Agency owners should think about hiring employees versus contractors for a number of reasons.
Contractors are the cost of goods. Imagine your service as a product. If a contractor charges $1,000, that means that the cost of goods is $1,000. That’s how much it costs you to hire the contractor per account. That means that your margins are fixed. You can’t ask the person to do more work for the money. You’ve paid them, so you’re never going to get expanding margins. If your costs are fixed for every dollar of revenue you get in, you can grow your business, but you never truly scale. The definition of scaling isn’t, “We got really big.” The definition of scaling is “our revenue is growing faster than the costs involved in servicing that revenue.”
Employees are elastic, meaning you can ask them to take on more work for a short period of time without paying them more. Employees provide some elasticity, and they are invested in making their everyday life better. They want to be happier at work, so they will do things like figure out, “Oh, this process sucks. I would like to fix it. This doesn’t work for me. How can we make it better?”
There’s a level of investment where a contractor isn’t part of your team. They work for themselves, and they provide you services. A contractor, who might actually have more clients, is just thinking. “What is the amount of work that I have to do in order to get my pay?”
An employee is part of your family, and they are invested in making that family dynamic really good. If the living room needs to be remodeled, they’re the people who are going to do it. Whereas the contractor’s going to say, “I’ll sit anywhere because I’m leaving in a half an hour.”
The employee is invested, and the contractor is involved in an exchange. They’re exchanging labor for money, whereas the employee has agreed, “I’m going to give you part of my life, and we are now committed to one another.” I’m sure you’ve heard the story around breakfast time. What’s the difference between a chicken and a pig? The chicken is involved, but the pig is committed. Contractors, like chickens, give you the thing you asked for, but they’re not making a commitment.