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How Do I Know How Much To Bill?
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Direct LaborSub ConsultantOverheadProfit
ITEMS TO CONSIDER IN BILLING
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Direct Labor = Wages paid to staff when working on projects
Sub Consultant = Services contracted per OH Projects, i.e. Soil
Borings, Wetland ID, Title Work, Etc….
ITEMS TO CONSIDER IN BILLING(CONT.)
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Why Do I Need To Know It?
To Cost Out New JobsTo Manage The Company
OVERHEAD
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What is it?“All Costs Incurred Above Direct Wages”
•Payroll Taxes•Rent or Mortgage•Telephone &
Utilities•Employee Insurance•Business Insurance
•Office Supplies and Postage
•Repairs and Maintenance
•Taxes & Licenses•Legal & Accounting
OVERHEAD
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“All Costs Incurred Above Direct Wages” (cont.)
•Vehicle Expenses•Travel & Mileage
Reimbursement•Education & Seminars•Equipment &
Supplies•Dues & Subscriptions
•Depreciation•Interest Expense•Contract Services
(1099 Services)•Lease Payments
OVERHEAD
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How Can I Compute My Overhead?
Total Year’s Overhead Expenses
Total Year’s Direct Wages= Ratio
Ratio x 100 = %
Sample
$872,783
$671,356= 1.30 1.30 x 100 = 130%
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100% Emp. Wage + Overhead = Charge Out Factor
Actual Wages x COF = Billing Rate
Sample
100% + 130% = 230%$10/hr x 230% = $23/hr
How Can I Charge For My Overhead?
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Total Rate x (100% + Desired Profit %) = Billing Rate
Sample
$23/hr x (100% + 15%) = $26.45/hr
How Do I Add Profit?
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•Overhead (3.0)
•Utilization (>60% for total staff)
•Voluntary turnover rate (
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Income Statement - June 2006June YTD
Revenue Service Income - Labor $83,333 $421,359Other Income -
Reimbursables $241 $1,446Income - Subcontracted Services $7,500
$13,550
Total Income $91,074 $436,355
Subcontracted Services $7,500 $13,550
Total Net Revenue (Total Income - Subcontracted Services)
$83,574 $422,805
Cost of Services Wages - Direct $29,858 $155,262Project Expenses
$125 $750Field Expenses $653 $3,918Vehicle Expenses $849
$5,094Errors and write offs -$2,000 -$2,500
Total Cost of Services $29,485 $162,524
Gross Margin (Net Revenue - COS) $54,089 $260,281(Gross
Margin/Net Revenue) 64.7% 61.6%
Sheet1
Income Statement - June 2006
JuneYTD
RevenueService Income - Labor$83,333$421,359
Other Income - Reimbursables$241$1,446
Income - Subcontracted Services$7,500$13,550
Total Income$91,074$436,355
Subcontracted Services$7,500$13,550
Total Net Revenue(Total Income - Subcontracted
Services)$83,574$422,805
Cost of ServicesWages - Direct$29,858$155,262
Project Expenses$125$750
Field Expenses$653$3,918
Vehicle Expenses$849$5,094
Errors and write offs-$2,000-$2,500
Total Cost of Services$29,485$162,524
Gross Margin(Net Revenue - COS)$54,089$260,281
(Gross Margin/Net Revenue)64.7%61.6%
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Operating Expenses Wages - Indirect 19,018.00$ 129,322.40$ Rent
2,500.00$ 15,000.00$ Utilities 1,200.00$ 168.00$ Benefits -
Insurance and Taxes 6,090.00$ 42,630.00$ Office Expense 175.00$
1,225.00$ Furniture and fixtures 650.00$ 1,300.00$ Bldg Maintenance
200.00$ 1,200.00$ Travel and Mileage - Indirect 300.00$ 1,800.00$
Sales and Marketing 3,750.00$ 22,500.00$ Insurance 1,500.00$
9,000.00$ Depreciation 300.00$ 1,800.00$
Total Operating Expense 35,683.00$ 225,945.40$
Total Expenses 65,168.00$ 388,469.00$
Income before Interest and Taxes 18,406.00$ 34,336.00$ 22%
8%
Measures # Staff members 11 10Labor Multiplier 2.80 2.72Overhead
(Oper.Exp./Direct Wages) 1.20 1.46Net Revenue per Total Staff
(Annualized) 91,171.64$ 84,561.00$ Utilization Rate 66% 61%
Sheet1
Operating ExpensesWages - Indirect$ 19,018.00$ 129,322.40
Rent$ 2,500.00$ 15,000.00
Utilities$ 1,200.00$ 168.00
Benefits - Insurance and Taxes$ 6,090.00$ 42,630.00
Office Expense$ 175.00$ 1,225.00
Furniture and fixtures$ 650.00$ 1,300.00
Bldg Maintenance$ 200.00$ 1,200.00
Travel and Mileage - Indirect$ 300.00$ 1,800.00
Sales and Marketing$ 3,750.00$ 22,500.00
Insurance$ 1,500.00$ 9,000.00
Depreciation$ 300.00$ 1,800.00
Total Operating Expense$ 35,683.00$ 225,945.40
Total Expenses$ 65,168.00$ 388,469.00
Income before Interest and Taxes$ 18,406.00$ 34,336.00
22%8%
Measures# Staff members1110
Labor Multiplier2.802.72
Overhead (Oper.Exp./Direct Wages)1.201.46
Net Revenue per Total Staff (Annualized)$ 91,171.64$
84,561.00
Utilization Rate66%61%
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Always have a written contract that outlines:
•Scope of Services
•Fee Schedule
•Standard Terms
•Have it reviewed by E & O carrier
Contracts
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Collection of Accounts
“Credit is the system whereby a person who can’t pay, gets
another person who can’t pay to guarantee that he can pay.”
Charles Dickens
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Retainer• Collect prior to starting• Applies to end of project
not
beginning• Credit Card Info
HOW NOT TO TURN A BILLING INTO A RECEIVABLE
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Contract provision allowing work stoppage
Key deliverable dates being tied to account status
HOW TO AVOID RECEIVABLES (cont.)
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I Have Receivables -
Now What?
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• Believe in the quality of your services • It is your money to
collect• Know the value of your product• Bill according to
contract• Understand the payment system• Bill monthly, and rebill•
Follow-up telephone calls• Work at keeping accounts current
Collection of Accounts
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LiensCollection AgenciesAttorneys
•Letters•Lawsuits
WHEN THEY DON’T PAY OPTIONS
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Questions & Discussion
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Thank [email protected]
Billing and Collection of Fees����NDSPLS 41st
Convention��February 7, 2020��John Matonich, P.S.Slide Number
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