Labor and materials are two of the most expensive expenses that construction companies face. Continue reading to learn more about construction labor vs. material prices, how they compare, and how wise construction management experts keep track of both types of expenses.
There are six helpful tips of calculating the cost of labor and material as follows:
1.NCLUDE DIRECT AND INDIRECT LABOR COSTS.
As previously stated, labor costs are not restricted to the hourly rates paid to construction workers and contractors. There are additional expenses to consider, such as payroll taxes, paid time off, and union dues. These are referred to as indirect labor costs by construction HR professionals.
Tracking indirect labor costs is critical since they can be large in comparison to direct labor costs; failing to do so will result in your organization has an erroneous view of its true spending.
Direct labor expenditures often make up 20% of a project’s total cost on their own, according to The Construction Labor Market Analyzer. However, the total cost might increase to 40% of the project’s cost when combined with indirect labor expenditures, a difference of 50%.
2.ORGANIZE AND PROJECT-LEVEL COST TRACKING
To understand your company’s overall profitability, tracking labor and material costs at the organizational level is useful. However, don’t forget to pay attention to costs in the context of specific projects as well. This can assist your business in gathering more specific data, such as the most lucrative project categories.
3.USE SPECIFIC SOFTWARE FOR CONSTRUCTION RESOURCE MANAGEMENT
Excel spreadsheets are no longer used to track labor and material expenses in construction. Construction organizations can now measure costs and demand for both labor and materials thanks to systems designed specifically for resource management.
The fact that these tools interface with other construction management programs and hence better fit into your organization’s workflow than more general tools like spreadsheets is a big advantage.
4.GET FAMILIAR WITH PROVEN METHODS FOR ESTIMATING LABOR AND MATERIAL COSTS IN CONSTRUCTION
Costs of construction labor and materials can be estimated using a variety of tried-and-true techniques. Typical methods include the following.
Price per unit strategy
The unit pricing method, as the name implies, involves breaking the total amount of work into smaller units and assigning a price to each one.
A flooring contractor, for instance, would base their labor and material costs calculations for a 2,000 square foot home on:
- How much a square foot of materials will cost them to purchase
- How long will it take them to install one square foot of materials, as well as the associated direct and indirect labor costs?
The two-way rule
Given that labor accounts for between 40% and 50% of the average construction project’s cost, you may determine the projected cost of either labor or materials to estimate the whole project budget.
For instance, if you estimate that labor will cost your business $100,000 throughout the course of the project, you may extrapolate and estimate that materials will cost another $100,000.
The rule of two refers to this. Since it avoids having to compute both portions, it can be a useful time-saving method for determining an approximate estimate of a project’s cost.
5.ALWAYS REMEMBER MATERIAL COSTS ARE USUALLY LESS FLEXIBLE THAN LABOR COSTS
Construction labor costs differ significantly from material prices in that the former can vary widely while the latter tends to be more predictable.
For instance, based on the size of the job, a flooring contractor with sufficient expertise can confidently forecast (with a high degree of accuracy) the number of materials needed to finish the project.
Meanwhile, labor costs are significantly less foreseeable. An expert with numerous years of experience may accomplish the job in 12 hours, whereas someone with less experience may take 20 hours. Costs may even be beyond the contractor’s control if, for example, the job is outside and inclement weather prevents them from working.
When comparing labor and material costs in construction, it’s critical to keep this in mind. Smart construction management experts are more flexible when making labor cost projections.
6.BE AWARE OF WHAT CAN AFFECT CONSTRUCTION LABOR AND MATERIAL COSTS.
Construction labor and material costs are affected by a variety of external factors.
Factors that frequently influence labor expenses to include, for example:
the amount of experience that a certain individual or team offers to the work the current labor market rate (particularly when it comes to hiring contractors)
how much extra is required to finish the job
Meanwhile, factors that frequently influence material costs include:
the total cost of the supply chain (including manufacturing, shipping, and importing materials)
the current market prices for materials the grade of materials used
Proactive construction experts keep an eye on these variables to stay ahead of any significant changes in their costs.
Tying Up All Together
There are six efficient methods for determining material and labor costs. Keeping a track of them is quite beneficial. It will assist the company and organization in growing easily and without difficulty. Also, they both are expensive so it will help to keep the budget well going.
