FLGOVCON73- Pricing Buildup from Cost - Solvability

FLGOVCON73- Pricing Buildup from Cost

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

  • Design Costs
  • Engineering Hours time Engineering Pay Rate
  • Assembly Costs
  • Assembly Hours times Pay Rate
  • Materials
  • Actual Costs of Materials from Bill of Materials
  • 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


  • 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
E-mail jwclark@solvability.com
Linkedin Solvabilityjwc
Twitter Solvabilityjwc


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