The National Association of Home Builders conducted a construction cost survey in September 2017. Results indicate that 55.6% of the sales proceeds of a project go to construction costs. The builder reserves 10.7% as profit while 21.5% goes to finished lot costs. Note, the construction cost is inclusive of subcontractors’ salaries as well.
Generally, the material costs and construction labor cost are split into a 1:1 ratio. In residential houses, on the other hand, the ratio of cost of materials to labor is 7:3. The average price for a newly constructed house is about $320,000. Given that companies are making profits close to 11%, the labor cost may seem reasonable, but really that is not the case.
How to Reduce Construction Labor Cost
One of the main goals of a project manager should be to deliver a project within the planned budget. It's also important to lower the construction labor cost without cutting wages. Here are 4 strategies that save on construction labor costs:
1. Estimate the Construction Labor Cost at the Outset
If you have managed construction projects before, you probably have an idea of what the labor costs are. Previous records can guide you in making a new estimate. Take into account the employee turnover and possible increase in labor cost, then determine the best type of contract: a fixed-price contract or a time-and-materials contract. The time-and-materials contracts allow you to negotiate with the client depending on the availability of materials and labor.
A fixed-price contract features specific phases and deadlines. You are expected to deliver within the client’s timeline otherwise, the agreed price might change. It might sound risky but by keeping the project on track, it will be easier to meet the defined expectations.
2. Assess the Workforce
General labor workers may be skilled or unskilled. Do not make the mistake of appointing one of the crew workers as the supervisor. First figure out if your teams are led by the right people. Find out if they can actually lead or if they are simply interested in a pay raise. Some people are best suited as team members rather than supervisors. Also, allow the team to focus on what they know. For example, if a team is excellent in electrical jobs but they are stuck in roofing, you could be losing money.
3. Drop the Paperwork
Eliminating the paperwork at the job site helps to reduce the labor cost and increases efficiency. As the project manager, you want to stay on top of everything without needing to be present on the site. This is possible with the latest technology in the construction industry.
Construction scheduling software saves both time and money. Supervisors don’t have to waste too much time compiling data. Furthermore, you can receive updates as soon as they have been uploaded online.
4. Remove the Dead Weight
Throughout the construction lifecycle, you will need to make very tough decisions. Take a good look at the current teams. Perhaps there are some less productive employees costing you dollars every day. Before deciding to let go of the dead weight, train them first. If that doesn’t work, then you can consider releasing them. Remember, you are managing a serious business and your clients have high expectations. It’s okay to terminate unproductive workers.
Stay on Top of the Construction Labor Cost
Are you taking full control of the cost of materials, labor, and subcontractors? We have a new online-based program that can help you run your projects easily. Our software is based on accuracy and consistency. Tracking the costs will never be a problem again. Contact us today to schedule a demo!