Mike AndesFounder, Augusta Lawn Care and Homeworks · Founder of Homeworks and Augusta Lawn Care

Case study: This business is putting most of their money into labor

14 Mar 2024 · 1 min

Watch on YouTube

0:45

Mike Andes analyzes a business spending 60% of revenue on direct labor and nearly 20% on indirect labor. He argues firms can't be profitable when direct labor exceeds roughly 50% of revenue, though he notes some roles may be necessary despite the high costs.

Questions this video answers

About 60% (speaker states: "Right now at 60% of revenue is going to direct labor.")

Almost 20% (speaker: "Then we have another almost 20% going to indirect labor...")

He later said 57% direct labor and referenced "293" for indirect labor (transcript: "57% was direct labor and then another 293 indirect labor.")

Chapters

Right now at 60% of revenue is going to direct labor. Then we have another almost 20% going to indirect labor, which is office estimators, your wages, etc. That business will never make money. Like if labor is literally sucking 70% of the revenue, there's no room for profit. 57% was direct labor and then another 293 indirect labor. I think most people, if they just looked at those numbers like the $293,000 indirect labor is where we need target first. I'm not so convinced of that based on seeing the operation because you need the person in the shop with this much equipment. You kind of need them. You need the part time salesperson because you guys are both not involved as much. You need the operations person because again, you need a backup to you guys. Any business I've walked into that the direct labor is more than 50%. I have never seen them be profitable.