Rate per person-hour

Sometimes an old trick can come in handy. I was pleased at a recent incident where we used rate per person hour.

Is my cleaning service too expensive?

A few of us were discussing how much we paid for cleaning services. The numbers were something like the following. One person was paying $40 while someone else was paying $110 for a bigger space. The question arose: was $110 too much?

The services were not directly comparable:

–The $40 service was one person working for two hours
–The $110 service was two people working for three hours

Both people were happy with their service so the only question was whether the rates were fair. How do you measure this?

Rate per person-hour

The situation was a perfect example where one could use the idea of person-hours. (Like me, you might remember learning this as the gender non-neutral term “man-hour”)

The method is to compare rates based on the total number of hours, also known as person-hours.

The first step is to calculate how many hours of labor were involved. This is done by by multiplying the hours by the number of people:

–One person working for two hours is 2 person-hours
–Two people working for three hours is 6 person-hours

This is a crucial step because it transforms the two jobs into comparable units of labor. The first job was clearly done by one person in two hours, and the second job was done in the equivalent of one person working six hours.

The formula in general is:

The second step is to use the person-hours to calculate an hourly rate. This is done by dividing the cost by the person hours.

The result is a rate of cost per unit of labor, and this rate can be compared just like you would normally compare hourly rates.

In the cleaning example:

–Forty dollars in two hours is a rate of $20/person-hour
–One-hundred and ten dollars in six hours is a rate of $18.33/person-hour

By this metric, the more expensive service does not appear to be overpriced, and in fact looks like a sort of a better deal.

So my friend was relieved and it made writing those checks a little bit easier.

The person hour metric is calculated by:

Other applications

The above example is more or less a textbook case. But be on the lookout: there are often more creative ways you can apply this concept.

This method could be used when comparing any service that works on an hourly basis: lawn-mowing, copying services, or contract work at home. I have also applied this metric when thinking about open-bar versus cash-bar rates (I compared cost of drinks/person-hour).

Rate per person hour is pretty good, but of course it is not perfect. The two things it does not account for are (1) quality differences which could influence cost or (2) synergies or dis-synergies when adding more people should increase efficiency (classic division of labor) or decrease efficiency (coordinating costs are involved).

Nonetheless, the rate per person-hour is a good starting point, especially because it’s easy to calculate.

I’m sure many of you have used this method before–do you have any creative applications?