operating cost per hour

Discussion in 'Business Operations' started by Ken Kesey, Jun 13, 2004.

  1. Ken Kesey

    Ken Kesey LawnSite Member
    from Here
    Messages: 114

    How does one go about finding their operating cost per hour?

    Is it yearly overhead and divide by the number of estimated production hours of the year?

    Then tack on my labor burden.

    With those two numbers combined, does that leave me the number of my operating cost at an hourly basis?
  2. MacLawnCo

    MacLawnCo LawnSite Bronze Member
    Messages: 1,847

    thats pretty much it, but you have to remember that since you are using production hours (which is correct), your labor burden will not be the same as the hourly rate of pay.

    I usually run around 85-90% efficiency. Meaning that for every hour on the clock, aprox 53 mins are billable. That means that to get your labor burden, you will need to take your hourly wage (dont forget workers comp) and add in an extra ~ 13% to find your true hourly labor cost. :)
  3. Team Gopher

    Team Gopher LawnSite Platinum Member
    from -
    Messages: 4,040

    Hi Ken,

    Here is another post that may be helpful.
  4. Fantasy Lawns

    Fantasy Lawns LawnSite Bronze Member
    Messages: 1,912

    Here's an old work sheet I shared with my foreman years ago .... the numbers are NOT complete as that is my buiness .... BUT they give an idea of how to creat one for your own use .... using YOUR numbers

    DIRECT COST: those expenses that happen because labor was applied, equipment and vehicles were put into action, materials were used and work was done.

    Direct costs are usually easy to document and predict when you know how much time a project will take and what equipment and materials will be needed.

    INDIRECT COST: costs that follow with direct labor
    · Payroll taxes
    · Employee benefits & Insurance
    · Fuel consumption
    · Depreciation
    · Repairs and other on-the-job costs.

    Payroll taxes, benefits and insurance can be easily estimated
    Indirect costs related to equipment are tougher to predict.
    Fuel consumption can vary greatly & Repairs are often unexpected.

    OVERHEAD COST: expenses that support the operation of a business.
    · Rent for facilities, utilities, advertising, property taxes, storage, insurance on buildings, office expenses and other "behind the scenes" costs that in some cases take place simply because time went by.
    · Take place even when no work was done.

    Summary: Direct costs happen when work is done and labor is applied. The workers come in to work, and as soon as they turn the key in the ignition, direct costs and indirect costs follow them and stay with them all day. Overhead items of expense that support the operation.

    ANALYZING JOB COSTS. Labor and indirect costs represent the bulk of expense for most contractors and dwarf true overhead costs by comparison.


    How much does TIME cost?

    How much time does an event take?

    What are hourly or time profit goals?

    What are hourly direct costs?

    What are hourly indirect costs?

    What is overhead rate per hour?

    Above info to formulate a bidding system.

    Date: Nov XXXX
    Monthly Income: $ 17,300.00

    Labor Rate: Total is $ 38.50 per Hour for 3 Employees 40 Hour Work Week
    · Salary: Bill Smith $ 500 Weekly
    · Hourly (s): 3 Workers Cost $ 26.00 per Hour or $1040 Weekly
    · Approx $9.23 per Average Gross per Hour

    Hourly Billable Income è $ 108.23
    Hourly Operations Cost è $ 77.40
    Hourly Employee Costè $ 19.33
    Hourly Profit è $ 17.22

    Direct Cost: $ 38.50 per Hour / by # of Workers is per hour Cost [Based on 160 Monthly / $ 6160 ]
    Name Monthly Average Cost Yearly Cost Percentage

    Labor Cost 160 Hours Monthly $ 6160
    Material Used Monthly - Yearly
    Total $ 6160 41.6%

    Indirect Cost: $ 20.90 per Hour / by # of Workers is per hour Cost [Based on 160 Monthly / $ 3350]
    Name Monthly Average Cost Yearly Cost Percentage
    Payroll taxes $ 1300
    Fuel $ 980
    Sub Contract (Fert) $ 100
    Deprecation $ 300
    Equipment Repairs $ 100
    Equipment Supplies $ 50
    Workman’s Comp $ 400 9.6% of Payroll
    Employee Supplies (Uniforms, Gator, etc) $ 75
    Total $ 3350 %

    Overhead Cost: $ 20.75 per Hour / by # of Workers is per hour Cost [Based on 160 Monthly / $3320]
    Name Monthly Average Cost Percentage
    Vehicle Insurance $ 135
    Rent $ 950
    FPL $ 150
    Water $ 20
    Verizon $ 120
    Bell South $ 170
    Sheffield Financial $ 300
    Amex $ 300
    Advanta $ 300
    Tax- Property, Corporate $ 37
    Insurance $ 300
    Loan $ 500
    Total $ 3320 %

    Profitability, the difference between revenues and costs, is an important concept because only profits can maintain the cash that is necessary for continuous business. -- Cost per unit indicates how much the firm had to pay for the making of one unit of the product.
    Productivity is the ratio between produced output and the amount of input of a certain type that is used in the production. The productivity of labor, for example, is measured by the ratio (produced quantity) / (spent working hours). Likewise, the productivity of use of energy can be defined as (produced amount) / (used energy kWh).

    Effectiveness goes a little further and measures not just the produced quantity but instead how well those products fulfill the needs of the customer. Satisfaction is sometimes defined as the amount of benefit as compared to the paid price; these definitions are, however, not universally established and it is advisable that the researcher states in the report which definitions he is using
  5. Randy J

    Randy J LawnSite Bronze Member
    Messages: 1,124

    I have an Excel worksheet I can forward to you if you'd like. Make sure to include everything, including the cost of your equipment - even if you've paid cash for it - you want to get paid for your equipment, and depreciation - you want to be paid enough to replace your equipment when it wears out. Fixed costs include phone, advertising, etc. Variable costs include gas (for your mower and for your truck), labor, maintenance, etc. Add those and divide by expected number of hours you'll work in the year, and there's your cost/hour.
    If you want the worksheet, just drop me an email at rdj_1@charter.net.
  6. T. Matthews

    T. Matthews LawnSite Member
    Messages: 206

    Hey RandyJ

    Could you send me a copy of that worksheet. tom@tmatthews.net

    Thank you,

  7. Ken Kesey

    Ken Kesey LawnSite Member
    from Here
    Messages: 114

    Smart cookies in this bunch!

    Thank you all.
  8. T. Matthews

    T. Matthews LawnSite Member
    Messages: 206

    better yet try tman216920@aol.com my web site email address isn't working yet

    Thank you
  9. Ken Kesey

    Ken Kesey LawnSite Member
    from Here
    Messages: 114

    I sent it to you, T.

    Thanks Randy.
  10. T. Matthews

    T. Matthews LawnSite Member
    Messages: 206

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