Download the Excel file of job cost and labor cost calculating spreadsheet jobcost.zip
Figuring theTrueCost of Labor
|You probably have a good
handle on what materials are costing per job as long as
any scrap is included in the amount of materials used for
Labor costs can be deceptive.
It is complicated to truly figure it out but once done, assuming there are not many changes it will be simple to figure on a job to job basis.
You need to have three figures.
1) Total management and overhead costs.
2) The direct labor salary for the person doing the job.
3) How much work you are doing.
It makes the most sense to do this in a well noted spreadsheet so that any change can be made instantly.
What to do.
Divide the overhead figure in 1, by the direct labor cost in 2. Then divide this number by the capacity (in decimal 80%=.80) used in 3.
This is the magic number.
It usually runs between 4 and 10. Four is good, 10 or higher means that the overhead is high. High overhead is OK if the markup is very high.
To figure the true labor cost of a project add up all the direct labor hours multiplied by their per hour rate. Multiply this by the magic number.
This is what the labor is really costing the business. Remember that this is your cost, without markup!
Losing money on a job can be beneficial at certain times. If you are very slow and do not want to lay someone off, getting cost of materials and part of employees salary is better than not getting part of the employees salary. If this lasts for LONG periods out of the year then you are in BIG trouble.