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Calculate your total payroll expense (including benefits) which includes not only machine operators but everyone paid in the company. Divide that number into the company’s net revenue each month. Is the labor cost percentage declining or rising? Is labor costs rising, staying the same or dropping?
Rising labor percentages of net sales means lower labor quotes. A rising percentage indicates someone is bidding lower pricing or maybe there are different types of products coming into the organization. Declining percentages mean higher labor quotes or more outside work.
Declining percentages may indicate your firm is getting better pricing. If you are winning the bids, great. If you are not, you may be bidding too high. It also may mean that your estimators are bidding more work for your plant, but the work that they are bidding involves less labor cost and more material and outside services. Watch this trend for margins may be dropping also since the markup one gets on everything other than labor is generally a lower markup.
Declining percentage may mean possible quoting problems. There is a possible negative to this declining percentage especially if you invested a lot of money in new machinery and equipment and new work being bid involves more and more outside services versus using your capital. To check this, measure the unused idle time on all your equipment.
