In this episode Jenny Clark talks about Pricing Buildup from Cost.
Building Up Your Cost and Pricing
Making Sure You Make A Profit
What are the Costs you must Cover?
Building a Prototype
- DIRECT COSTS
- Design Costs
- Engineering Hours time Engineering Pay Rate
- Assembly Costs
- Assembly Hours times Pay Rate
- Materials
- Actual Costs of Materials from Bill of Materials
- INDIRECT COSTS
- Tools and Facilities
- Design Software
- Business Licenses and Accounting
Components of Labor Buildup
- Direct Labor (Hourly Pay Rate)
- Fringe Rate (Percentage of Labor)
- Overhead Rate (Percentage of Labor)
- G&A Rate (Percentage of all above)
- Fee (Profit)
Let’s Start with Definitions
Direct Labor
- Your Employees (not subs, not consultants)
- Direct Labor (Hourly Pay Rate)
- Annual Salary divided by 2080 Hours
- Base calculation here should consider productive hours like 1880 hours excluding 200 hours of leave
- Consider:
- Specific employees that meet the labor category
- Estimated salary for new hires
- Mix of both specific employees and projected new hires
Fringe Benefits
- When you hire employees, you have costs associated with each payroll plus any benefits
- Payroll Taxes
- Leave
- Group Insurance
- 401K Matching/Profit Sharing/Safe Harbor
- Workers Comp
Overhead
- Support costs for your technical work force
- Recruiting
- Training
- Certifications
- Tools
- Facilities cost if they are in your office
General & Administrative (G&A)
- Corporate Expense
- Cost of executives, accounting, human resources
- Bank fees, legal expenses, professional fees
- Property taxes and state income taxes
Profit or Fee
- Fee is the same as profit
- Depending on the contract type and risk
- Typical federal contractor fee percentage could be 6% to 12%
- Maybe higher in fixed price because of risk
- Primes will pressure you to accept lower profit rates
- Consider only if you are trying to create new relationships or break into new markets – your risk is higher than theirs
To contact Jenny W Clark
CEO, Solvability, Inc
Phone | 256-882-6276 |
jwclark@solvability.com | |
Solvabilityjwc | |
Solvabilityjwc |
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