Overhead in hourly rate

[raydefan]

My company charges the client $125 per hour when I work on a project, but I make $40 per hour. I want to figure out how much profit the company makes from me. Is there really that much overhead in a civil engineering company of about 60-70 people?

 

[whyun]

Typical mid size engineering consulting firm has a mark-up around 2.5 from the direct salary. Typical larger A/E or E/A firms have slightly lower markup (say 2.2 or 2.3) since they have a bigger portion of the total design fee.

Even though this fact is known, certain individuals always seem to get much higher mark-up (125/40 = 3.125 in your case). There are others who's mark-up is lower than the average.

It is very peculiar and everybody thinks they are being screwed. Those who really work efficiently and make profit for the company support those less competent who are just in it for a ride.

 

[BigH]

Usually I know of using 2.6 to 2.7 mark-up on salary - this includes burdens of 0.35 or so (vacation days, sick days, holidays, etc.) - then the 2x on this. Of course, the size of job, how bad the company wants it, competition, etc. will effect the actual mark-up. Some companies have "positions" whereby the position is paid a certain amount - so you might make $40/hr but someone else is making $50/hr - but both, being in the same position, will be charged out as the same.

 

[cvg]

much of the work we do is for public agencies, and often the profit is limited to a maximum of 10% or 12%. If you are working on a lump sum job and you have a budget overrun, the company doesn't make anything, instead it loses. If the company gets sued - or threaten to sue (which happens more often than you might think) they have to pay legal fees and may have to pay a judgement as well. Comes right out of the bottom line.

Of course, there is a grain of truth to whyun's statement, however, these overpaid, underworking folks are often the ones bringing in the projects because of reputation or name recognition...

 

[BRIS]

In UK the Association of consulting Engineers used to publish guidlines for charge rates. These were typically in the order of 2 to 3.5 times base salary depending on job size and complexity - in today's competitive market some firms are charging as low as 1.5 times base salary.
(It is impossible to make a profit at 1.5 times salary).

Work for public agencies (and the World Bank) on purely time charge with all reimbursable expenses paid may include a margin of only 10% on salary but usually for these projects all costs, including separate overhead payments, are chargeable to the Client and the contractor carries no risk (in theory - but there is still the risk of being sued).

 

[semo]

To actually know, you will need your companies overhead rate (expenses/payroll); but, you might not be privy to the year end statement which will give you the company expenses.

The overhead rate may take into account other employees (accountants, secretaries, CEO's, etc) that do not work directly on projects; but, still play into the picture.

If the firm works for certain government agencies (DOT's), they may have an audit done by that agency which sets the overhead rate allowed for that agency. That may be close to the actual; but, sometimes these agencies do not allow for certain expenses which lowers the rate.

If you have your companies actual overhead rate and you know how much time was placed on the project (by every billable person involved), you can calculate the actual expense for the project and the remainder is profit.

Most times the charge out rate is based on the overhead rate x 1 hr x profit (10-15%). As mentioned above, the project cost estimate can be dependent on a number of variables which affect the bottom line based on the employee's efficiency.

Also as mentioned above, different firms have different overhead rates and some firms even calculate different overhead rates for different departments (people).

 

[stanier]

Your best option if you dont like it is to vote with your feet.

Go hang out a shingle and start your own company with the other 60-70 minions.

Find out first hand what it costs for rental, advertisng, risk, insurance, paying wages when there aint no work, training, sicknesses, holidays, lawyers, accountants, free time for socials, Christmas parties and the like.

This world is made up with leaders and followers. If you want to be a leader grow the right appendages and go for it. If not be happy with your lot and dont be greedy.

Welcome to the wonderful world of capitalism. You voted for it!