Finance

How Labor Costs Make or Break Your Business (And Why Forecasting is Essential)

Because labor costs are such a significant part of overall costs, they impact all aspects of a contractor’s business. Having real-time information provided by insights from data analytics, contractors are able to make their future more profitable.

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With both costs and shortages on the rise, it’s no surprise that companies want to find the best tools to manage labor. Often, labor predictions are made on assumptions of what data will look like before it’s even been collected. Finances and plans are constantly updated and redrawn as information trickles down the pipeline. The solution to the hassle is obvious. Real-time decisions need real time-data. 

For most contractors, labor is their second biggest cost. Therefore, it’s essential to have accurate information so that issues and trends can be detected and accounted for. However, a clear picture of labor costs is just the first step. The information also needs to not only be easily visible and accessible to decision-makers, but also updated regularly.

In the past, contractors developed a price for a project that was either accepted, rejected, or negotiated on by the potential client. Once a price was agreed on, work would proceed. Meanwhile, the team members on the back end who handle the finances kept to their own silos. They didn’t have a firm grasp of costs incurred on a project until after a job was done, or at some point late in the process.

Was the job profitable? What issues affected profitability? Was it within expected margins? Is there a systemic issue impacting profit? Vital pieces of labor cost information were either left unanswered or were determined long after the fact that their value was diminished. 

So, what if a CFO could have a clear picture of vital information in real-time? Decisions would not be made on hunches or feelings. No more winging it. 

Let’s consider the impacts of knowing labor costs in real-time.

Get the best bids at the right time

Suppose a contractor is making a bid on a job. A fantastic opportunity comes along, but it’s a resource intensive one. The decision can either yield enormous profit or major logistical troubles. Without the right data, the contractor’s bid will be a gamble at best. However, a contractor with the right financial platform in place finds themselves in a much better position. The data won’t lie, they know exactly what bids the company can take on, how they’re going to fulfill them, and what the profit will look like.

Armed with real-time information on labor costs, profitability from similar previous jobs, and other jobs done with the client, your contractors will feel confident submitting the best bids. Whether they pass on a project or bid, they’ll have the hard data to back up their decision. With good labor cost data, bidding isn’t guessing, it’s knowing. 

Build the perfect team

Labor cost information doesn’t just help with planning bids. It’s essential to executing them as well. Up-to-date knowledge and insights allow you to put together the best team for a project.

With clear labor cost data, CFOs can recognize relevant trends and patterns when using particular subcontractors. Some subcontractors may be more or less efficient, depending on the type of job. Real-time insights may also reveal that some subcontractors should be removed from the roster altogether.

When it comes to making the right call, the data doesn’t lie. Measuring subcontractors’ strengths and weaknesses by their labor costs leads to teams that are both practical and profitable. 

Solve Staffing Issues the Right Way

Efficiency is key to good staffing policy. Whether it’s a poor distribution of the workforce, or an understaffing issue, labor cost information is key to implementing the right solution. 

A review of the data related to labor costs may indicate an excessive amount of overtime is being worked on one project and requires a work distribution shift. An even pattern of overtime across the board suggests a need for more staff to reduce labor costs. Information showing underutilized staff can show a marketing team they need to ramp up efforts to solicit more work or to make reductions in staff.

Different issues represented by the data will require different implementations. With real-time information, a contractor is positioned to always have the right solution for any staffing problem.

Purchase with confidence

Labor cost is a key component of cash flow and available capital, but it’s far from the only piece of the puzzle. Expanding equipment inventory is often a key point in the growth strategies of construction companies.

When making significant purchases, companies strive for clarity regarding their expenses. As mentioned before, labor is the second biggest cost within the industry. The status of present and future labor costs can provide key financial insights as to when and how much equipment should be bought. Companies will feel confident knowing they’re not sacrificing short-term capacity for long-term growth. 

In the end, good data means good business 

The evidence is clear. In all aspects of business, accurate real-time information is invaluable to decision making. While having certainty regarding labor costs enables contractors to be more nimble and make better decisions. Those intelligent decisions help a contractor drive up profitability. The right data is essential to making efficient decisions for the short-term and projecting growth into the long-term. So what are you waiting for? Find out how your company can experience these benefits by scheduling a demo with Briq. Let’s make your data work for you, not the other way around.