(These survey questions are sent in by our readers. Please spend a minute to give your answer to this week's survey as one or possibly more of your industry peers thinks this question is important and wishes to see your point of view as well as others in the industry.)
Last week's survey results on the question of......
How do you work out your actual staff costs to get an appropriate hourly rate to fit your business?
First you must know your break-even point to know what hourly rate you must charge to cover this and then make a profit. This simple equation - S(BE) = FE + VE ) Break-even Sales = Fixed expenses (fixed annual overheads) + variable expenses (actual production labor content, contractors and per job) by using your historical data you can calculate what minimum hourly rate you need to charge per production labor hour/individual to ensure that all your fixed expenses and variable expenses are covered before you include your profit margin. For eg: if you have $250 K per year of fixed expenses ( this includes Full time production staff , non-productive office staff, shed rents, electricity, leases, postage etc....) and you have $200 K per year of variable expenses ( this includes all casual employees etc directly chargeable to a job etc....) BE Sales = 250K + 200K which is $450 k dollars annually required to break even - to convert it into an hourly chargeable rate add up the entire annual production employee hours paid including full time and casual production employees this will give you your break even hourly rate charge eg: $450 K divided by 5000 production staff labor hours for the year = a charge out rate of $ 90 per hour + GST just to break even.... Before you look at adding on a profit margin.... If you know that you only charge out 60% of your production team hours then it is 60% of 5000 = 3000 chargeable hours ... this equals $450k / 3000 = $ 150 per hour + GST just to break even.... Something to think about.
Simple, you will know the cost of each of the staff each week or each month, divide by the number of hours in the week or month, then add on the margin you want on the staff.
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