Labor and materials are among the most significant costs construction companies incur. Keep reading to learn more about labor vs material costs in construction, how they compare, and how smart construction management professionals keep track of both types of expenses.

Labor vs material cost in construction: Overview

What are construction labor costs?

When construction professionals calculate labor costs, they typically include items such as:

• employee and contractor compensation (amounts paid directly to workers)
• payroll costs (including taxes)
• paid time off
• employment-related insurance (i.e. workers compensation)
• recruitment and training costs
• time theft and other forms of fraud

Check out this article we wrote explaining construction labor costs in greater detail, including how they’re calculated.

What are construction material costs?

Construction material costs, meanwhile, include amounts paid for materials (i.e. bricks, concrete, clay, lumber, etc) used to build structures. Often, materials must be procured, imported, and transported to job sites, which is also factored into construction material costs.

Construction labor cost vs material cost: Percentages

The percentage of labor vs material costs in construction can vary wildly depending on the sector and type of work being completed. Generally, labor accounts for anywhere from 20-35% of total construction expenses, while materials account for 65-80%. However, if more skilled or specialized workers are needed, then the percentage of labor costs could rise as high as 40%.

For instance, a residential remodel or renovation might require more skilled labor and materials than a large commercial construction project, thus increasing the labor costs proportionally.

Keep reading as we share thoughts regarding how to arrive at a more accurate figure for your company’s projects.

Understanding Labor Ratios in Construction

Labor ratios are essential for project managers and estimators to measure workforce efficiency and control costs. In this section, we’ll explore how labor ratios are calculated, review industry benchmarks, and discuss factors that influence these metrics.

• Calculating Labor Ratios
• Key Insights and Industry Benchmarks
• Factors That Influence Labor Ratios
• Strategies for Improving Labor Ratios

Calculating Labor Ratios

Labor ratios are calculated using two main methods, both offering valuable insights into workforce efficiency.

The Labor Cost Percentage Method expresses labor costs as a proportion of total project costs:

Labor Ratio = (Total Labor Cost / Total Project) x 100%

For instance, if a project costs $500,000 and labor expenses total $150,000, the labor ratio is 30%.

The Productivity-Based Method, on the other hand, measures work completed per labor hour:

Labor Ratio = Units of Work Completed / Total Labor Hours

For example, installing 1,000 square feet of flooring in 40 hours results in 25 sq ft/hour productivity. Both methods provide critical insights for tracking and improving project performance.

Key Insights and Industry Benchmarks

Recent data highlights labor ratios’ role in construction cost management. On average:

• Labor costs represent 20% to 40% of total construction expenses​.
• Residential construction typically sees labor costs between 20% and 35%.
• In commercial projects, labor expenses can reach as high as 40% when skilled professionals are required​.

Additionally, indirect labor costs like benefits and taxes can increase the total labor expense significantly. Keeping these benchmarks in mind helps companies set realistic labor goals.

Factors That Influence Labor Ratios

Several external and internal factors can impact labor ratios:

1. Project Complexity: Complex projects often require specialized labor, increasing costs.
2. Geographic Location: Regions with higher living costs typically see increased wages.
3. Market Conditions: Labor shortages or high demand can drive wages up further.
4. Project Type: Residential, commercial, and industrial projects differ in labor demands.
5. Technology Adoption: Automation and prefabrication can improve productivity, reducing labor ratios over time.

Monitoring these factors allows construction professionals to adapt strategies and better manage labor costs.

Strategies for Improving Labor Ratios

Construction companies can take several steps to optimize labor ratios:

1. Adopt Workforce Management Software: Tools like Bridgit Bench streamline labor planning and help maximize workforce efficiency​.
2. Invest in Training Programs: Well-trained workers are more productive and efficient.
3. Leverage Prefabrication: Off-site construction reduces on-site labor requirements and project timelines.
4. Implement Lean Construction: Lean principles focus on eliminating waste and improving value delivery.
5. Track and Analyze Labor Data: Regular monitoring helps identify trends and areas for improvement.

Calculating Man-Hours in Construction

Accurate man-hour calculations are critical for planning, estimating costs, and optimizing resources on construction projects. Below, we explore essential methods, key formulas, and influential factors that help construction managers estimate labor requirements efficiently.

• Basic Man-Hour Calculation
• Component-Based Estimation
• Historical Data Method
• Industry Standards Method
• Productivity-Based Calculation
• Key Factors Affecting Man-Hour Estimates

Basic Man-Hour Calculation

The most straightforward method to determine man-hours uses this formula:

Man-Hours = Number of Workers × Hours Worked

For instance, if a project employs 20 workers, each working 40 hours per week over 12 weeks:

Man-Hours = 20 × 40 × 12 = 9,600 hours

This calculation gives the total hours of labor required for project completion​.

Component-Based Estimation

Breaking the project into smaller parts improves accuracy. Managers divide tasks—like excavation, framing, or roofing—into manageable components and estimate the hours needed for each. These estimates are then added together for a total.

This method works particularly well for projects with intricate workflows, ensuring no task is overlooked​.

