How to Use Labour Efficiency Rate (LER) to Know When You Need Another Project Manager

Running a construction or remediation company feels like juggling chainsaws on a moving job site.
Some weeks you’re slammed. Other weeks you’re wondering why payroll is so heavy. There's always urgency.

There’s one simple number that cuts through the chaos:
Labour Efficiency Rate. (LER)

This blog shows you how to use LER to answer the question many an owner and ops manager loses sleep over:

“Do we need to hire another Project Manager?” and even more important "Can we afford it??"

The answer isn’t emotional.
It’s not about how busy someone feels.
It’s not about who is complaining the loudest.
And it’s not about your gut.

It’s about the math of labour productivity, made simple.

Let’s break it down.

1. What is LER (in Plain Language)?

Labour Efficiency Rate tells you how many dollars of job profit you earn for every dollar you spend on your workers.

Spend $1 on payroll → how many dollars of Gross Margin come back?

That’s it.
No accounting degree required.

Gross Margin = Revenue minus all the direct costs it took to deliver the job. Gross Margin can be shown as a % when you divide Gross Margin by Revenue to see how much of each dollar you keep after paying subs, materials, and other direct job costs.

In a construction/remediation company, that means: Gross Margin = (Job Revenue) − (Subcontractors + Materials + Dump Fees + Equipment Rentals + PPE + Other Job Costs)

Keeping it simple: Gross Margin is what’s left after you pay for the stuff and the subs, but before you pay your own people.

That leftover amount is what your team (Operations + Admin) must turn into profit.

2. Who Counts in LER?

LER only cares about Direct Labour — the people who directly make your jobs profitable.

For a construction/remediation team, that means:

Direct Labour (included in LER):

If the role exists to push jobs forward, it’s Direct Labour.

NOT included in LER:

Keep the line simple:
If the person helps produce Gross Margin, they’re in LER.

3. The Formula (Kept Simple)

There are only two numbers you need:

1. Direct Labour Cost

All pay for techs, PMs, PM assistants, site supers

2. Gross Margin

All revenue
minus
All job-related costs (subs, materials, dump fees, rentals, PPE)

Now divide:

LER=Gross Margin/Direct Labour Costs

That’s your score.

4. What Good LER Looks Like (The Hiring Signal)

Here’s the scoreboard:

This comes from Greg Crabtree’s golden rule — and it’s a smart one:

Only hire a new PM when LER has been 3.0 or better for 12 weeks straight.

Not one week.
Not because you’re stressed.
Not because someone is yelling that they’re too busy.

12 weeks of consistent, disciplined, profitable capacity.

5. Why LER Works So Well for Project Manager Hiring

Project Managers are leverage.
When you get PM capacity wrong:

When you get PM capacity right:

LER tells you exactly when your current PM bench is maxed.

6. PM + PM Assistant Structure: How LER Sees It

In the real world, your PMs may have assistants.
Some assistants do admin; others push production.

Crabtree’s interpretation is simple:

If the assistant helps jobs move, they count as Direct Labour.

If they’re pure office admin, they don’t.

Examples:

Direct Labour PM Assistant

Not Direct Labour

Get this right so you don’t undercount labour.

7. Step-by-Step: Start With a Simple Weekly LER Check

Process friendly.
Zero fluff.

Every Monday morning, do five things:

Step 1:

Pull last week’s total Direct Labour cost.

Step 2:

Pull last week’s total Gross Margin.

Step 3:

Type both numbers into a simple spreadsheet.

Step 4:

Let the spreadsheet calculate LER.

Step 5:

Ask the weekly LER questions:

If yes to all → hire the next PM or PM assistant.

If not → improve productivity first.

8. The PM Capacity Secret (No One Tells You This)

A strong PM typically manages $1.4–$1.8 million of Gross Margin per year.
A PM + Assistant combo can stretch that to $2–$2.5 million. (And I've seen some push it even higher)

This makes assistants a force multiplier.

When your PMs are at 90%+ of their GM capacity and LER is above 3, you have two choices:

LER tells you which option is financially safe.
GM per PM tells you which is operationally safe.

Together → no guessing.

9. What Causes Low LER (and How to Fix It Fast)

If LER is under 3, fixable issues usually fall into four categories:

1. Pricing is too low

Stop discounting.
Stop swallowing change orders.
Stop doing favours for insurers that eat margin.

2. PM capacity is scattered

One PM overloaded.
Another underloaded.
Jobs sitting idle.

3. Techs underutilized

Too many people for the work on deck.

4. Too much sub work vs. self-perform

Subs are necessary—but overuse destroys margin.

Fix these before adding payroll.

10. Start Small, Build Slow, Win Big

You do not need:

You need:

That’s it.

LER is simple.
PM hiring gets simple.
Scaling gets simple.
Cash gets healthier.
People get clearer.
Owners relax.

–––––

Adam Kreek and his team are on a mission to positively impact organizational cultures and leaders who make things happen.

He authored the bestselling business book, The Responsibility Ethic: 12 Strategies Exceptional People Use to Do the Work and Make Success Happen. 

Want to increase your leadership achievement? Learn more about Kreek’s coaching here.

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