Who has the higher labor burden rate — one of your higher- or lower-paid employees? Would it be smarter to hire a new employee or to pay overtime to an existing employee? The answers may surprise you, says Diane Gilson, CPA and president of Info Plus Accounting.
Remember Pareto's Principle? Also called the 80/20 rule, it says that 20% of the input provides 80% of the value. Stated another way, 20% of your activities account for 80% of the results. Last month we applied the rule to job costs control. Now let's use the 80/20 rule to help develop an annual...
When it comes down to it, the real point of being in business is to charge enough money for every job so that the company is making a profit on every project. That means contractors need to know what their overhead is on a monthly, quarterly, and annual basis, as well as knowing — almost down to...
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Figure out how to get accurate labor estimates and your company will have a real leg up on the competition.Most remodelers will agree that if they had better control over labor costs, they would be more profitable. The typical remodeling company starts the job with a suspect labor price, and the...
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When pricing labor-only jobs, be sure to allow for labor-specific contingencies. Watch out, too, for situations like a decrease in the proportion of billable hours per employee and lost time due to startup inefficiencies if this job is a "first of its kind" for your company.
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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"). The result is $20.34, which will cover overhead when added to the hourly labor charge.
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Halsey Platt, of Walter H.B. Platt Builders and Cabinetmakers, estimates that at least 50% of his new hires have previously worked for him as subcontractors. So Platt developed a "total compensation worksheet," which shows prospective employees the value of the package they'll receive.
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Last month, we used a spreadsheet to calculate how much a lead carpenter should produce in a month. 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.
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Most companies know that scheduled downtime, like vacation and holidays, costs money, and they figure it into their labor burden. Halsey Platt recently discovered that absenteeism is a bigger drain on his company's profits than he'd ever imagined.
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Even if you accurately estimate the hours required to complete a project, you may be losing money if you're not charging enough for labor.