BENCHMARKING YOUR BUSINESS: Labor Benchmarking

Clients often ask me how their crews stack up against others in the industry. The best way to answer this question is to compare direct field labor costs – as a percent of sales for their respective divisions – to national benchmarks. These costs only include gross payroll and they do not include labor burden items the company pays, such as FICA, FUTA, SUTA, liability or workers’ compensation insurance.

Jim Huston

Here are some benchmarks to review and compare to your actual costs: Keep in mind these benchmarks are averages and your comparison figures may vary dramatically due to your operation and production practices. However, your figures should be fairly close to these benchmarks.
 
Let me offer a couple other labor benchmarks you may find useful.
 
General and administrative (G&A) office salaries, to include a fair market value salary for owners, should be about 10 percent of sales (plus or minus 2 percent).

Turn this calculation around and determine what your sales should be for the amount of G&A overhead salaries you have. Multiply your total G&A salaries by 10. This will tell you roughly what your sales should be.

 
Commissions for salespeople, who are just selling, run 8 to 12 percent. And sales for salespeople should run roughly 10 times their salaries. For example, if a sales person wants to make $50,000, they should sell at least $500,000 worth of work.
 
One caveat: These benchmarks apply to individual bids, actual costs for jobs, and divisions specializing in a specific type of work (installation, maintenance, winter work, etc.). They may break down in two scenarios.
 
First, these benchmarks will be diluted when you combine diverse types of work into one financial statement. Second, if you do a lot of subcontracted work, the costs and related revenue from the subcontracted work will distort your cost percentages.
 
If you have questions or disagree with any of my benchmarks, please e-mail me your thoughts.

* Subcontractor costs can vary dramatically and can therefore greatly distort company percentages. I like to remove these costs and their related revenue from the division when calculating company percentages. 
** Includes irrigation installation

The author is president of J.R. Huston Enterprises, a Denver-based green industry consulting firm. Reach him at  800/451-5588, benchmarking@gie.net or via www.jrhuston.biz.