How Much DOES Labor Cost?

Tom Egelhoff  |   Monday Jun. 1st, 2015

Hiring that first employee can be a stressful event. The questions are unending. Do I really need an employee? I’m busy but am I busy enough all the time or are there ebbs and flows in my business where an employee might not be needed?
What if I hire someone and business slows down — then what? What if I hire a bad employee? What if I hire a good one who leaves as soon as a better opportunity comes along? Should I hire a full time or part time employee?
How do I do taxes, withholding and all that other stuff? Can I afford to offer benefits?

How Much Does It Cost To Hire Someone?

Let’s examine a normal 40-hour work week. How much business do you average each day? For the sake of easy math lets say your business brings in $1,000 a day average. Or about $125 an hour.

What are the average daily expenses of the business? Heat, lights, phone, insurance, gas, inventory, rent, advertising, etc. Again, for easy math let’s assume expenses are $600 per day. Or about $75.00 per hour.

This would leave about $400 a day to make a profit and/or to hire someone.

What Is Your Labor Worth?

As a business owner what is your hourly rate per day? With no expenses and you as the only employee your daily hourly rate is $125 per hour. ($1,000 per day, 8-hour day)

What that means is there is a person being paid $125 per hour to stock shelves, make the bank run, do inventory, go fill up the delivery truck, process orders etc.
A full time 40-hour a week employee being paid $15 per hour would make $120 per day or $600 a week.

If you replaces a $125 per hour business owner with a $15 per hour employee, that employee would only have to do 4.8 hours of work to do what you are doing at $125 an hour for the whole week. ($600 divided by $125 = 4.8 hours).

Make Time Pay

Now that you have an employee taking up some of the slack you can become a better steward and manager of your business.
You have more time to make deals with suppliers, work on more efficient advertising, better inventory control, customer follow up and a host of other income producing duties you never had time for before.

Some Final Thoughts

During the next few days write down all the tasks that you do and how much time you spend on each. What business tasks can a lessor paid person do?
How much more profitable could your business be if you had more time to devote to it?

That employee might just end up paying for themselves.    

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