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BuildYourNumbers.com presents:

Achieving Profitable Return$ on

EMPLOYEE LABOR

Diane Gilson, Certified Advanced QuickBooks ProAdvisor

© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620

BuildYourNumbers.com ♦ InfoPlusAccounting.com

http://buildyournumbers.com/

http://infoplusaccounting.com/

What do we do?

• We help business owners, bookkeepers, and accounting professionals create management accounting systems that clearly show which jobs make money, which jobs lose money, and how to use this information to increase profits.

• We help you "Build Your Numbers" using online training classes, industry-specific accounting products, or personal web-based consulting and coaching.

• The ultimate goal? To empower your business to create the lifestyle you deserve…

Toll free: 866-244-2228

Contact Diane Gilson [email protected]

© Info Plus Accounting, Inc., Ann Arbor, MI ♦ (734) 544-7620 BuildYourNumbers.com ♦ InfoPlusAccounting.com

mailto:[email protected]



Experience: 30+ years varied accounting experienceincluding 15 Years as a CPA

Focus: Management accounting, job costing, and training for construction and manufacturing industries since 1994

Speaker: Various local and national groups including National Remodelers Shows, Atrium Group, International Builders Show, etc.

Developer: > 90 Online Training Classes, eCPA, AccountingPRO and various other accounting support products, calculators, procedures, templates

Author: Accounting with QuickBooks for Builders, Remodelers & Developers + various nationally published articles

QuickBooks Certifications: Certified Advanced ProAdvisor, Enterprise ProAdvisor, Intuit Solution Provider + others,… (see cover sheet)

Awards:- 2014 and 2015 “Top 100 ProAdvisor” (from > 65,000 ProAdvisors) - Associate of the year (2006)- Distinguished Service to the Building Industry (2009)

Service: - NARI National Member (8 years)- NAHB National Board of Directors (4 years) - MAHB State Audit Committee (4 years)- Treasurer - HBA (10 yrs)- Treasurer - Remodeler Council (2 yrs)

Diane GilsonPresident, Info Plus Accounting, Inc.

Founder, BuildYourNumbers.com




20+ years of: - Working w/hundreds of company owners

throughout the U.S.

I’ve seen: - How few companies are really ‘on top of’

their accounting information

- The pain company owners face when it comes to job cost, employment, and pricing decisions

I understand:- The profitability issues that owners face every

day (especially those ‘bottom line’ results!)

Most importantly:





• Lots of info to cover in a short time frame!• Multi-tasking? • You’ll get the most value if you’re able to focus on each step.

So please remove distractions (cell phones, email, FB, co-workers dropping in, etc.)

• We’d like your ideas, comments and insights throughout! Please enter these in the Q&A Box! We’ll be monitoring your questions and comments… We’ll also display the results of the polls so you can see them. If I don’t get to your question, email me at [email protected]

Achieving Profitable Return$ on Employee Labor



mailto:[email protected]



What we’ll cover today:

• What Are, & Why Should We Care About, Our True Costs of Labor?

• How to Price Labor to Yield the Gross Profit % and $ You Need

• Resources – including Free & Discounted Versions of the eCPA (employee Cost & Pricing Analyzer)

• Why You Should Track True Labor Costs For Each Job

• What Else You Can Do With Burdened Cost Info?





What IsOur True Cost of Labor

& Why Should We Care?




What’s our “True” (Fully-Burdened) Cost of Labor?

Compensation + Burden Costs

= Total Annual Cost of Employee

÷ Hours Available to Perform Desired Activities

= Fully-Burdened Cost per Production Hour




Phones, Computers, Tablets, Software

Shop, Clean-Up, Breaks, Training Time

Insurances: Health, Dental,

Life, Workers Compensation

Paid Time Off: Holidays, Vacation, Sick Time

Equipment & Vehicles:

Asset, Operating, Insurance,

and Maintenance Costs

Facilities: Shop, Floor or Office Space

Union Benefits Retirement Programs

Liability or Errors & Omissions Insurance

Q. Exactly WHAT IS Labor Burden? Examples:


Employee Costs We Can’t* Assign Directly to Jobs…*or are very difficult to…



Why Do We Care?

Cost &

Price

Time &

Money




Under-Billings: You can “do the math” using this BLOG POST

• Example 1: 2080 hrs – 180 hrs = 1,900 production hours

Under-billings of $5/hour for 5 employees:

1 year ________ 3 years ________ 5 years ________

• Example 2: 2080 hrs – 330 hrs = 1,750 production hours

Under-billings of $12/hour for 20 employees

1 year ________ 3 years __________ 5 years __________

Note: Printed version included in your handout: “Are You Losing A Lot?”


