How far ahead should you start planning to boost your margins when you know a labor cost increase is on the horizon? Remodeling contributors Leslie Shiner and Melanie Hodgdon provide a break down of how many days out to start looking at your budget in order to preserve your profits. Their timeline looks at estimating, selling, producing, and analyzing a job.
Labor cost increases are usually the result of wage increase, benefit changes, insurance, and other additional costs like purchasing communication devices for employees or paying for education and training.
Unfortunately, changes to the cost of labor must be covered by the company. In fact, potential cost increases must be anticipated and built into the budget long before the costs actually hit. If you want your customers to pay for labor cost increases, you need to remember that there can be a significant delay between the effect of the cost change (such as a raise) and recouping that cost through revised job pricing.
The actual amount of time can vary depending on your actual project, but in Shiner and Hodgdon's example they suggest giving 210 days between estimating a current job with current prices and starting the estimate for a new job with additional costs. Thus, if you estimate and sell this job at the old labor rate and then give out raises, it will be 210 days before your next job (presumably estimated at the increased labor rate) will start to cover those costs.