Is there an invisible rule when charging for labor?

Question

Is it like 1 1/2 times the cost of material or something like that? So if I have a big job the labor should be under, at cost or above the cost of just materials?

Say if its just one person doing the labor like laying sod, planting plants, mulching beds etc.....

what about if its 2 people under you that you have to pay too?

Answer 1

You take the cost of labor then mark it up for overhead.
Say you pay labor $10 an hour plus pay 500 a month medical 7.2% FICA and Medicare, a few hundred unemployment insurance your 20K per year employee might cost you 40K so billing out at 20 per hour is break even.
If you want to bill your own labor you should charge about 3X what you want to earn since you have double FICA and cost for trucks and things. Bill materials at cost plus a markup.
Labor cost and material cost aren't related you could have $10 people using expensive materials why charge more for labor based on the value of materials? Then you would get less for cheaper grass seed when it cost you just as much to have it planted.
Really you can only charge what people will pay, if they won't pay you $40 an hour per person to mow the lawn you aren't in business unless you lower your labor cost and billing rate.

Answer 2

The answer is going to depend first on the type of trade you're talking about, and second on geographic region, and finally on your stature within that marketplace.

Type of Trade. There is going to be a difference between what gets charged for labor if you are in the chicken coop construction business, versus whether you are in the Stealth Aircraft construction business. Anything that requires higher education, a higher security clearance, and a higher degree of specialization will entitle you to charge insanely more for labor than anything that doesn't.

Geographic Region. For a time here in Las Vegas construction was booming so hard that it was difficult to find qualified construction workers to meet demand for housing. At that point, anyone who could find a hammer could get paid a lot for their labor. But at the same time in Cleveland, for example, a hammer and $4.00 would get you a cup of coffee. Las Vegas was (and still is, comparatively speaking) booming while Cleveland is shrinking. That affects the demand for labor of all sorts, from construction workers to lawyers.

Stature in the Marketplace. If you are the best at what you do in the marketplace and everyone knows it, then you can charge a lot more for your labor than some kid who just dropped out of high school. The reason is that you can work faster, waste less material, and do a better job than the kid just in off the street.

So if you can work faster, waste less material and do a better job than anyone else in the profession, you have a chance of making a lot of money, because where there is a greater demand for your type of labor, the marketplace will reward those at the top of their profession more than those at the bottom.

Answer 3

It would depend on the job being done. Some jobs don't have much material cost but take a lot of labor - for other jobs, it's mostly materials with little labor, so there's no way to estimate labor based on materials cost. Estimate the amount of hours involved (for all the people working) and price the job from that.

Answer 4

There is no simple rule of thumb for estimating labor costs in relation to materials costs. There are certain jobs that will involve very low cost materials but will require a lot of labor to install. There are other jobs that require very expensive parts or materials but take relatively little labor to install.

I would suggest that you take a look at the cost estimating guidebooks produced by RS Means. Because your comments suggest that you are in the landscaping business, you will probably want to look at "Means Site Work & Landscape Cost Data 2007 Book".

This book will give you an itemized breakdown of material, labor, and overhead and profit for each work item. While these costs may differ from what you charge, you can get a good idea of the breakdown between materials and labor for each type of landscaping work.

The Means books are fairly expensive (~$150 US) but you can always look at one of them at the library or one of the larger bookstores.

Answer 5

The only thing I remember about direct labor is that it is one cost of three. Direct Materials is the next cost and finally factory overhead such as lights, fuel, telephones, advertising. When you have all of these costs on paper get your cost per unit of labor. So if a service such as landscaping or carpet cleaning is your business try to quantify if you are making enough profit,...after taxes to stay in business. Other wise what is the point. Get yourself an accountant. It is worth the cost of finding out if you should even be in business.