If you pay an employee for 2,080 hours a year (not including overtime) then you have to account for the number of hours that are not billable in your pricing.
For example, most companies have an employee benefit of a minimum of 1 week’s vacation, 6 holidays, and potentially other hours for additional vacation or holidays. The minimum is 88 hours (40 hours for vacation and 48 hours for holidays).
In addition, most companies have meetings or send their employees to training throughout the year. Let’s assume this is an additional 40 hours.
In this case, the number of unpaid hours is 128 hours for benefits plus training/meetings.
These hours must be accounted for when setting prices. They cannot be directly billed to the customer, yet they must be paid for.
Here’s how to ensure your company is included these types of hours in your pricing.
Assume that when you calculate the price to the customer, the labor cost is 40 hours at $30 an hour for a total of $1,200. You must add the unbillable hours divisor.
128/2080 = 6.2%
The divisor is 93.8%.
So, the labor cost should be $1,200/93.8% = $1,279.32.
You say, the $79.32 isn’t much. My answer: how many projects do you have in a year that will lose $79.32? This goes directly to your bottom line.
Don’t pay for labor that your customer should be paying for.
Get the tools you need to grow profitably, build wealth, and live the life of your dreams.
Ruth King is well known as “The Profitability Master.” She is passionate about helping small business owners become profitable and stay profitable. For over 40 years she has coached, trained, and helped contractors and others achieve the business growth and goals they wanted to achieve.
Contact Ruth by emailing ruthking@hvacchannel.tv.
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