Labor costs are one of the highest costs for businesses’ P&L. Depending on your business type, you likely have sales reps, project managers, warehouse managers, associates, delivery people, and office administrators. You should account for all of these employees in your labor cost calculations. You also will have costs at every stage of the client journey, from initial engagement to post-purchase and services.
Here’s how you can better track your labor costs within all of these areas of your business.
1. The Sales Process
Start tracking time at the beginning of the sales cycle. This could begin with a phone call, an online video meeting or a personal visit. During this time of qualification, keep an inventory of how long individual segments of your business process take.
Once you’ve qualified a lead and it has graduated from a suspect to a prospect, it’s time to create a proposal to show how your solutions and services can support their needs. Monitor the total time it takes to create and present the proposal to understand associated sales costs.
2. Direct Labor
When you break out labor by phase, you can calculate the percentage of time and labor it takes to complete each step of the process. As a result, you can compare the percentage of budget consumed at any time in a project, as well as the percentage of completion achieved. This calculation is crucial for understanding your earned income, which can be a percentage of deposits and progress payments received.
By applying time to work orders, office, travel or other time spent, everyone can see the percentage of time used for revenue-generating activities. When you compare this number to unapplied time, you can identify ways to better optimize your labor.
3. Administration
A percentage of an employee’s time is spent ordering products, receiving products, scheduling work and billing. By tracking the amount of time spent on all of these activities, an administrator can better understand how much energy and effort is spent on hidden project costs. You also will have the insights needed to refine your labor cost per hour accordingly.
4. Service
Many service providers offer their customers a “warranty” period. During this time, clients may ask them to go onsite to address changes or issues that arise. Tracking this time provides objective information that can be used to account for the costs that make up your installation fee schedule. If you require the customer to purchase a service contract or maintenance contract, you do not need to address this stage.
Apply time to projects from all parts of your business process, including sales, engineering, installation, purchasing, delivery, and programmers, you will have a much better understanding of your payroll expense versus revenue generation.
With this knowledge, you can then make an informed decision on the labor costs for your business.
This article is adapted from a piece written by Tom Coffin for Security Sales & Integration.
