Last month, we used a spreadsheet to calculate how much a lead carpenter should produce in a month. Change some variables, and you can also use the spreadsheet as a quick way to determine how much additional labor you need to hire to handle growing sales. In the following examples, we'll assume a revenue growth goal of $500,000 (to a total of $2 million) and the same "givens" as last month: overhead of $440,000 and an employee pool of three leads (at $35/hour), two carpenters (at $25/hour), and one helper (at $15/hour).
All small jobs. If most of the new work consists of small jobs, a single lead carpenter could probably handle each project on his own. But the spreadsheet shows that, all things being equal, his productivity limit is about $350,000.
Mixed-skill jobs. If, as is more likely, the new work varies in size and complexity, you will need to consider hiring a lead plus a lesser-skilled carpenter. The spreadsheet shows that these two additional employees can handle about $433,000 worth of new work.
Changing overhead. Adding two people brings the crew total to eight, which raises the question of whether the company can function without also adding a production manager. Such a hire may increase overhead by, say, $100,000, but with the increased revenue, overhead percentage drops to 27% ($540,000 ÷ $2 million). If this nine-person team works as efficiently as the eight-person team, the company could pick up about $20,000 in additional net profit.
With this information, we will adjust the spreadsheet. --Tim Faller, Field Training Services, www.leadcarpenter.com.
| ||All Small Jobs||Mixed-Skill Jobs||Changing Overhead|
|A||Avg. # of people on crew/hour||1||1.5||1.5|
|B||Avg. cost per person||$35.00||$28.75||$28.75|
|C||Avg. crew cost per hour [A x B]||$35.00||$43.13||$43.13|
|D||# of hours per month *||166||166||166|
|E||Labor cost per month [C x D]||$5,810||$7,159||$7,159|
|F||Labor as a % of production costs||33||33||33|
|G||Total production costs [(E÷F) x 100]||$17,606||$21,693||$21,693|
|H||Reciprocal of gross profit **||0.6||0.6||0.63|
|J||Produced volume per month [G x H]||$29,343||$36,155||$34,434|
|K||Produced volume per year [J x 12]||$352,121||$433,864||$413,203|
* Based on 1,992 working hours per year
** 40% in first two columns; 37% in last column