When leads and contracts start to increase, remodelers will face the problem of deciding whether and when to hire more help. To make an informed decision, look first to your company’s history of productivity. For companies that use their own workforce, in-house employees typically handle up to seven standard divisions of work — management/supervision, demo, framing, exterior and interior finish carpentry, punch list, and clean-up. Unless you’ve changed your model, you should be able to determine an average productivity for each field employee.
The simplest way is to divide annual volume by number of field employees. For example, if you did $1.2 million last year with four field staff, each would have produced $300,000 worth of work, on average. To produce an additional $300,000 this year, you might hire another person.
But this calculation doesn’t take into account differences in job descriptions, individual efficiencies, or employee turnover. Nor does it account for non-billable time (such as staff meetings, training, or holidays) for which employees are still paid. (It can also be skewed by over- or under-billings.) Hourly productivity addresses these shortcomings, as shown in the table below, but still indicates that you’d need another person working 619 hours to produce an additional $300,000 in volume ($300,000 ÷ $485/hr).
But there’s another option: increasing productivity. Rather than using more people to handle more volume, try to bridge the gap by increasing the number of billable hours for current employees, as shown in the bottom half of the table. Total hours paid doesn’t change, but each employee’s efficiency does — and so does the number of billable hours.
Still a little short? Cover the extra hours using overtime, which only adds gross wages plus payroll taxes, not vacation or holidays. Even workers’ compensation charges are based only on the straight time wages.
Before increasing costs, try managing field labor productivity better. The rewards will drop straight to the bottom line.
—Judith Miller is a Seattle–based remodeling business consultant and trainer specializing in accounting, finance, and computerization. Visit her at www.remodelingmag.com or at http://remodelservices.wordpress.com.