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My $200,000 Mistake: Understand Your TRUE Labor Costs

📅 June 30, 2025 ⏱️ 58:16 🎤 Nick Schiffer, Kyle

Chapters

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  • 0:00
    $200,000 Mistake
    Nick recounts losing $200,000 due to undefined billable rates in a cost-plus contract, emphasizing the need for explicit contractual terms.
  • 0:46
    The CCS Event Recap
    The hosts recap their recent Contractors Coalition Summit in Omaha, highlighting the strong community and unexpected social bonding that occurred despite challenging weather.
  • 0:17
    Defining Labor Burden
    The hosts define labor burden as all costs beyond direct wages, including taxes, benefits, and indirect expenses, and explain its importance for profitability.
  • 0:20
    Calculating True Labor Cost
    The discussion covers a detailed breakdown of labor burden components like payroll taxes, insurance, PTO, and even software and vehicle costs, emphasizing a systematic calculation approach.
  • 0:25
    Downtime & Inefficiencies
    The hosts stress accounting for downtime and inefficiencies within labor burden, as assuming 100% efficiency leads to financial losses.
  • 0:30
    Direct vs. Indirect Costs
    They explain how to identify direct costs tied to employees that go away if the employee leaves, distinguishing them from general business overhead.
  • 0:35
    Loaded Labor Rates
    The episode differentiates between Nick's cost-plus model and the concept of a loaded labor rate, which incorporates burden, overhead, and profit directly into the hourly charge.
  • 0:40
    Revenue Projections & Overhead
    The hosts discuss how misaligning revenue projections with actual work can lead to under-covered overhead, even with profitable individual projects.
  • 0:50
    Overtime & Labor Burden
    A surprising insight reveals that paying overtime can sometimes be more cost-effective than hiring new staff, as much of the labor burden doesn't double.
  • 0:55
    Free Calculator & Newsletter
    The hosts offer a free labor burden calculator through their website and newsletter, urging listeners to measure and track their numbers for profitability.

Speakers

N
Nick Schiffer
Host
K
Kyle
Host

Key Takeaways

✦

Always define your billable labor rates explicitly in your contracts, especially for cost-plus projects, to avoid legal and financial disputes.

✦

Thoroughly calculate your 'labor burden' by accounting for all costs associated with an employee beyond their direct wage, including taxes, benefits, PTO, training, vehicle costs, software, and tools.

✦

Build a profit margin into your labor rates, even for in-house labor, as you take on the risk of employment and provide value through your company's infrastructure.

✦

Account for employee downtime and inefficiencies within your labor burden calculation; assuming 100% billable hours will lead to underpricing and lost profits.

✦

Regularly monitor your revenue projections against actual performance and adjust your pricing or operational strategies to ensure your overhead costs are adequately covered.

✦

Consider the financial implications of overtime carefully; often, paying overtime for existing staff is more cost-effective than hiring new employees, as many labor burden costs do not double.

✦

Utilize tools like a labor burden calculator to gain a precise understanding of your true employee costs, and review these numbers frequently (e.g., every six months).

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