You cannot tell whether the next hire pays for itself
Hiring ahead of the work is the most common way a good year turns into a bad one.
A new person carries more than a wage. Burden, a truck, a phone, insurance, software and supervision ride along, and every one of them is committed the day the person starts while the revenue is a forecast. Owners who hired before the work was ready describe the same thing afterward: the overhead arrived on schedule and the revenue did not.
Three moves, in order
Step 03: Overhead calculation
What indirect cost really comes to at your size, and the rate your estimating template should be carrying.
Other problems step 03 solves
Other things that go wrong
What owners ask
How much revenue does a new employee need to generate construction?
Hiring ahead of the work is the most common way a good year turns into a bad one. A new person carries more than a wage. Burden, a truck, a phone, insurance, software and supervision ride along, and every one of them is committed the day the person starts while the revenue is a forecast. Owners who hired before the work was ready describe the same thing afterward: the overhead arrived on schedule and the revenue did not.
Which part of the system fixes this?
The step is number 03, overhead calculation. What indirect cost really comes to at your size, and the rate your estimating template should be carrying. It's drawn from chapter 3 of CONTROL: The Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M–$5M averages 7% before taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack sits, and your own job costing tells you where you sit, which is the number that pays payroll.
Where do I start?
Cost the hire fully loaded, with burden, vehicle, insurance, phone, software and the supervision time they consume.
Can I fix this without touching anything else?
You can try, and it doesn't hold. Step 03 depends on step 01, job cost structure and step 02, equipment cost basis. Install it ahead of those and it produces numbers nobody trusts, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system these figures sit inside. More about the author.