When the proverbial Mrs Jones asks you to come out and dig a hole for her to plant her new Peony, you agree even though it's just hole of 300 x 300 x 300 mm. There’s no charge because she’s a good customer (and she knew your mum)
So, John and George go out in the van and dig the hole. It’s cost a bit but everyone is happy and it’s good PR
So, next week she asks you again and then because you did it so nicely her friend Marge in the next village would like you to do the same for her.
So, what does this really cost you
Well, John’s on £25000 a year and George (bless him) is on £17000. You could send George out on his own but he doesn’t have good social skills and anyway the guys are in two-man teams so it’s best just to send the two of them first thing on Tuesday.
As they’re about to leave Mrs Jones offers them a cup of tea and they’re on their way.
Another 10 minutes for tea
And the time to get back to the real job that they’re on (2 x 20 minutes)
So, it’s taken the best part of an hour for this piddling hole
And if you use this example and move it across your business as a model:-
The 300 x 300 x 300 hole (.3 x.3 x.3) =0.027 m3
That means that there are 37.03 of these little holes in a 1 cubic metre hole
So, If John and George dug a cubic metre hole would it cost 37.03 x 3.98 = 147.40 to dig a big hole (forgetting the tea break and the transport time.
Suddenly I see that I’m not making anything on this and I have a real good look and ask myself why.
I realise that although I pay John and George £23.89/ 1 have to buy them some clothes for work, pay their national insurance. I realise that that’s costing me about £27.00 per hour for the two.
O yes I forgot there’s a vehicle and fuel and insurance and repairs so that brings it up to £33 /hour.
And George (bless him) sometimes doesn’t come to work but I still pay him his statutory sick pay and there’s a number of days each year when we can’t work due to weather so that brings their combined rate up to £34.00 per hour
Now Mrs Jones is actually a very nice lady and she insists on paying me.
I have to write an invoice (15 minutes including finding her postcode and a little chat on the phone)
Doris my book keeper has to enter it into Sage and I have to print an invoice for her and post it. Agatha (Mrs Jones insists I call her that now) doesn’t do email I pay Doris £20000 a year but she likes a bit of heating in the office in the winter and a big screen because she’s getting short-sighted.
Two weeks later when asks me to do another hole for her the pick head flies off and breaks her window. Luckily I’m insured - £4000 a year but that still adds 0.37p to the hourly cost of the 6 guys I have working for me and I must get a new pick.
Also, it’s time I make some money on this business of mine. I still have to charge for my advertising, Christmas party and traffic fines.
Agatha wants to pay me and I send her an invoice for the two guys with all their costs and my cut and the admin charges of the business for £55. for the hour.
When Agatha called me to discuss the charges I noticed when I answered my phone that she called herself Mrs Jones again.
So, what does it cost to dig a hole?