If you’ve read the Composite Report provided at each Roundtables meeting, you know that they measure revenue per full time overhead staff. At Buckminster Green, we’ve found that tracking revenue per labor hour on a job by job basis is an extremely helpful tool for sales as well as general forecasting.

If your company self-performs some labor on all of your projects, then this easy calculation is for you. You hire good people and keep them. You can’t quickly increase or decrease field labor. For this reason, the amount of work your team can produce in a year is a limiting factor.
Let’s say your company has a sales goal of 1M and overhead is 333K. You sell ten projects for the year at $100K, and have no slip or grip. Each project takes your field team five weeks to complete. You end the year with a 33% margin but have no profit.

The next year, you sell ten $100K projects and each project takes your team four weeks to complete. This year you hit your sales goal by Halloween, are able to complete two additional projects, and make over 200K in profit. The markup on the jobs wasn’t different, the revenue per labor hour (R/LH) was.

At my company we divide revenue by crew weeks, because that’s how we think about jobs, but the concept is the same no matter what unit of labor you use. You want to figure out what average number is going to work for you. Look back at a full year of projects and divide the total revenue per project by some unit of field labor. Whatever you pick, stay consistent and aligned with how you estimate labor. We are currently looking for projects to average $23,000 total revenue/crew week.

Once you’ve determined what your number needs to be, your sales team can use this to evaluate projects. Let’s say you have a gut feeling that decks haven’t been good to you, but you don’t know why. Using this calculation you’ll see that decks have a lower R/LH than kitchens. Kitchens have more expensive materials and more subcontractors, and if you’re marking up everything at your standard rate, that’s more gross profit for the time your people spend on-site. Does that mean you can’t do deck projects? No, but it does mean your sales team will need to raise the mark-up until the R/LH number gets to where you need it to be.
Our estimate form is a spreadsheet, and there is a formula that divides the total price by the crew weeks. Next to that it has the average number we’re shooting for that year. Carpenters get paid different rates, but we’ve chosen to keep it simple and use the highest rate.

Now if somebody asks me how much their project is going to cost, and I know it takes us ten weeks of self-performed labor to complete a project like that, then I know it’s going to be at least $230K.