Labor numbers and loss leaders

I’m trying to get into any market I can just to stay in business. Can I use my same general and administrative overhead numbers for commercial work as residential? Can I use the same labor numbers for construction as I do for maintenance?

Markets throughout the U.S. are down and more competitive than ever. Many contractors submit bids that are below their break-even point; and in some cases, below their direct costs. Pricing for commercial and residential lawn maintenance, fertilization and irrigation service work is also tightening as more contractors are getting into these markets.

The short answer for these questions is no. You shouldn’t use commercial rates to bid residential work. You also shouldn’t price residential and commercial maintenance using the same labor rates. Here’s why:

Maintenance labor tends to be 5-10 percent lower than construction labor. Construction general and administrative (G&A) overhead runs roughly twice that of maintenance per man-hour. Construction work is much more management intensive than maintenance work. Due to its repetitiveness, a maintenance supervisor can supervise twice as many laborers as does a construction supervisor. Normal G&A overhead per man-hour (I call this OPH) for a seasonal construction company runs $15-$18, while that of a seasonal maintenance company runs $8-$10.

All else being equal, and without including equipment costs, the cost for a $10 laborer with just G&A overhead would be $20 for maintenance and $28 for construction. That’s a huge difference – 40 percent more at this level.