Billing Multipliers 5

[structineer]

small firm - 13 engineers including 2 principals

total billing multiplier = 3.87 including ONLY salary and bonus and no benefits - obtained by dividing total billings over several years by total combined salary and bonus

hourly billing multiplier = 3.34 - obtained by dividing hourly billing rate by hourly pay rate

this thread discussed billing multipliers:

http://www.eng-tips.com/viewthread.cfm?qid=237582

consider a project engineer / project manager that does not manage any people for a small company with low overhead

The most accurate way to assess the value and overall profitability to the company seems to be to consider the "total billing multiplier" as shown above. I have seen the billing multiplier be referred to in several ways from several sources, but this seems like the best way to me.

what is a good multiple for this position?

from what I gather, industry standard for small size firms is typically lower than that for large firms (2-3 or 2.5-3)

any information you can provide is appreciated

 

[SNORGY]

It is sector-dependent as well.

I have seen municipal (i.e. "public sector") work multipliers between 2.0 and 2.4, coincident with industrial(i.e. "oil and gas private sector") work multipliers around 1.7 and down.

If you are too much over 2.0, you might not be competitive long term.

Regards,

SNORGY.

 

[GregLocock]

Those seem very low to me, rule of thumb used to be to target at least 3x base rate.



Cheers

Greg Locock


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[structineer]

Greg - are you talking about hourly multiplier or total multiplier?

 

[structineer]

"If you are too much over 2.0, you might not be competitive long term."

Snorgy - the high multiplier in this case indicates that the employee is very profitable for the company. I'm referring to the overall multiplier of total billings to total compensation.

 

[GregLocock]

I'm talking (hourly charge out rate)/(hourly pay). There's a whole bunch of other costs apart from hourly pay, obviously.

4 is nearer the mark in the mechanical and automotive field.

Cheers

Greg Locock


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[SNORGY]

Fair enough. I wasn't factoring in other overheads, disbursements, intangibles, indirects, etc.

Straight labour, though, = 2 or less.

Regards,

SNORGY.

 

[SomptingGuy]

Agree with Greg. The numbers seem familiar from my consulting days.


- Steve

 

[Ron]

structineer...somewhere between 3 and 4 is a good multiplier with the parameters you've noted. Greg is correct...shoot for 4 on base rate.

If you are working out your own salary to see of it is reasonable then look at it in the way you are checking. If you are wanting to set the billing rates of others, you have to look at it from the "back end", meaning if your market will allow a billing rate of $200 per hour, then you can only pay that person $50/hr.

Snorgy...if your multiplier is 2.0, you are not even breaking even if you have any reasonable benefits at all, particularly if the firm has any hard assets (lab equipment, field equipment, real estate, etc.).

 

[rowingengineer]

I would just like to point out that this also heavily depends on the persons billable time, if you are 85% billable the 3 to 4 is a good number, if not, then the 3 to 4 is a poor number to back work your salary.

http://www.nceng.com.au/

"A safe structure will be the one whose weakest link is never overloaded by the greatest force to which the structure is subjected” Petroski 1992

 

[IRstuff]

Obviously, we're talking two different types of multipliers here, although they are intimately related. In terms of billings/compensation, the average needs to be high enough to cover the utilities and people who cannot bill at all, like the support staff.

Conversely, there is the actual billing multiplier, oftimes called the "wrap" rate, which billable rate/compensation. The end result is the same, to cover the utilities, nonbillables, and other overhead, including profit. 3:1 seems to be a reasonable average, and can be applied in a number of ways. Say you hear about a company with 200 employees and $4M in revenue. $4M/200/3 = $6.6k. THAT's a problem. Same company with $40M revenue -> $66k, which is tolerably healthy, given that the the bulk of the employees probably have less than $66k salary.

The multiplier is a drastic function of the industry, and even the type of company within an industry. An engineering-heavy company might have a much higher multiplier than a manufacturing company, where the gross majority of employees are factory workers.

TTFN

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[ajack1]

Monies in – monies out = pre-tax profit.

How you wish to dress it up beyond that is up to you but not really very relevant.

 

[IRstuff]

It's relevant if you want to ensure that you can even come close to being profitable.

TTFN

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[SomptingGuy]

Properly estimating monies out is the tough bit.

- Steve

 

[structineer]

This is also relevant if you want to compare the profitability of two employees with the same job description.

 

[SNORGY]

Well...

I know that I make $X.00 per hour, and I am billed out at less than $2X.00 per hour. Not sure where my employer is making the rest of the money if you need to have multipliers in the 3-4 range.

Maybe things are different here.


Regards,

SNORGY.

 

[Ron]

Snorgy...if an engineer has duties other than just project related billable time, then his multiplier will be less than the average.

In your case, I can't see why your employer would only bill you out at 2x. With your level of experience, I would expect that your employer should be billing you out at no less than $150 (Cdn) per hour. I'm guessing that your hourly billable rate is lower than this.

 

[SNORGY]

Your numbers are pretty close, Ron...are you secretly one of our clients that has seen our billing revews?

Our rate sheets are typically reflective of approximately "2X", where X = employee pre-tax salary, across the board.

Regards,

SNORGY.

 

[SomptingGuy]

I suppose our rates reflect the huge amount of capital equipment we have to recover, not just labour. An analyst running free analysis software at his desk will cost less than a test engineer running a transient dyno.

- Steve

 

[IRstuff]

Not always. Our wrap rates include a sizable amount for engineering R&D that's self-funded, but capital depreciation is certainly also a large chunk. Every other company I've worked for has gotten in to a mode of chucking less utilized capital equipment, just to beef up their bottom lines.

TTFN

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