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4 Tips for Understanding & Estimating the Cost of Labor

RhumbixSeptember 09, 2022 • 5 min read

Lots of companies try to come up with the perfect formula for calculating how much their cost of labor is going to be. But that’s a shortsighted way to think. No two projects go exactly the same way, even if the specs are identical. The availability of talent, the material costs, and the space that you build in determine a lot of the elements of how much something costs.

Here are four tips to ensure that when you bid on your next project, you estimate your costs correctly.

1. Look At Previous Projects

When you want to know how much to budget for labor on your next project, start by turning to your last project. If you’ve done a project like this before, which is why you’re most likely to win the bid, then you have a record to show for it. The best way to show that you’re not going to need to come back for more money after the project is underway is to have a sample budget.

Every builder or contractor takes on a “first-time” project once in their life. However, after they’ve done one project, it’s much easier to apply for more projects. The number of projects you have under your belt is only going to make it easier to apply for other projects later on.

This is just another reminder to document your projects as well as possible. You need to ensure that you have lots of accurate documentation about how many people you’ve hired, how long they worked for, and how much it cost. This way, you can dip back into this budget again and again to get a clue as to what you need for next time.

It takes several projects for you to get a handle on the cost of labor. However, once you have a better understanding of how much it costs to complete the average project or the standard labor costs, your bids will be smoother.

2. Consider Special Skills

If you’re building a project that requires a lot of specialized talent, you’ll find that you’re going to need to do some research. If you’ve never hired anyone like this before, ask colleagues or look online for how much it costs to hire specialized talent. Expect to pay more than you usually do, especially if you want to get solid talent that’s reliable and delivers.

When you want people who have a specialized skill set, it’s usually to complete a portion of the project that you couldn’t do alone. Along with these special skills, you usually need to have some special equipment to get the job done. You could rent this equipment, but if your project goes over it’s scheduled timing, the rental costs could add up beyond the cost of buying the tool.

Looking for talented people to handle difficult work takes time. It’s hard to find the perfect people for the job, so you might have to spend a little more time hunting. This leads to increased costs beyond what you might allocate strictly for labor costs.

See what kind of support those highly skilled laborers need. You might need to hire people to work aside or beneath them to ensure that they get the support they need. See what kind of training your staff has and if they’re prepared to work with highly skilled laborers.

3. Look Beyond The Paycheck

As alluded to above, there are costs beyond just paying your employees for the work they do. When you’re looking to fill a site or a project up with workers, you have a lot of additional costs that occur. Beyond materials, inspections, and security for the site, even just the workers have additional costs attached.

When you’re trying to recruit the best people around, you’re going to have to put the feelers out, buy ads, and hire a headhunter. Then, you’re going to have to interview all of those people, which means you’ll be taking the time to sit down with them, taking up valuable work hours.

After they’re hired, you’ve got lots of other things to consider. If you’re working with union labor, they might have additional demands for coverage that costs you money. You might have to pay for insurance or for unemployment insurance to cover all of your additional employees.

There are lots of hidden additional costs when you have employees. First aid kits, safety equipment, the tools they need to work with, and enough to cover when they break all add up to more costs.

4. Leave a Surplus

If you want to ensure that you don’t end up with any snags along the way, make sure you have a surplus in your budget. You don’t want to end up short on staff or short on funding. When you estimate, think broader than your immediate needs.

You’ll need coverage if someone gets sick or if someone gets hurt. You also don’t want to stress out your best and most talented laborers. They need support staff to help handle all of the busy work and drudgery that goes along with their job.

A surplus that you don’t spend also impresses the client you’re bidding with. It serves as a way for you not to have to go back to them if costs go up, but also ensures they’ll be happy with you. Everyone loves to find out their project has gone under budget rather than over.

The Cost of Labor Is Ever Changing

If you want to get control over the cost of labor, you’re taking on a Sisyphean task. There’s no way you’re going to ever be able to stay ahead of costs forever, so expect them to change. However, if you start to streamline your hiring and recruiting process, you’ll get more out of every project.

If you want new solutions for putting together bids, check out our guide to the latest in software options.

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