The Growth Illusion
Every business talks about growth like it's unlimited. More clients, more projects, more revenue. But growth doesn't come from demand alone—it's capped by one hard number:
How many billable hours your team can actually deliver. That's your capacity.
The Capacity Formula
At $100/hour, that's a revenue ceiling of $720,000/year. Not a penny more, no matter how much you sell.
The Dangerous Assumption
Most owners assume the bottleneck is sales. "If we just had more leads, we'd grow." But if capacity is maxed, more sales just pile up projects you can't deliver.
When you oversell capacity:
- Work stretches out, deadlines slip
- Quality drops as people rush
- Utilization looks great but realized rate collapses (overtime, burnout)
- Client satisfaction tanks
- You lose the clients you fought to win
Before You Hire: Check Utilization First
Here's the trap: you feel maxed out, so you hire. But if your current utilization is only 60%, you don't have a capacity problem—you have an efficiency problem.
| Current State | Diagnosis | Action |
|---|---|---|
| Utilization < 70% | Efficiency problem | Fix scheduling, reduce non-billable time |
| Utilization 70-85% | Healthy, room to grow | Optimize before hiring |
| Utilization > 85% | Approaching true capacity | Start planning to hire |
| Utilization > 95% | Maxed out / burnout risk | Hire now or turn away work |
The Hiring Math
When you do need to hire, here's how to think about it. A new employee isn't just salary—it's a bet that you can generate enough billable hours to cover their fully-loaded cost.
New Hire Break-Even Calculation:
| Item | Amount |
|---|---|
| Salary | $52,000 |
| + Taxes, benefits, overhead | $15,778 |
| = Total Cost | $67,778 |
| ÷ Target billable hours (1,800) | |
| = Floor Rate | $37.65/hr |
If you bill this person at $75/hr with 75% utilization (1,350 hours), they generate $101,250 in revenue against $67,778 in cost. That's $33,472 gross profit.
But at 50% utilization? $67,500 revenue against $67,778 cost. You just lost money hiring them.
W-2 vs. Subcontractor
Not every capacity gap requires a W-2 employee. Subcontractors have a different risk profile:
| Factor | W-2 Employee | Subcontractor |
|---|---|---|
| Cost when idle | Full salary + benefits | $0 |
| Cost when working | Floor rate (~$38/hr) | Their rate (often higher) |
| Control | High (your schedule, your way) | Lower (their availability) |
| Training investment | Yours to build | They come skilled |
| Ramp-up time | Weeks to months | Immediate (ideally) |
| Best for | Consistent, predictable demand | Variable or overflow work |
Signs You're Ready to Hire
- Utilization consistently above 80% for 3+ months
- Turning away profitable work (not just any work—profitable work)
- Quality suffering because team is stretched
- You have predictable demand, not just a one-time spike
- You can afford 3-6 months of salary during ramp-up
Signs You're NOT Ready
- Utilization below 70%—fix efficiency first
- One big project creating temporary overload
- Can't afford the ramp-up period
- Hoping a hire will "bring in their own work"
- Haven't done the floor rate math
Bottom Line
- Capacity = People × Billable Hours × Weeks
- More sales don't raise capacity; only utilization and staffing do
- Fix utilization before hiring—otherwise you just bleed faster
- Use subs for variable demand, W-2 for consistent demand
What's Next
You've got the full toolkit now: floor rate, survival number, utilization, realized rate, and capacity. But here's the final question: Is all your revenue even worth keeping? In Module 6, we'll look at client profitability—which relationships actually make you money, and which ones you might need to fire.