Have you ever heard the term FLC rate?
Or Fully Loaded Cost Rate or Loaded Rate. If you work in Professional Services, where you typically (but not always) sell your services by the hour, you will have to know how to determine this number.
Is there a Shortcut?
In large companies, such as SAP, all consultants are taught to know their FLC or fully burdened cost. What is loaded cost? Do you know the loaded rate meaning? Do you have a fully loaded cost definition that everyone in your organization agrees upon? How do you do a loaded cost rate calculation? Do you know how to calculate employee cost per hour.
It is a complex, mysterious number, because a lot of the cost you cover as a consultant depends entirely on what assignable costs (not all of which can be considered employee overhead) the company decides to burden your staff position with as well as your salary and benefits. Knowing the fully loaded cost of employees is how they set your fully loaded salary.
What Do You Mean By Fully Loaded Price?
The reason you need to know your FLC is to set loaded price, in other words, what your hours will cost someone to purchase if they hired you.
But how does one find out this mysterious FLC rate?
Mostly, you ask 'controlling'.
But what if they aren't available or the fully loaded rate number isn't readily available and you need to put together a proposal or determine your own FLC cost rate before you bid on a project?
What is included in fully loaded cost of employee?
Turns out, there is a shortcut, (changes a bit depending on what state you live in on rare occasions, such as Louisiana), but basically, you just need to divide one key number by a fairly simple constant.
That will provide you with a good starting point and if you're a small company and you need to rough in a proposal, rather than literally bidding against yourself, as many do (while the client isn't even in the negotiation, true story, happened many times), you can start to figure out several key numbers:
- Your Fully Loaded Cost rate. This is simply how much it cost to pay you your annual salary, on an hourly basis.
- Your Daily Fully Loaded Cost rate. You will often be asked or offered this number.
- Based on your Target Margin, what annual revenue you must generate to cover your cost.
- Your Gross Profit Margin for that person. Conversely, you, an individual consultant, can see how much profit you are going to supply to your employer.
- Your Required Hourly Bill rate to cover your fully loaded cost. This is a critical number, and the larger the project, the more critical this becomes. There really shouldn't be loss leaders anywhere on a project that you want to succeed.
- Your Required Daily Bill Rate, which is often the number you need when you are quoted a daily rate by a recruiter, who typically knows nothing of the actual business case of the project nor of the expected benefits of the project to the customer.
- Evaluate your Loaded Cost vs Unloaded Cost using your fully loaded cost of labor. To do this you must know your fully loaded employee cost and your loaded rates of pay. Then you can answer the question what is my fully loaded labor cost.
Of course, most projects consist of more than one person and you need to know fully loaded FTE cost. With the simple calculator I've developed, you can determine (by knowing the fully loaded rates) the overall cost to deliver the service or the probable cost to buy the service by simply aggregating all the roles (by knowing and using your fully loaded hourly rate).
Fully Loaded Cost to Run Operation
This same approach would work, for example, in a small medical practice to determine the overall Fully Loaded Cost of running the operation and the income it is likely to produce. The loaded rate calculator is currently a downloadable calculator but will soon be turned into a web app so get it quick.
If you would like to, you can download your copy today.
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