Gross Profit per Labor Hour is an incredibly important metric to understand and manage in a Multi-Sale / Multi-Project environment – most Q360 Customers utilize this type of environment.  Direct Labor Hours available / utilized / billable are fundamental metrics to track in a successful business.  Knowing how profitable each Labor Hour (planned and used) is shows how effective, productive, and profitable your Company is with regards to exercising your Direct Labor resource pool. 

Business cases for tracking Gross Profit per Hour (GP / Hr) in construction and systems integration industries are based on improving efficiency, profitability, and resource allocation.

1. Maximize Labor Usage for maximum profitability 
   • Labor is one of the most significant costs in many industries.  GP / Hr helps measure how effectively Labor Hours are converted into Profit
   • Unlike Total Gross Profit, GP / Hr accounts for time investment recouped, ensuring that resources are used on the most profitable work 
2. More Accurate Job Costing & Pricing 
   • Many businesses price Jobs based on Labor Hours, making GP / Hr a crucial metric for setting profitable rates
   • If a job has high Revenue but low GP / Hr, it might be consuming too many Labor Hours relative to its Profit
   • This helps identify unprofitable Jobs early and adjust pricing or Job selection accordingly
3. Benchmarking & Performance Tracking 
   • GP / Hr allows businesses to track profitability across Projects, Teams, and time periods to identify trends
   • Comparing GP / Hr across different Jobs can highlight:
     • Which types of Projects yield the best returns
     • Which Teams are the most efficient
     • How changes in pricing, labor efficiency, or materials impact profitability
4. Make Better Bidding Decisions 
   • When bidding for new Projects, GP / Hr helps evaluate whether a Project is worth taking on
   • It prevents businesses from winning low-margin Jobs that keep Teams busy but do not contribute significantly to the bottom line
5. Optimize Resource Allocation 
   • Businesses can prioritize high GP / Hr Projects, maximizing Profit with existing Labor and other resources
   • This helps with scheduling by ensuring that the most profitable work is prioritized over low-margin Jobs
6. Improve Cash Flow and Business Growth 
   • High GP / Hr means that more Profit is generated for each hour worked, leading to better cash flow
   • Strong cash flow enables reinvestment in tools, technology, and workforce, further improving efficiency
7. Wage & Overhead Cost Management 
   • If Overhead Costs (e.g., office expenses, insurance, and equipment) are rising, tracking GP / Hr ensures that these costs do not further reduce profitability
   • May also guide Wage increases—if a Company increases Wages, GP / Hr should remain strong to maintain desired profit margins

Example Calculation 
 

If a Project generates $20,000 in Gross Profit and requires 500 Labor Hours, then: 
           GP / Hr = [$20,000 / 500 hours] = $40/hr (GP / Hr)  

If another Project generates $25,000 in Gross Profit but takes 700 hours to complete, then: 
           GP/ Hr = [$25,000 / 700 hours] = $35.71/hr (GP / Hr)  

 Note that even though the second Job has higher Total Profit, the first Job is actually more profitable per Labor Hour, making it a better allocation of resources.  GP / Hr ensures that a business is not just busy, but actually profitable from a Labor resource standpoint.   By focusing on profitability per Labor Hour instead of only Revenue or Total Gross Profit, businesses can make smarter decisions about pricing, Project selection, Labor allocation, and growth strategies.  

Why should we “waste” our Labor on a large Project for which we make $50.00 GP / Hr when doing so would mean passing up opportunities at $100.00 GP / Hr because we have no more resources available? 

Finally, some companies use a minimum GP / Hr number as a “Go / No-Go” criteria for deciding to pursue an Opportunity or Quote – especially in the busy seasons.   If you would like to discuss how this powerful metric can be most effectively used in your business, feel free to reach out to our Consulting Team for individualized consulting options.