Since we make no secret about the rates we charge our clients and the rates we pay our team members, many times we are asked to explain the delta between the two. Now, for those unfamiliar with those rates (which you can find here), I don’t think those asking thing the difference is unreasonable. The conversation is more about justifying what is often mistaken as profit. In fact, the cost of labor, especially in states with strict definitions regarding contractors, can be stifling. And the indirect costs of labor can get so out of control, that many clients and contractors are overwhelmed by the challenges the average crewing company must face.
So we decided to publish an article the fully describes the cost of labor, from the direct costs such as payroll, payroll tax, benefits and insurance to indirect costs such as payroll processing, operating costs, invoice exceptions and time theft. The sections to follow will not only explain the rationale behind our rate system, but can be useful for companies requiring a contingent workforce to analyze their own investment into their workforce and determine if a staffing or crewing company is a better model for them to pursue.
Keep in mind, companies can have subtle differences in business model, have a higher tolerance for risk or work in states with less impactful regulations - but for the most part, this article is applicable to a broad range of employers in countless industries. This does not pertain strictly to the live event industry, but frankly, it applies to just about any industry and company requiring an employee - and in many cases applies to freelancers also.
Direct Costs are those expenses directly connected or associated to the wages earned by an employee or contractor. The are the costs that quickly come to mind when you think of Cost of Labor, such as the taxes, processing fees, benefits and liabilities.
Indirect Costs are those expenses that are incurred in the process of recruiting, onboarding, training, soliciting, scheduling, managing, paying and terminating an employee through the cycle of their employment.
Also underestimated, these costs may also include hard and soft costs associated with loss of opportunities or revenue, such as court and legal fees, collection costs, disability/unemployment claims, penalties & fines, adverse decisions & punitive actions, as well as the loss of clients or liabilities surrounding employee fraud or negligence.
Cost of Job/Sale
This list includes the additional costs associated with each sale. Some of the lines include ambiguous references to company personnel. It’s important to remember, like the staff required to process an invoice, there are other costs associated with making the job happen, such as: making the job possible, ensuring we have the means to fulfill it, promoting our ability to do the job. Similar to operating expenses (which we describe below), the lines here should be summed up and divided by the total number of jobs. That remaining value is the sum total of all the indirect resources that are required to make the job even possible.
The following list includes the various costs incurred to operate the business on a day-to-day business. The gross profit from the cumulative sum of all the jobs must cover these basic operating expenses or the business will be in the red at the end of the year. Therefore the operating budget per job would be the total annual operating budget divided by the total number of jobs for the year. That dollar amount is the average that all the jobs must clear, no top of all the expenses listed above. This is just a sample list, and not exhaustive - but you get the picture:
This is a pretty comprehensive list of everything that goes into hiring and managing an production management staff and/or event production crew - however it’s not the exhaustive list, since as mentioned earlier, these account for the basics of the business. Be sure to consult with a professional that understands your business and the laws of your state before edit your existing process based on what you learned here.
Let’s demonstrate an example of the True [Real] Cost of Labor is, factoring in some of the variables discussed above. To make this exercise easy to follow along, we’ll use some round numbers and some values from my previous company. This based on a small company that does an average of $350k in net sales and $210k in payroll expenses. It’s also based on a new employer paying into Unemployment insurance and a Workers Comp rate of $0.08 per $1.00 of pay.
This does not compute all the lines we reference above, but granted, it’s a small company. The data is represents a real-life scenario, but there are so many factors that contribute to the top and bottom line, that hopefully this simply makes you aware of the factors that not only labor companies face - but yourself face them. I’m actually surprised how many small companies are facing them, and don’t even realize it.
Forgive me for the length. There was a lot to cover…
The Stagecraft Agency
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For more information about our rate structure or questions about fees, please contact us at firstname.lastname@example.org.
Important Notice: This article is an opinion editorial and not intended for use to determine your company's legal or regulatory compliance. This is not a legal publication, so it can aid in your research and understanding, but it is shall not be construed or regarded as legal advice or instruction.
Before taking any action, based on what you've read in this article, be sure to consult with your lawyer or accounting professional - or other licensed business professional familiar with the laws of your state and municipality.