Watch the Video (3 minutes 12 seconds)

Transcript

When are your low-cost contractor resources not as low-cost as you think they are?

Well, to answer that question, we here at ServiceCrowd, when we're working with our agency operations consulting clients, like to help them calculate a metric that we call effective cost per hour.

So what's effective cost per hour? That is a metric that takes into consideration the management time that it takes for a resource to produce billable work.

Now, when we say management here, we're talking about things above and beyond the normal flow of people management, and above and beyond project management, and task management that would be scoped into the project.

This is resource-specific,  and it is a way of measuring the additional management that sometimes resources take. So that could be extra contexting, extra training, just extra needs above and beyond those other two types of management that are typically seen in an agency setting.

In this example, we have a resourcing mix here. For a small agency, we have three full-time staff members, one of whom is the owner down here. So these are salaries.

We have a couple, well four, hourly contractors, one of whom is at $25 an hour, a pretty low-cost resource.

There's nothing wrong with using low-cost resources. The point of this video is that when you are using any resources, calculating their effective cost per hour is a really important way to compare and contrast what is valuable to you when staffing a project.

So in this case, we have our low-cost resource and what we've said is that we think it is takes two management hours, again above and beyond project or people management, to get this person to produce ten hours of billable work. 

So we have an average cost per hour of $25 an hour, but their effective cost goes up to $36.54.

These two hours of hours need to be incorporated into their cost, and those two hours, the cost of those two hours is the cost of the resources that it's pulling time from.

It also reduces the capacity of those more expensive resources that are managing this lower cost resource. When we compare that to our salaried resource, who takes half the amount of time to manage per 10 billable hours. We see that they end up with an effective cost of $41 an hour for our salaried employee, and our low cost contractor is $36 an hour.

Well, what's the difference between $36 and $41 from a resourcing mix standpoint? I mean it's not nothing. There's margin there for sure. Is it enough margin to justify doubling the number of management hours that you're going to need to dedicate to that resource? That's not something that I can answer for every agency operator or owner, but it's something that you need to think about when you're thinking about your resource mix and you're thinking about what types of resources you need to hire and bring into your agency to help do the billable work.