Home » All Posts » Labor Profit Tip #1: For More Accurate Job Estimates, Include Fully-Burdened Labor Costs for Each Employee

Labor Profit Tip #1: For More Accurate Job Estimates, Include Fully-Burdened Labor Costs for Each Employee

Without Fully-Burdened Labor Cost Info, You May Be Surprised…

If you’re not using fully-burdened labor costs on jobs, you may find that your estimates aren’t as accurate as they should be. But, when you know how much each employee actually costs per production hour, you can use the information to more accurately estimate each job’s labor costs.

An Example: How Labor Costs Can Vary – Even When Required Hours Are the Same

Let’s imagine that you need to estimate the labor cost for 2 jobs.

Each project will take about the same amount of time (40 hours) and you know your fully-burdened labor cost for each of the employees you’ll need on each job.

You know that the second job is more complex, so it will require a different combination of experience and knowledge to make sure that it’s done correctly.

Let’s “sharpen the pencil” to see the results…

Click here to access a free (single employee) Cost & Pricing Analyzer™ (eCPA)

Here’s How the Estimated Labor Costs Could Be Very Different

Computed results for our Example are shown below:

• In the first section, you’ll see fully-burdened burdened rates for different positions. Please note that there can be a significant difference between employees’ average hourly rates and fully-burdened labor costs.
• Labor cost totals for the first job (Job A) are shown in blue in the second grid (below).
• Labor cost totals for the second job (Job B) is shown in green in the third segment (below).
• The difference in labor costs is shown at the bottom, in yellow.

Even though each job requires the same number of hours, look at the wide variance in estimated labor costs… \$517.

Amazingly, that means the labor costs for Job B are 34% higher than for Job A!

Why? It’s due to:

• The different fully-burdened labor costs for each type of employee – as well as
• The different way that time is assigned to the specific people working on the job.

In this example, without these detailed numbers at hand, you wouldn’t have known how dramatically different your costs could be!

WHAT IMPACT WILL FULLY-BURDENED LABOR COSTS HAVE ON YOUR ESTIMATES?

As you begin to see more accurate information about your fully-burdened labor costs, and use it to arrive at more accurate labor cost estimates, you’ll want to think about:

• What impact will your knowledge of your fully-burdened labor costs have on your business decisions and actions?
• How will those new decisions and actions impact your profitability?

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This is just one in a series of useful tips that show how you can add to your bottom line when you know each employee’s true hourly cost!

Disclaimer: All numbers presented herein are theoretical and should not be construed as industry averages. You will need to use your own eCPA (employee Cost & Pricing Analyzer) to see your own company’s true, fully burdened costs.

Related Articles: Intro to Labor Burden Series | Part 2 | Part 3

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