$47,500 $142,500 $237,500

$420,000 $1,260,000 $2,100,000



http://buildyournumbers.com/under-billing-calculation-employee-labor-free-calculator/


Knowing how to properly PRICE for employee time can make all the difference!

This single factor can decide whether a company with employees will:

• Grow and thrive• Just limp along • Go out of business


“But how do we figure out what we should earn or charge for employee time?”





Why Would Any Business UNDERCHARGE or LOSE MONEYon Employee Labor?

1. Default to what others charge (“It’s the going rate.”)

3. You don’t have a clear picture of how to mark up to meet your gross profit goals.

2. You don’t know what each of your employees actually cost per hour that they work on jobs.

“How do we figure out what we

should charge or earn for

employee time?”




Please type into the Q&A Box & share …

Examples of types of businesses that could benefit from

• Knowing (and regularly updating) their

cost of employee work time, and

• What they should be earning

from employee work time






How to Compute Your Employee Costs& Price Employee Time

to Yield the Gross Profit % and $

You Need





CAUTION!

Labor burden calculations will likely require a variety of estimates and a good dose of “judgment”.

As a result, burdened costs will never be accurate down to the penny, but will yield job cost results that are still far more accurate than without.





Overview of the Free eCPA

(employee Cost & Pricing

Analyzer™)

Let’s fill one in together…




6 things we can learn from burdened cost results for 1 employee:

1. Number of ________ your employee has available to do “real” work.

2. Additional ________ required for your employee to do their work.

3. ________ cost as a % of your employee’s base pay.

4. Standard, overtime, and weighted average $ per __________ _____.

5. The $ to charge or earn per hour to achieve your desired

______ ______ for that employee.

6. Annualized difference between suggested and ______ hourly rates

for your employee.


Burden

costs

gross profit

production hour

actual

hours





Resources:Free & Discounted Versions

of the eCPA (employee Cost & Pricing Analyzer)





Your FREE (Single-Employee) Version is located at:

http://buildyournumbers.com/free-labor-burden-calculator/



http://buildyournumbers.com/free-labor-burden-calculator/







Special Offer ONLY through Friday Midnight, 9/30/16

10% Discount on the 2 Business Versions

Small Business: $497.00 $447.30

Mid-Sized Business: $997.00 $897.30

Enter SEPT10 at Checkout





Examples:Why You Need to Estimate & Track

True Labor Costs For Each Job





1. _____________________

2. ________________Costs

3. More _________________

(Indirect Production Costs)

4. COGS (Cost of Goods Sold =

Total Costs of ___________)

5. Gross Profit ($ and %)

aka “Profit _______”

Note: This $ amount isn’t enough

to cover this company’s _________

of $259,100 (25.9%) ( Net loss of

$111,870)

Your Management & Job-Cost Reports

Total income

Burden

Burden

Production

Margin

overhead









• Yellow Line is Gross Profit

• Assume a Gross Profit Goal of 25%

• $275,730 earned by all “regular” jobs

• Which jobs exceed the goal?

• Which jobs are less than the goal?

BUT after deducting Labor Burden Costs,

Gross Profit is reduced to $147,230! (14.7%)

Job Reports BEFORE Allocating Labor Burdent to Each Job





Job Reports BEFORE Allocating Labor Burden to Each Job

Job Reports AFTER Allocating Burden to Each Job





1. Job cost reports without burden costs:_________________________________________________________________________________________________________

2. Job cost reports WITH burden costs_________________________________________________________________________________________________________

Why Do the Differences Matter To Your Company?





• Fully-burdened rates for different positions are shown in the first grid.

• Labor cost totals for the first job (Job A) are shown in blue at the bottom of the second (blue) grid.

• Labor cost totals for the second job (Job B) are shown in green at the bottom of the third grid.

• The difference in labor costs is shown at the bottom, in yellow.

For Estimating…





• Same number of hours, but wide variance in estimated labor costs: $517.

• The estimated labor costs for Job B are 34% higher than for Job A!

• Why? Different fully-burdened labor costs

for each type of employee. Difference in time between the

specific people working on the job.

• Without those detailed numbers at hand, you wouldn’t know how dramatically different your costs could be! And this should impact your pricing – right?

For Estimating…





Monitor Variance Reports (By Job Stage) as Job Progresses…





What Else Can You Do With Burdened Cost Information?



Compare internal costs to outsourced costs

Measure productivity

Use results for evaluations

& profit-sharing

Assign the right employees to the right tasks

Decide whether and when

Overtime can be beneficial

More accurate results than industry standards

Learn “averages” by Employee

Level or DepartmentSet objective performance goals

Compute potential payback

on new equipment

How Else Can Labor Burden Info Help Your Business?


Add Objective Info to All Employee-Related Activities!



