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

www.solvability.com

Phone	256-882-6276
E-mail	jwclark@solvability.com
Linkedin	Solvabilityjwc
Twitter	Solvabilityjwc

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