How Much Could You Be Losing if You Under Charge for Employee Time?
Free Calculator Helps You Estimate!
Are You Losing a LOT of Money By Under Billing for Employee Labor?
Let’s do the math: Here’s a free calculator you can use to find out how much revenue you may be losing over one, three, and five years if you are under-billing or under-charging for employee (production) labor time. Just enter numbers in the yellow cells below to show the results of various scenarios. I’ve added examples and notes below the calculator. Instructions:
- Enter Your Estimates in the Yellow Cells ONLY (entry in any other cells will invalidate the results).
- To start over simply refresh the page. . .
- To see full-screen, centered results, use the slide bar at the bottom of the calculator.
If you’re not sure how much you may be undercharging per hour, or you’re not clear about your annual production hours, the examples shown below the calculator may be helpful…
Example: Under Billing Calculation #1:
…Results Show a 5-Year Revenue Loss of $237,500 to $332,500
Every company’s estimates will vary, but here’s a screenshot of what the calculator would show if you entered estimates of:
- 1,900 hours per year of average “production” time. (Total work hours available for the year including overtime, less all paid time off, and any other ‘non-production’ time such as company meetings, evaluations, timesheet prep, non-job breaks, and other ‘non-job’ time.)
- Estimated average underbilling of $5 per production hour.
- A minimum of 5 revenue-earning (‘production’) employees.
- A maximum of 7 revenue-earning employees.
You’ll see that using these variables, over a 5-year time frame, the under billing calculation shows a loss in revenue ranging from $237,500 for five employees to $332,500 for seven employees. …
Example: Under Billing Calculation #2:
…= 5-Year Revenue Loss of $2.1 to $2.6 Million!
You’ll see in the following example that changing the variables will have a different impact on lost revenue. For this example, you’ll see estimates of:
- 1,750 hours per year of “production” time – including overtime. (See notes about production time in Example #1.)
- Estimated under-billing of $12 per production hour.
- A minimum of 20 revenue-earning (‘production’) employees.
- A maximum of 25 revenue-earning employees.
With these estimates, over a 5-year time frame, the under-billing calculation shows a loss in revenue ranging from $2,100,000 for twenty employees to $2,625,000 for twenty-five employees. … Of course for larger companies with more employees, the numbers get proportionally larger!
What the Under Billing Calculation Reveals…
What starts out looking like a fairly small underbilling difference for employee labor, when multiplied by a number of employees and several years, can amount to a staggering loss of revenue. This revenue reduction flows directly to the pre-tax bottom line. You can likely imagine that these amounts can ultimately make the difference between a company’s long-term success or failure.
Is There a Possibility That You Might Be Under Billing?
If there is a possibility that you might be under billing, please take a few moments to enter some estimates into the free calculator at the beginning of the article to see the potential impact on YOUR company’s revenue (and pre-tax bottom line). If you’re in doubt about “Annual production hours per employee” or “Potential $ per hour of undercharge” (the first two cells in the under billing calculation) please be sure to check out the following paragraph.
Do You Know Your Critical Employee Labor Cost and Billing Numbers?
For instance, do you know:
- Your annual production hours per employee?
- What does each employee really COSTS per production hour?
- How much per hour you SHOULD be charging (or building into your product costs) in order to hit your gross profit goal for employee labor?
- Based on item #3 above, how much per hour you are potentially under billing?
Now that you can see what a huge effect under billings for labor can have on your revenue if you don’t know the answers to these 4 questions, I’d like to invite you to click on any of the above links to look at a unique resource that we’ve developed to help you determine exactly what those underlying numbers look like for YOUR company. I believe you’ll find these videos and information to be both informative and eye-opening…
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