Historical Data Method

Historical data from previous projects serves as a benchmark for estimating man-hours. Managers analyze time sheets, productivity rates, and work logs from similar past projects and adjust for changes in scope or complexity.

Using past insights simplifies planning and enhances the reliability of man-hour estimates​.

Industry Standards Method

Industry benchmarks provide expected completion times for various tasks based on standardized productivity rates. Managers reference data from construction publications, tailoring the estimates to specific project conditions, such as geography or workforce availability.

This approach ensures estimates are both practical and consistent with broader industry expectations​.

Productivity-Based Calculation

Productivity rates help calculate man-hours based on task output:

Man-Hours = Total Work Quantity ÷ Productivity Rate

For example, if workers need to excavate 750 cubic meters of soil at a rate of 15 cubic meters per hour:

Man-Hours = 750 ÷ 15 = 50 hours

This method is ideal for repetitive, quantifiable tasks, as it ties man-hour estimates directly to worker efficiency​.

Key Factors Affecting Man-Hour Estimates

Several variables can impact man-hour calculations:

• Project Complexity: Tasks with higher complexity often require more time and specialized skills.
• Worker Experience: Skilled workers complete tasks faster than less experienced ones.
• Site Conditions: Limited space, poor accessibility, or challenging environments can slow progress.
• Weather: Adverse conditions, like heavy rain or extreme heat, can disrupt schedules.
• Equipment Availability: The right tools and machines significantly reduce labor time.

Considering these factors helps managers build adaptable estimates that reflect real-world conditions​.

Calculating Labor Productivity in Construction

Understanding labor productivity in construction is key for staying on schedule, managing costs effectively, and optimizing resources. Here, we explore practical approaches and essential strategies to measure and improve labor efficiency.

• Basic Labor Productivity Formula
• Gross Value Added (GVA) Method
• Benchmark Method
• 17-Factor Model
• Productivity Rates for Common Tasks

Basic Labor Productivity Formula

At its core, labor productivity is measured by dividing the total output by the time invested in completing that output:

Labor Productivity = Work Completed / Labor Hours

For instance, if a team lays down 1,000 square feet of flooring over 40 hours, their productivity equals 25 square feet per hour. This straightforward calculation helps gauge how efficiently labor resources are being used​.

Gross Value Added (GVA) Method

The GVA method provides a broader perspective on productivity by factoring in service costs and outputs. The formula is as follows:

GVA Productivity = Total Ouput – Purchased Services / Labor Cost

This approach helps construction professionals evaluate performance while considering overheads and outsourcing costs. It’s particularly useful for analyzing project-wide labor performance​.

Benchmark Method

Benchmarks offer a standard against which productivity can be compared across projects. Here’s how to implement it:

1. Measure the time and labor required for a specific task.
2. Use these numbers to establish a baseline.
3. Compare ongoing projects against this benchmark to identify variances in productivity.

By maintaining consistent benchmarks, teams can pinpoint opportunities to refine workflows and increase efficiency​.

17-Factor Model

A detailed study identified 17 key factors affecting labor productivity, grouped into five categories:

• Non-Working Time: Breaks, delays, and time spent away from tasks.
• Site Challenges: Difficult terrain or harsh weather conditions.
• Worker Mental State: Stress or low morale slowing performance.
• Management Practices: Poor communication, safety issues, or misaligned goals.
• Other Variables: Technology adoption, seasonal effects, and unexpected delays.

This comprehensive model helps managers address specific challenges affecting productivity on-site​.

Productivity Rates for Common Tasks

Different construction tasks have their own measurable productivity rates. Here are key examples:Shuttering Work: 

• Shuttering Work:
  • Productivity = Area of Shuttering Fixed (sq m) / Labor Cost
• Concreting Work:
  • Productivity = Volume of Concrete Poured (cu m) / Man-Days
• Rebar Work:
  • Productivity = Weight of Rebar Fixed (kg) / Man-Days

Tracking these rates helps managers set clear expectations and identify inefficiencies within specific tasks​.

6 Tips for calculating labor vs material costs in construction

1. Take direct and indirect labor costs into account

As we hinted at earlier, labor costs aren’t limited to the hourly wages construction companies pay their employees and contractors. There are several other costs to take into account, such as payroll taxes, paid time off, and union dues. Construction HR professionals refer to these as indirect labor costs.

Tracking indirect labor costs is important since they can be quite significant relative to direct labor costs; leaving them out of the picture will result in your company having an inaccurate understanding of its true expenses.

According to The Construction Labor Market Analyzer, direct labor costs, on their own, often account for 20% of a project’s overall cost. When combined with indirect labor costs, however, the total expense can climb to 40% of the project’s cost – a 50% difference.

2. Use dedicated construction resource management software

The days of tracking construction labor and material costs in Excel spreadsheets are over. Today, there are purpose-built resource management tools (such as our Bridgit Bench) that can help construction companies track expenses and demand related to both labor and materials.

One significant advantage of using these tools (as opposed to general tools such as spreadsheets) is that they integrate with other construction management applications, thereby fitting into your organization’s workflow more cohesively.

