The 100k per Employee Rule in Small Software Business
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?
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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. – Tim J 13 years ago
3 Answers
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)
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Do you know how many years ago? – Abe Miessler 13 years ago
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+1 for rob. Figure on 200k nowadays with payroll taxes, salary, benefits, etc. – Michael Pryor 13 years ago
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.
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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 13 years ago
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.
