I remember asking the question in one of my estimating seminars "how do we know the correct charge out rate?" That's easy one contractor replied "the cost of a postage stamp indicates the charge out rate for labour, when stamps were 30c labour was $30.00 per hour and now they are 45c, $45.00 per hour is the rate" well there may be some similarities, however stamps are still 45c and labour is much higher than $45.00 so it can let you down. There is a more accurate and correct method.

The cost of labour will change when the productive hours per week alter, for example, the productive hours for a typical construction site regardless of it being residential or commercial is 33 hours, if the building site were in the city or a school it is predictable that the productive hours will reduce to 30 hours, and in the case of emergency type work the productivity will be as low as 27 hours. Subsequently the charge out rate will increase proportionally to the cost of labour if the same level of profitability is expected. Lets look at three examples:

In all cases the annual cost of a tradesperson to the company is $48,000.00 (Enterprise bargaining agreements will be higher) and the productive weeks worked per year are 40.

Example 1: The productivity is 33 hours per week. (Typical for a construction job)

Example 2: Where the productivity is estimated at 30 hours per week due to the degree of difficulty, the job may be located in the city or may be a renovation to an older building.

Example 3: Maintenance or emergency work (Do & Charge) where the chargeable hours per week are 27 due to lost time travelling between jobs.

Note: The cost to the company alters with the variation in the anticipated productive hours per week. For those who have followed this series you will have come to appreciate that being able to adjust labour hours in accordance with the degree of difficulty for the type and location of a job provides accuracy beyond belief.

Remember, there are two different questions you must answer when estimating, what are the total hours in the job? And what is the cost per hour to have a tradesperson on the job? By establishing these two facts multiplying them together, adding the overheads and profits as a percentage, you will truly take control of your estimating and will: -