More Examples:

Check your email for our upcoming series of useful profit-enhancing

tips and examples. We’ll be sharing and explaining many more

specifics about how you can use, and apply, burdened labor cost

information to your business…





What we covered today:

• What Are, & Why Should We Care About, Our True Costs of Labor?

• How to Price Labor to Yield the Gross Profit % and $ You Need

• Resources – including Free & Discounted Versions of the eCPA (employee Cost & Pricing Analyzer)

• Why You Should Track True Labor Costs For Each Job

• What Else You Can Do With Burdened Cost Info?

Q&A





Q&A





Special Offer ONLY through Friday Midnight, 9/30/16

10% Discount on the 2 Business Versions

Small Business: $497.00 $447.30

Mid-Sized Business: $997.00 $897.30

Enter SEPT10 at Checkout



From: http://buildyournumbers.com/under-billing-calculation-employee-labor-free-calculator/

Are You Losing a LOT of Money By Under Billing for Employee Labor?

Let’s do the math: Here’s a free calculator you can use to find out how much revenue you may be losing over one, three, and five years if

you are under-billing or under-charging for employee (production) labor time. Just enter numbers in the yellow cells below to show the

results of various scenarios. I’ve added examples and notes below the calculator. Instructions:

Enter Your Estimates in the Yellow Cells ONLY (entry in any other cells will invalidate the results).

To start over simply refresh the page. . .

To see full-screen, centered results, use the slide bar at the bottom of the calculator.

If you’re not sure how much you may be undercharging or are unclear on annual production hours, refer to the information below.

Example: Under Billing Calculation #1:

…Results Show a 5-Year Revenue Loss of $237,500 to $332,500

Every company’s estimates will vary, but here’s a screen shot of what the calculator would show if you entered estimates of:

1,900 hours per year of average “production” time. (Total work hours available for the year including overtime, less all paid time off and any

other ‘non-production’ time such as company meetings, evaluations, time sheet prep, non-job breaks, and other ‘non-job’ time.)

Estimated average under billing of $5 per production hour.

A minimum of 5 revenue-earning (‘production’) employees.

A maximum of 7 revenue-earning employees.

You’ll see that, using these variables, over a 5-year time frame, the under billing calculation shows a loss in revenue ranging from $237,500

for five employees to $332,500 for seven employees.

…

Example: Under Billing Calculation #2:

…= 5-Year Revenue Loss of $2.1 to $2.6 Million!

You’ll see in the following example that changing the variables will have a different impact on lost revenue. For this example, you’ll

see estimates of:

1,750 hours per year of “production” time – including overtime. (See notes about production time in Example #1.)

Estimated under billing of $12 per production hour.

A minimum of 20 revenue-earning (‘production’) employees.


From: http://buildyournumbers.com/under-billing-calculation-employee-labor-free-calculator/

A maximum of 25 revenue-earning employees.

With these estimates, over a 5-year time frame, the under billing calculation shows a loss in revenue ranging from $2,100,000 for twenty

employees to $2,625,000 for twenty-five employees. …

Of course for larger companies with more employees, the numbers get proportionally larger!

What the Under Billing Calculation Reveals…

What starts out looking like a fairly small under billing difference for employee labor, when multiplied by a number of employees and

several years, can amount to a staggering loss of revenue. This revenue reduction flows directly to the pre-tax bottom line. You can likely

imagine that these amounts can ultimately make the difference between a company’s long-term success or failure.

Is There a Possibility That You Might Be Under Billing?

If there is a possibility that you might be under billing, please take a few moments to enter some estimates into the free calculator at the

beginning of the article to see the potential impact on YOUR company’s revenue (and pre-tax bottom line). If you’re in doubt about

“Annual production hours per employee” or “Potential $ per hour of undercharge” (the first two cells in the under billing calculation) please be

be sure to check out the following paragraph.

Do You Know Your Critical Employee Labor Cost and Billing Numbers?

For instance, do you know:

1. Your annual production hours per employee?

2. What each employee really COSTS per production hour?

3. How much per hour you SHOULD be charging (or building into your product costs) in order to hit your gross profit goal for employee

labor?

4. Based on item #3 above, how much per hour you are potentially under billing?

Now that you can see what a huge effect under billings for labor can have on your revenue, if you don’t know the answers to these 4

questions, I’d like to invite you to click on any of the above links to look at a unique resource that we’ve developed to help you determine

exactly what those underlying numbers look like for YOUR company. I believe you’ll find these videos and information to be both

informative and eye-opening…


http://buildyournumbers.com/ecpa-employee-cost-pricing-analyzer-labor-burden-calculator/





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Achieving Profitable Return$ on ... - Build Your Numbers · Achieving Profitable Return$ on EMPLOYEE LABOR ... • We help you "Build Your Numbers" using online training classes,