Billable rate multipliers

[abusementpark]

How do you access what a certain employee's billable rate should be? I have often heard that it depends largely on the company's overheard ratio. However, do smaller outfits even bother with figuring overhead ratios or it based off an industry norm?

I am wondering what the standard practice is. Can anyone shed light on the issue?

 

[msquared48]

2 to 3X depending on the market, the client, and the company overhead. There is no one magic answer.

Mike McCann
MMC Engineering

 

[IRstuff]

Agreed, in defense, there is the "wrap" rate, which varies between 2.5x to about 4x. Things that can go into wrap rate:

> effective cost of allocated floor/office/lab space
> depreciation of equipment
> allocated services, admins, security, janitorial
> utilities, etc.
> benefits
> administrative costs, functional managers, business development, sales, etc.
> cost of money --> cash flow; you pay your employee every week or two, but bill at a different time, so you're borrowing money to do that

TTFN

FAQ731-376

 

[Ron]

Larger engineering firms shoot for a 4x multiplier, while smaller firms will go as low 2.5x, though that's skirting profitability for the long term. Anything less than 3x is not allowing for growth and capital purchases.

 

[SomptingGuy]

The odd thing is that the "overhead departments" have shrunk massively over the years (reprographics, typists, internal mail, etc), but the overhead multipliers have not. The company I work for fits in the 2x-3x range.

- Steve

 

[csd72]

Somptingguy,

But the cost of the equipment and software required has gone up so I think it may even out.

 

[TheTick]

Simple contract houses are usually in the 1.75x-2x range. But all they are doing is providing warm bodies.

 

[IRstuff]

Many overhead departments are simply outsourced; the functions remain and costs have decreased, but other costs have gone up.

TTFN

FAQ731-376

 

[Eleceng01]

Our firm recently hired a 'consultant' that recommended that we increase our average 2.5 multiplier to 3 based on "the national average." Some of our junior staff are as high as 4 and some senior staff is 2 for the average.

 

[moltenmetal]

Depends greatly on what you consider to be your base cost, which of course depends on where in the world you're located.

Is your base cost the raw salary, or is it "payroll burden"- the total cost of having that person on the payroll? Very different multipliers depending on which you choose, and on where you are located...

Payroll "taxes" and benefit costs are different from country to country. For instance, in Canada our primary healthcare is paid for out of the taxes employees pay on their own income, whereas in the US the healthcare cost is paid primarily as an insurance premium by the employer. In one case, healthcare is included in the "salary", whereas in the other healthcare becomes additional payroll burden.

Similarly with overheads. If your firm charges for photocopies on a per page basis, then photocopiers become a profit centre rather than an overhead. Don't charge for photocopies etc.? That cost becomes an "overhead".