Transitioning from Freelancer to Agency
The jump from solo freelancer to agency owner is the "Valley of Death" for many service businesses. You trade high margins and freedom for low margins and management headaches. But if done right, it unlocks unlimited scale.
The "Rule of 3x" in Agency Pricing
To run a profitable agency, you generally need to bill your client 3x what you pay your employee.
- 1/3 for Salary: The direct cost of labor.
- 1/3 for Overhead: Taxes, software, office, and sales costs.
- 1/3 for Profit: The margin you keep as the owner.
When Should You Hire Employee #1?
Do not hire when you represent 100% of the revenue generation. Hire when you are turning away work. A good rule of thumb is to hire a junior execution role (doing the work you've already systemized) when you have 3-6 months of their salary in the bank.
Hidden Costs of Employment
In the US and Europe, an employee costs 1.25x to 1.4x their base salary. This includes payroll taxes, health insurance, worker's comp, and equipment. Our calculator above factors this in with the "Overhead %" field.