How To Manage Labor Overages.
In this issue…
*The simple math of labor allocations
*445 words, reading time about 2-1/2 minutes
One of the distinct advantages of keeping major components as inventory items in QB is it eliminates the need for any job costing exercises & worksheets. Invoice the goods as they go to the job site, and your cost and revenues for those items post immediately to the job. If this invoicing is done as a progress invoice from a QB estimate, even better. Now you can readily see what’s been shipped, what hasn’t, along with what your margin is as of right now.
Same goes for labor. Quantify the allocated job hours on a QB estimate and then progress invoice the hours as they are used. This lets you review, each week, how much labor you’ve used on a job, and how much labor is left. Again, no worksheets or CRM or off-line calculations required.
(if you want to see this process in action, you’re invited to view a 21-minute webinar by clicking here.)
By tracking labor hour consumption as you go, you are in a better position to manage labor hour use and, hopefully, complete the project in the allocated time. But this still requires you allocate enough hours to the project in the first place.
Here’s a simple fact – integrators increase their odds of making money on labor when labor is allocated at around 50% of the materials allocation. Your materials come in at $40,000, labor should be $20,000.
This is a “+ / -“ number. Allocate higher and you’ll be even more likely to cover all the hours you’ll need. Allocate lower and your odds decrease. Simple math.
Can you learn what the best allocation % is for your company. Absolutely! If you track 100% of tech wages separately from all other wages – and include any subcontractor costs – you’ll have a very simple calculation of labor costs. If revenues consistently come in at less than 2X – 2.5X cost, you need to increase your allocation %.
Getting It Right
Once you’ve presented project pricing to a client, you’re committed. If the designer/engineer forgot something, or the design program allocations are out-of-date, the labor allocation may well be below the % you need to be profitable.
Take 30 seconds and have the proposal pricing checked for its labor allocation %. If it’s far below 50% of the gear total, you need to question why. Absent a good answer, you need to increase the labor allocation to bring the % into spec. We’ve even got a handy worksheet that does the calculations for you – just plug in the pricing from the proposal. If you’d like a copy, email your request to email@example.com.
And stop going over on labor!