How Accurate Are Your Business Costings?

21/10/2013 by Peter Flemming

With ever decreasing margins and business conditions being very tight, it can be hard enough to win contracts. Whilst the purpose of being in business is to generate a profit, other issues that affect your tender price include the need to keep the business ticking over, retaining staff, maintenance of a long term or significant customer, etc.

As with any tender, you need to be acutely aware of the real cost of all of your inputs, including labour. Remember, paying staff costs a lot more than "just the wage you pay
them". Workcover (say 3%), compulsory superannuation of 9.25%, annual leave loading, 10 public holidays and provision for 10 sick leave days per year all increase the real cost of employment.

Consider the following example: 

An employee is paid for 38 hours per week at $28 per hour. If the employee does 38 hours chargeable hours work for the week, the real cost per hour is $37.65. Should the recoverable time drop to 90%, the real cost for each chargeable hour becomes $41.85. A further 10% drop of recoverable time increases the real cost of employment for the business to $47.10 per hour.

When preparing your quote, consider your staff down time - will you be paying your employees from the time they leave the depot until the time they return? Travelling time of 2 hours per day automatically increases the real cost per hour of chargeable time by $12.56 per hour, given the payment to the employee is $28 per hour.

And labour rates are only one variable that affects business profitability. We can assist you in other areas also; e.g. calculate your break even labour charge rate given a set overhead figure and chargeable employee hours. Getting these calculations right is integral to enjoying a healthy bottom line. 
These are important calculations that can cause a great deal of confusion for time poor business owners. We are very happy to assist you deal with this potential headache and improve your business profitability.

Please contact Schuh Group if you would like professional assistance in this area.