How should engineering headcount scale with revenue?

Question

For 'established' startups, I've seen a rule of thumb that your dev team ought to have about one head per $1MM in ARR. For us smaller/earlier teams, what should this/has this looked like when growing from $1MM ARR onward? Obviously it varies based on a ton of factors, but I'm curious what others have seen.

Nextgrid · Accepted Answer

Engineering is there to solve a business problem and should not be a goal in itself. Headcount should increase based on there being more work needing to be done, not increase based on "hey we're making millions and the office looks too empty, let's hire people just for the sake of it!".
When you get more revenue you might decide that you want to release more products, develop faster or explore other verticals, and these efforts might require hiring more developers - that is totally justified.
However, if you are able to solve your current & near-future business problems with your current headcount there is no valid reason to increase it. Increasing it not only means more salaries need to be paid but also incurs exponential complexity in managing a larger workforce so this is also something that needs to be taken into account.
Employees can also become a liability when you no longer have enough workload for them or if there's a downturn and your revenue is no longer sufficient to pay their salaries. Layoffs are not easy, both from a financial point of view (your company might need to pay severance packages, etc) but also from a PR point of view.