There's a growing market for "labor-only" jobs. Examples include big-box stores, like The Home Depot, where your company would be responsible for installing materials sold to the customer. Companies accustomed to marking up materials and subcontractor work often don't know how to price only labor to include not just job costs and labor burden, but all other overhead costs plus profit.
Calculating job costs
Presumably you already have an accurate burdened-labor figure, but make sure you're including both "hard" and "soft" costs for each employee (see "The Labor Burden"). If you can assign a specific employee to the job, then use that employee's burdened rate; if not, you'll need to use your company's average burdened rate. As an example, labor ($20.00) + burden (.565%) = $31.30 per hour.
You should already have a handle on your overhead costs for the year. Here's a quick way to determine how much overhead coverage to allot to a job (assuming stable workforce numbers). First, calculate your total billable hours per year. If you assume four full-time workers at 1,912 billable hours per year plus half of the owner's time, you get 1,912 x 4.5 = 8,604 total billable hours per year. Then, take the known overhead dollars per year (let's say $175,000 for this example) and divide by the 8,604. The result is $20.34, which will cover overhead when added to the hourly labor charge.
|The Labor Burden|
|Hard/Direct Costs||Soft/Indirect Costs|
|Base pay||Cell phone, pager|
|Social Security (6.2%)||Tool allowance|
|FUTA (.8% on $7,000)||Education|
|SUTA (x % on your state's cap)||Uniforms|
|Workers' comp||Business cards, clipboards, etc.|
|Health insurance (company portion)||Vehicle|
|Retirement plan (company portion)||Gas allowance|
|Paid sick, vacation, holiday||Certification|
|Profit-sharing or bonuses||Miscellaneous perks (subscriptions, memberships, etc.)|
Adding in profit So now you're charging $51.64 an hour ($31.30 burden + $20.34 overhead) for labor and, theoretically, covering your labor cost plus your overhead. At this point you can calculate the estimated hours needed to complete the job, say 200, and multiply by $51.64 to get a total cost of $10,328. To add in your profit, express your target net profit margin as a decimal, subtract from 1.00, and divide your total cost by the result:
|Target net profit||10%|
|Expressed as a decimal||.10|
|Subtracted from 1.00 to find divisor||.90|
|Total cost ÷ .90||$11,476|
In our example, your selling price, including a 10% net profit margin, is $11,476. --Melanie Hodgdon of Business Systems Management, Bristol, Maine, is a QuickBooks professional adviser offering organizational and business services to construction companies nationwide.