outlined (multiple direct reports per manager but only one manager for each direct report, having four-seven direct report per manager, basing title structure on seniority level and setting revenue targets by title) are essential. Additionally, this will help you achieve the gross margin target of 50% while preserving excellent customer service throughout the company hierarchy. With these rules incorporated into your organizational structure, you’ll be well-equipped with the tools necessary for successful resource scaling over time.