3. Track costs at an organizational and project level

While tracking labor and material costs on an organizational level is helpful for understanding your company’s overall profitability, don’t forget to pay attention to costs in the context of individual projects as well. This can help your company capture more granular information, such as which types of projects are most profitable.

4. Familiarize yourself with proven strategies for estimating construction labor and material costs

There are many tried and tested methods for estimating construction labor and material costs. Common approaches include the following.

Unit pricing method

As its name suggests, the unit pricing method entails dividing the amount of work to be completed into smaller units and associating a price with each one.

For example, a flooring contractor working on a 2,000 square foot home might calculate their labor and material costs based on:

1. How much they’ll pay for one square foot of materials
2. How much time it will take them to install one square foot of materials (and what direct and indirect labor costs are associated with that)

According to the 2024 RSMeans data, the average cost of flooring materials has seen changes reflective of market adjustments. This data helps ensure that estimates are current and reliable.

The rule of two

Given that between 40% and 50% of the average construction project’s cost goes towards labor, you could estimate the entire project’s budget by determining either the expected labor cost or the expected material cost.

For example, if you predict labor will cost your company $100,000 for the project’s duration, you could extrapolate and predict an additional $100,000 for materials.

In 2024, industry surveys indicate that labor costs account for approximately 45% of total project costs, while materials account for about 50%.

This is known as the rule of two. It can be a valuable time-saving technique for arriving at a rough estimate of a project’s cost since it eliminates the need to calculate both portions.

5. Keep in mind labor costs are often more flexible than material costs

A key difference between construction labor costs vs material costs is that the former can vary substantially whereas material costs tend to be more predictable. 

For example, a flooring contractor with enough experience can comfortably predict (with a great degree of accuracy) the quantity of materials required to complete a project based on its size.

Labor costs, meanwhile, are much less predictable. A professional with several years of experience might take 10 hours to complete the job whereas someone with less experience might take 15. Costs could even lie beyond the contractor’s control if, say, the job is an outdoor one and weather conditions prevent them from working.

It’s important to keep this in mind when calculating construction labor costs vs material costs. Savvy construction management professionals apply a greater degree of flexibility to labor cost predictions.

6. Know what can impact construction labor and material costs

Construction labor and material costs are each subject to the influence of different external factors.

For example, factors that often influence labor costs include:

• the level of experience a particular professional or team brings to the job
• the current market rate for labor (particularly when it comes to hiring contractors)
• how much overtime is needed to complete the project

Factors that often influence material costs, meanwhile, include:

• costs throughout the entire supply chain (including manufacturing, shipping, and importing materials)
• the quality of materials being used
• the current market rate for materials

Proactive construction professionals monitor these factors to stay ahead of any substantial changes to their expenses.

Labor vs material cost FAQ

How did the Great Recession and the COVID-19 pandemic impact the construction industry’s labor market? 

The Great Recession of 2008-2009 led to significant job losses in the construction industry with many skilled laborers being laid off or leaving the construction sector altogether. This pain is still felt today. The COVID-19 pandemic didn’t do the construction industry any favors; through halted, stalled, and slow construction projects, the pandemic has contributed to a persistent labor shortage in the construction industry.

What technologies are construction firms historically hesitant to adopt, and why?

Construction firms have been slow to adopt new technologies such as advanced software for project management and workforce planning, augmented reality tools for planning and visualization, and drones for site surveying. It’s difficult to find a single cause for this hesitation. Instead, a combination of factors such as a lack of familiarity and exposure to these technologies, concerns about time and training required to implement, and the perceived cost of adopting such tools. There may also be a cultural component, as the construction industry has successfully relied on manual processes and might resist changes that disrupt standard operating procedures.

How can Bridgit Bench help with communication to improve workforce management?

Breakdowns or gaps in communication can have a direct impact on the cost and complexity of a construction project. Large construction projects have many moving parts, and Bridgit Bench addresses this by providing a centralized platform for communication and flow of information between teams. Bridgit Bench provides insights about your workforce and lets you plan based on capacity, capabilities, and experience. Planning is a key component in reducing misunderstanding and improving coordination and communication among office and on-site workers.

How do you calculate labor and materials?

To calculate labor and materials for a construction project, start by determining the direct labor hourly rate and the time required to complete the task. Multiply these to find the total labor costs. For materials, calculate the costs by itemizing each type of material required for the project and summing their costs. After determining both labor and material costs separately, add them together to get your total direct costs. This method ensures that all direct expenses are accounted for accurately, helping in precise budgeting and financial planning for the project.

What costs include raw materials and labor?

Costs that include both raw materials and labor encompass all direct expenses necessary for the construction process. This includes the raw materials such as bricks, steel, and lumber, and the labor required to work these materials into the project. Additionally, these costs factor in the delivery and handling of materials and any specialized labor needed to manipulate these materials effectively.

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Bridgit Bench is a leading construction resource management application

We hope you’ve found this article helpful for understanding the breakdown between construction labor costs vs material costs. Learn more about how Bridgit Bench helps construction companies calculate and track resource costs and usage. For more of our articles on the topic of construction resource management, visit the Bridgit blog.

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