Headcount is a vanity metric

I've seen 25-person agencies doing the same revenue as 50-person agencies.

The 25-person agency is running at 45% EBITDA. The owner has genuine control over the business. Decisions happen quickly because there aren't layers of management to navigate.

When something needs to change, it changes. When an opportunity appears, they can move on it. There's agility, there's responsiveness, there's the feeling of actually steering the ship instead of being dragged along by it.

And because the margins are healthy, the team gets paid well and the owner can invest in talent/tools. When a key employee gets a competing offer, there's room to counter it. When a bad month comes along, there's a buffer. The business has breathing room.

The 50-person agency is a different story entirely.

They're running at 10% profit. Sometimes less. Sometimes, in the bad months, they're losing money - funding operations out of the owner's personal reserves or a line of credit, hoping next month will be better.

Every dollar is spoken for before it arrives. Payroll is a constant weight, a number that looms over every decision. There's no buffer for a bad month. There's no room to invest in anything beyond the bare necessities. When a key employee gets poached, there's nothing to offer them. When an opportunity appears, there's no capacity to pursue it.

And despite having twice the headcount, the owner is working just as hard as they did when the agency was smaller. Maybe harder. Because now there's management overhead. Now there's politics. Now there are layers between them and the actual work, which means problems take longer to surface and longer to solve.

This is the paradox of agency growth.

Bigger isn't better. Bigger is just bigger. What matters is the relationship between size and profit - and for many, that relationship is inverted. The bigger they get, the less profitable they become.

The instinct when things feel busy is always to hire.

Team says they're overwhelmed. Deadlines are slipping. Clients are complaining about response times. Quality is suffering because nobody has enough bandwidth. The obvious solution -the solution that feels responsible and proactive - is to add headcount.

So you hire two people.

For a month or two, things feel better. The pressure eases. People can breathe again. You think you've solved the problem.

Then somehow, everyone's overwhelmed again. The same complaints return. The same slipped deadlines. The same quality issues. So you hire two more. And the cycle continues.

Meanwhile, your revenue per employee keeps dropping. Your margin keeps compressing. You're growing the top line - maybe even growing it impressively - but the bottom line stays flat. Or shrinks. You're working harder, managing more people, dealing with more complexity, and taking home the same amount of money. Sometimes less.

This is the trap.

The problem, in most cases, isn't that you need more people. The problem is that you're not getting enough output from the people you already have.

And I want to be clear about something: that's not an insult to your team. It's almost never a people problem. It's a systems problem.

Work isn't allocated efficiently. Senior people are doing tasks that should be handled by junior people. Junior people are sitting idle while senior people are maxed out. There's no visibility into who has capacity, so work gets assigned based on guesswork and who happens to be in the room when the conversation happens.

Handoffs are sloppy. Work moves from one person to another without clear documentation or expectations, which means things get lost in translation. The next person has to redo work that should have been done right the first time. Or they make assumptions that turn out to be wrong, and the whole thing has to be revised.

Processes are loose enough that everything takes longer than it should. There's no standard way to do the work, so every project is reinvented from scratch. People are making decisions that have already been made a hundred times before, burning hours on problems that should be solved once and documented.

Hiring doesn't fix any of this.

The question you should ask before any hire:

How do we get more output from the team we have?

Not in a "squeeze every drop out of people" way. That's not what I'm suggesting.

By removing friction. By fixing broken handoffs. By getting work to the right people at the right level. By standardizing processes so people aren't reinventing the wheel every time.

Often, the answer is that you have plenty of capacity - it's just invisible or misallocated.

Only when you've genuinely optimized your current team should you add headcount. And even then, ask: is this a contractor role or a full-time role? Can we use flexible resources to handle overflow without adding fixed cost?

The agencies that scale profitably are ruthlessly disciplined about this.

They hire as few people as possible. They know that every additional body means more management overhead, more coordination cost, more complexity.

They only add headcount when they've exhausted every other option.

Growth is profit per person.

The agencies that chase headcount as a proxy for success end up with fifty people, stagnant profit, and an owner who's working harder than ever with nothing to show for it.

If you're busy but the profit doesn't reflect it - if you feel like you're running hard and not getting ahead - reply with "CAPACITY" and let's figure out where the gap is.

Nick

P.S.

Track this:

Revenue per employee.

Take your annual revenue and divide by your number of full-time equivalents.

For a healthy agency, you want to see $175,000 minimum per FTE. That's the floor. If you're running well - tight systems, high utilization, efficient delivery - you can hit $220,000 or more.

If you're at $130,000 or $150,000 per employee, you're not understaffed. You're under-optimized. There's capacity sitting unused, or there's work being done inefficiently, or both. Probably both.