You cannot tell whether the next hire pays for itself
Hiring before the work is contracted is the most common way a good year turns into a bad one.
A new person costs more than a wage. Burden, a truck, a phone, insurance, software and supervision come with it, 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 came due on schedule and the revenue did not.
Three moves, in order
What CFOS does about it
The overhead calculator reads your QuickBooks Online expenses, so you can add a seat and see the overhead rate that results. The CEO Report grades your overhead against the published average and CFOS target for your size. Open seats are tracked on the org chart, and the decision to hire is yours.
Who owns this: Owner.
At $4M, one added office seat can move the overhead rate by a visible amount. Cost the hire loaded, divide by your gross margin, and check that the revenue is contracted. At $20M, add the hire to the budget and review it against jobs at the next close.
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Step 03: Overhead calculation
What indirect cost really comes to at your size, and the rate your estimating template should be using.
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 before the work is contracted is the most common way a good year turns into a bad one. A new person costs more than a wage. Burden, a truck, a phone, insurance, software and supervision come with it, 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 came due 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 using. It's drawn from chapter 3 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $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 is, and your own job costing tells you where you are, 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 the field won't trust, which is worse than the problem you started with.
Wrote CONTROL, the 8 step system behind these figures. More about the author.