Ratio of Labor Cost to Material Cost

10 Replies

I know overall costs vary widely depending on where you are in the country, but it seems like ratios would stay pretty much the same. I may be incorrect about that, so if I am, please let me know.

I just finished a renovation with the company I work for and we provided the majority of the labor for the project and bought all of that materials ourselves. The project budget ended up being 30% Sub Costs, 31% Materials, and 39% Labor. I subtracted soft costs, etc. for this analysis. The sub costs don't really play a role, but I'm interested to know what the members here think of my labor to materials ratio. It cost us $1.28 in labor for every $1.00 in materials. I think the labor was pretty high, but I don't know for sure. If there is a conclusion to be drawn, I would appreciate assistance from the membership.

Thanks,
Tyler

I use to keep up with most material costs and I'd do a walk through and estimate on the spot then double the material costs and that was close enough for light jobs. Depends too on what needs to be done, labor on flooring is less than material costs, depending on what you get. So, I only used it as a gut estimate and put a pencil to a project (actually getting bids from spec sheets) to base real money on. :)

While this may not be representative of anything other than my type of rehabs, my location, my type of properties, my contractors and my materials, over my first 50 rehabs, materials have consisted of 21% of the total rehab costs and labor has consisted of 79% of the rehab costs.

I wouldn't try to extrapolate that to any other investor, any other market, etc...

Originally posted by J Scott:
While this may not be representative of anything other than my type of rehabs, my location, my type of properties, my contractors and my materials, over my first 50 rehabs, materials have consisted of 21% of the total rehab costs and labor has consisted of 79% of the rehab costs.

I wouldn't try to extrapolate that to any other investor, any other market, etc...

Were you dealing with subs, or your own labor force? Our labor force is our own people that we pay directly. Not paying another company's overhead or profit, which would significantly impact labor to materials ratio.

It doesn't seem to me that there is any real correlation, or any benefit in trying to find one. Why would it cost more to install a $150 faucet than a $50 faucet? Or to install a $200 prefab slab vs. a $500 slab? As a flooring pro, I leave myself room to charge more for installing a cheap floor because they are usually harder to install, but generally my rates don't change based on the cost of the material. Also, consider that I had a client pay $5.50/sf for a floor that I could have sourced for him at $3.25/sf. Not that anyone around here would overpay like that.

In the end, your ratio might just be an indication of the quality of your finished products.

Originally posted by Steven Straughn:
It doesn't seem to me that there is any real correlation, or any benefit in trying to find one. Why would it cost more to install a $150 faucet than a $50 faucet? Or to install a $200 prefab slab vs. a $500 slab? As a flooring pro, I leave myself room to charge more for installing a cheap floor because they are usually harder to install, but generally my rates don't change based on the cost of the material. Also, consider that I had a client pay $5.50/sf for a floor that I could have sourced for him at $3.25/sf. Not that anyone around here would overpay like that.

In the end, your ratio might just be an indication of the quality of your finished products.


That's a fair point. Thanks for the input. I would contend, though, that as your cost of materials goes up (more expensive fixtures, etc.), you're probably doing other things that would increase labor costs for a nicer house.

Originally posted by Tyler Small:

Were you dealing with subs, or your own labor force? Our labor force is our own people that we pay directly. Not paying another company's overhead or profit, which would significantly impact labor to materials ratio.

I use all subs...

That said, if I had employee labor, I'd have additional overhead for employment taxes, liability/workers comp insurance, tools, vehicles, etc. Personally, I imagine that employee labor is just as expensive as sub-contractors if you're not tremendously optimized in your business.

Originally posted by J Scott:
Originally posted by Tyler Small:

That said, if I had employee labor, I'd have additional overhead for employment taxes, liability/workers comp insurance, tools, vehicles, etc. Personally, I imagine that employee labor is just as expensive as sub-contractors if you're not tremendously optimized in your business.

I think this is very true, in that when you hire employees you explicitly have to pay all the "loading" charges of those employees.

Contractors, on the other hand, can frequently be retained for less due to competition among competing contractors, as well as lack of business sophistication on the part of many contractors in pricing their services (i.e. they don't necessarily understand/quantify and build in all of their hard/soft costs, a prime example being the true cost of longer-lived items like tools and vehicles).

Originally posted by Tyler Small:
We pay some for taxes and some for insurance, but not much since they aren't employees.

You should be very careful about paying part of their taxes and/or insurance. By doing so, you're treating them as employees, and if the IRS were to determine that they were employees (based on the overall relationship), you could be on the hook for a lot more taxes and insurance.

Not to mention if one of them gets hurt and decides to claim you were their employer (which would be easier if you're paying part of their insurance and/or taxes) -- you could lose everything if you're not properly insured.

I completely agree with Steven. First off, why even bother to know what your labor to material cost ratio is? How does that info benefit you? I don't see a benefit or reason to calculate the figure.

That said, I also agree with others that such a ratio will vary depending on the grade of materials used. The $50 faucet to the $500 faucet example is perfect. The cost to install either is exactly the same yet the ratio is completely different.

A similar topic was discussed before here on BP where someone wanted to know what the average price per sq. ft was for rehabs. There is no answer as there are just too many variables and attempting to estimate a rehab budget based on some false and meaningless average will get you in trouble.

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