Wednesday, July 5, 2023

Trying to Alleviate Your Own Worker Shortage

 Construction trades has been struggling for a long time with a shortage of new entrants into the workforce. 25 years ago I was on a local school district's tech prep committee to encourage students to get into the trade tech classes in high school. This year, it was reported that one HVAC/plumbing/electrical installation and service company has developed their own trade school for 45-50 students/year. They modified a space for $500K to accommodate the training.

Besides the modification, which can be amortized/depreciated over several years, they are investing in instructors' wages and benefits, materials and equipment. They might have a vicarious lock on graduates but it's still quite an undertaking. Some estimates place the cost of recruiting at 15-25% of a person's wages, plus there's the average time (opportunity loss) of 27 days...and if the new hire doesn't work out or doesn't like your work/company, then you've lost 30% of wages on attributed benefits (FICA, PTO, etc.) if they quit before you've recovered your hiring costs through productivity. 

Let's say you have a net margin of ten percent (10%). If you pay a tradesperson $50K (for easy calculations, roughly $25/hr), then you need $500K in revenue to pay for the wages, $660K for wages & benefits. And an additional 8% or $40K for lost opportunity in the one month you are short a worker, and even more if you paid overtime to current workers to make up for lost capacity.

We're at nearly an additional $750K in revenue to cost of acquiring the new worker. Gens-Ryan might be able to offset some of the recruiting costs through their school. But they've added the school costs as well. Still they seem to be counting on nearly $30-50 million in additional revenue. And that's a pretty hefty lift for a company estimated to have $20-50 million in revenue.

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