In the last blog, “The best profit-checking tool for building and trade contractors, we discussed calculating hourly rates. This article examines three additional areas of using the hourly rate effectively.
What is Labour Constant (lc)?
The Labour Constant (lc) is a decimal unit used to express time.
For example, 30 minutes is 0.50 lc. To fix a metre of timber framing, you might use a labour constant such as 0.20 lc, which is 12 minutes. Adjusting and calculating this labour constant against a schedule of quantities will provide the total labour hours for the project.
The hourly rate is then multiplied by the labour constant and the scheduled item to provide a total value for labour costs.
Labour Constant (lc) x Hourly rate = Total labour costs
Labour only versus Schedule of Quantities hourly rate
You should have a different hourly rate if the contract is for labour only versus a lump sum contract. Why is this? The lump sum quote includes your profit and overhead costs across the bottom line. However, with labour-only contracts, these need to be included in the hourly rate. Otherwise, you are not adding a profit or covering the cost of running your business.
Labour-only jobs need to include a profit and overhead percentage.
Multiple Hourly Rates
In a project, different members of your team complete parts of the job. For example, you may assign an apprentice to move materials around the site, but you would use a skilled carpenter to complete interior trims.
Multiple hourly rates are commonly attached to the labour constant (lc) in bigger teams and jobs with varying complexities.
To calculate multiple hourly rates, add salaries or wages for junior, intermediate, and senior and calculate the hourly rate for each band using the highest salary.
Using different hourly rates can make your quote more competitive, but beware that you will need to ensure that all your staff are occupied on jobs, and sometimes senior staff have to complete jobs that a junior might be better assigned to.
Taking the time to calculate accurate labour constant and hourly rates is key to ensuring business profitability.
Download your free Hourly Rate Calculator and start using your correct hourly rates.