in Startups

The up side of your first hire

The other day a friend and I were talking about salary. This got me thinking about the cost of employment in Belgium that prompted me to write this post.

Imagine you are a Startup, you got your ideas, solution and market figured out. You started to develop your minimum viable product (MVP) and getting ready to launch. You plan to hire your first employee and started looking into such investment.

Here is a quick calculation for a ball park figure for such investment. More importantly the level of revenue and profit you would need to sustain it.

The assumptions are:

  • Monthly salary of €4500 (brut).
  • You provide one month of bonus (normal practice).
  • Fringe benefits not included (ie. Company car, group insurance, etc).
  • Any tax reduction not considered (ie. for first hire, type of candidate, etc).

For you, the employer:

Formula = Monthly salary (brut) x 13 months x 2 (charges ie. social security, etc)

Hence, 4500 x 13 x 2  = €117,000 annually.

For your hire:

She/he will not pocket the total amount of €4500 (brut) because charges such as social security and income taxes need to be deducted. Depending on age, family situation and salary ranges, these charges could varies.

Typically a €4500 (brut) monthly is translated to €2500 (net) in the pocket salary.

An overview:

Hire you first employee

Cost to hire an employee

In conclusion your first hire (at this salary level) will cost you nearly €10 000 per month. Assuming if your gross profit margin is at 40%, you would need to generate sales or revenue of €25 000 per month to cover this investment.

Depending on your business model (ie. payment condition, prices, recurring fees, customer churn rate, operation cost, etc) you would need to make sure that you have sufficient cash flow to cover this monthly cost.

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