Congratulations! You’ve raised your Series A funding and now it’s time to think about how to scale up.
To date, you’ve built a 30-person team colocated with you in California, prioritizing speed over cost efficiency, but now it’s time to consider whether to keep that approach, or start to build out a back office in a lower cost geography.
But how do you weigh the headcount cost of each option? In this post, we’ll walk you step-by-step through how to think about this. We used our free headcount planning template to run the numbers. You can download it to follow along or create scenarios that work for your business, so you can consider all the moving parts as you plan your strategy.
Over the next 18 months, you forecast hiring 32 back-office staff across finance, customer success, sales development and sales ops, and marketing ops, all in your home office in California.
Same number of hires, but in Arizona, plus a senior manager for each team to account for higher coordination costs with HQ
New hires are added in the Input_USA Hires tab, as you can see in the screenshots below:
Our analysis needs to account for three differences between the scenarios: salary levels, the number of hires, and tax costs.
|SUTA tax rate|
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In our example, the incremental managers hired in Arizona don’t join until June 2023, so if we look at May, the month before they join, there’s an almost 8% (~49,000) higher payroll cost in CA, a 2% (~$1,000) higher payroll cost, and an 8% (~$3,500) higher FICA. It’s slightly offset by 53% ($2,500) lower SUTA. It nets out to about $50,000 higher costs in CA.
But once incremental managers join in Arizona in June 2023, all the savings disappear and in fact the Arizona option ends up costing even more, by ~$3,500 , eaten up by those managers’ salaries and payroll taxes!
What are the takeaways for thinking about location strategy for your business?
We hope you found the discussion above illuminating, and the spreadsheet files behind it helpful if you’re contemplating a similar shift in work location.
But as helpful as spreadsheets are in building a headcount model, relying on spreadsheets while trying to collaborate with your executive team will hold you back. When your CEO asks for the impact of a decision on each department, you’ll kill your credibility if you have to leave the C-suite for your cubicle for several hours. To persuade your leadership team, you need to answer questions in real time.
Why can’t spreadsheets get you there?
The good news is that OnPlan exists precisely to keep what you love about spreadsheets—the ability to build models with unlimited flexibility in an environment and with a syntax you know—while addressing the limitations of spreadsheets, like those above.
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