Raising Labor Rates

February 11, 2011

Q: Have other members felt the need to raise their labor rates?

A: Not that I’m specifically aware of. I do know that their labor costs are climbing primarily due to increased benefit costs. Unfortunately, as a not-for-profit trade association, we can’t report on what the average labor rates are as it may imply that we are establishing a standard rate. What we can tell you, though, is your true cost of producing that unit of labor sold. And, we can assist in determining the productivity, efficiencies and utilization of each employee and how that compares to the rest of the membership.

Several companies have begun to establish service as a stand-alone profit center for the company. They do an excellent job tracking their true costs and constantly adjusting rates in accordance to the actual cost to produce each billable labor unit. Many of our members peg service and installation labor rates directly to fixed and variable labor costs and use a standard multiplier (I wish I could tell you) for their markup. They review this often and, in some cases, use policies like minimum billing time, drive time, fuel surcharges, etc. to help keep them at their established mark.

The bottom line is that the hourly rate for billable time isn’t the biggest problem. It’s figuring out how to reduce the 20-30% of unbillable time that erodes your profitability … that’s more important than calling a meeting to see if your clients can tolerate a $2 labor rate increase. First, try to fix that in accordance to our benchmark productivity standards, then set the rate. — CW

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