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TL;DR: A construction company can afford a new hire when gross margin minus overhead including the new hire cost minus target net profit is still positive. At $4M revenue with 22% gross margin a $90,000 PM hire (2.25% of revenue) reduces net profit from 8% to 5.75%. If 5.75% is acceptable the hire is affordable. If not it is a timing question not a never question. SPM runs this calculation for every client before any significant hire decision.

Hiring and Overhead

When Can I Afford to
Hire?

Every hire increases overhead. The question is not whether you can afford the salary. It is whether the gross margin on projected revenue supports the overhead rate increase without compressing net profit below the minimum acceptable level. Here is the calculation.

Published: May 2026  ·  Updated: May 2026
2.25 pts
Overhead Increase — $90K PM at $4M Revenue
Day 1
Update Bid Model After Every Hire
5.75%
Net Profit After PM Hire at $4M
$5.5M
Revenue to Absorb PM Hire Without Margin Hit
The Framework

The Affordability Calculation

Gross margin minus overhead rate including new hire cost minus target net profit equals buffer. If buffer is positive and above zero the hire is affordable. If buffer is negative the hire compresses net profit below target and is a timing question - wait until revenue grows or gross margin improves to absorb the cost.
RevenueGross MarginOH Before HirePM Hire CostOH After HireNet Profit After
$2M23%16%$85K (4.25%)20.25%2.75%
$3M22%15%$90K (3.0%)18.0%4.0%
$4M22%14%$90K (2.25%)16.25%5.75%
$5M22%14%$95K (1.9%)15.9%6.1%
$7M22%13%$100K (1.43%)14.43%7.57%
The Rules

Four Rules for Every Hire Decision

Calculate total cost not just salary. Salary plus benefits (25-30%), vehicle allowance or company vehicle depreciation, cell phone, laptop, software licenses. A $75,000 salary is a $95,000-$100,000 annual SG&A cost. Run the affordability calculation on total cost not salary.
Update the overhead rate on hire date not at year end. The day the hire starts their cost is in SG&A. The bid model needs to reflect it the same day. Every bid submitted between hire date and the next annual overhead rate update is underfunded by the hire cost divided by revenue.
Verify revenue projection is contracted not hoped for. The affordability calculation uses projected revenue. If the revenue is contracted and backlogged the hire is supported. If the revenue is projected growth that requires the hire to capture it is a risk decision - the hire must generate the revenue to justify itself.
Recalculate mid-year if revenue misses projection. A hire made expecting $5M at $4M actual revenue means the hire cost as a percentage of revenue is higher than planned. The overhead rate needs a mid-year update and the bid model needs to reflect it immediately.
FAQ

Frequently Asked Questions

When can a construction company afford to hire?
When the gross margin on projected revenue minus current overhead minus new hire cost still produces the minimum acceptable net profit margin. At $4M revenue with 22% gross margin and 14% overhead: net profit is 8%. A $90,000 PM hire adds 2.25 points to overhead. Net profit becomes 5.75%. If 5.75% is acceptable the hire is affordable. If not revenue needs to grow or gross margin needs to improve first.
How does a new hire affect the construction overhead rate?
Every hire adds their total annual cost - salary, benefits, vehicle, phone, software - to SG&A. That additional SG&A divided by revenue equals the overhead rate increase. A $90,000 total-cost PM hire at $4M revenue increases the overhead rate by 2.25 points. If the bid model is not updated immediately every bid from hire date forward is underfunded by 2.25 points.
Should I hire before or after winning more work?
Before, if the workload already exceeds the current team's capacity and you are losing work because of it. After, if you are winning work at the current capacity and the hire is for future growth. The key question is whether the revenue to support the hire is already contracted or projected. Contracted revenue that requires the hire makes it affordable. Projected revenue that requires the hire first is a risk decision.
How much revenue does a construction company need to hire a PM?
A full-time PM hire at $85,000 salary and $105,000 total cost requires approximately $1.2M in additional gross margin capacity to absorb without reducing net profit. At 22% gross margin that requires approximately $5.5M in revenue to produce the additional $1.2M gross margin. At $4M in revenue a PM hire reduces net profit by 2.25 points unless gross margin improves or revenue grows to absorb it.
Josh Luebker
Josh Luebker
Fractional CFO · The Construction CFO

Former commercial construction PM and master electrician. 150+ projects, $300M+. Fractional CFO for commercial subcontractors $1M–$12M. About Josh →

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