Over keystrokes per hour departments and coaching service businesses, I have seen businesses struggle to get over the breakeven point, let alone make a profit. When we investigate their business, we find that the hourly charge out rate is way below what it should be, and on a number of occasions, I have seen businesses that charge an hourly rate that is well below their true hourly cost of running the business. In simple terms, it cost more to run their business than what they invoice. Going broke.
Why, because a lot of business owners calculate their hourly rate by adding the hourly rate of their technicians, adding car cost, mobile phone and a few other items to find out their cost and then add what they believe is their profit margin. A recent example is a client who had calculated their hourly cost to be $45.00 added $20.00 for profit, so was charging $65.00 per hour. When I calculated his true hourly cost, it was $75.59 per hour. They were losing $10.59 per hour and couldn’t understand why they were going broke.
So how did I calculate their true hourly cost?
The first thing you have to understand, is that you need to determine how many revenue generating hours you have to generate your revenue from each year. To do this, you have to first understand that your revenue is generated by your field or workshop staff only. Admin, management, tech specialists etc. are not revenue generators. You need to calculate the hours that your technical staff work each year, how many hours are lost over the year due to training, holidays, sick etc. (you still pay for them) you will then need to calculate 85% of the time they actually work. Once we achieve this point, we now have the actual Revenue Generating Hours. You then divide your total expenses (excluding cost of goods) by the number of revenue generating hours to determine what your true cost per hour is to run your business.