Have You Ever Heard the Term FLC Rate?
Or Fully Loaded Cost Rate or Loaded Rate. If you work in Professional Services or run a consulting business where you provide consulting services, where you typically (but not always) sell your services by the hour, you will have to know how to determine this number in order to set consulting fees that are competitive and profitable. It's actually critical to understand the fully loaded model of employee compensation cost when you do your annual business planning, as well as when you're setting a price for services. Knowing your total labor cost, including fringe benefits and direct and indirect costs, and all other operating cost is a critical component of planning out your operations. It's also critical in setting appropriate hourly fees. That's why you must know the meaning of consultant fees (and how to set them) and how they are determined.
Is There a Shortcut?
In large companies, such as SAP, all consultants are taught to know their FLC or fully burdened cost. Most consultants that I worked with knew theirs by heart and checked if there had been any changes very frequently.
What is loaded cost?
Do you know the loaded rate meaning?
FLC Acronym 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 fully loaded employee cost per hour. Do you know the difference between base model vs fully load cost. If you're a business consultant and you're bidding on a project or doing business planning, you need to know the answers to these questions. Consulting clients expect you to know them and to set competitive rates, often based on this numbers. Knowing the total compensation of each person on your payroll, or contractor, can make or break your operation. You should also be aware that average consulting fees vary greatly, and they depend on many factors, such as the market, size of your firm, and what the market will bear.
Knowing Employee Labor Cost is Important
It is a complex, mysterious number, because a lot of the labor costs 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. For example, when you calculate labor cost, knowing which overhead costs and expenses will be 'loaded' onto your position is a critical competitive decision. I have even seen recruitment cost loaded onto a role, which radically affected the cost of personnel, though it is not typical. Especially with regards to pricing you out. Knowing the fully loaded labor cost of employees is how they set your fully loaded salary directly influences your hourly fee as well.
Key Input to Annual Business Planning
It's also a key input in to estimating your annualized cost as an employee. It's also crucial to know which part of the to calculation is subject to a raise based on the consumer price index, especially with some union contracts and basically, all of Europe. Knowing the equivalent annual cost of each person when performing cost planning is essential.
Determines Future Financial Performance
Understanding the fully loaded cost rate is crucial for consultants when it comes to determining their sales revenue and future performance. It's just as important to their employer when they work within a company. The fully loaded cost rate, also known as the loaded rate, is the price at which consultants sell their services. By knowing this rate, consultants can set their consulting fees competitively and ensure profitability. This number plays a significant role in annual revenue and current financial performance. It is essential for consultants to calculate their total labor cost accurately and take into account all the overhead costs and expenses associated with their position. By understanding the fully loaded labor cost, consultants can effectively set their fully loaded salary, which directly impacts their future financial performance. It is important to explore how to determine the fully loaded cost and find shortcuts to calculate it.
What Do You Mean By Fully Loaded Price?
The reason you need to know your FLC is to set your fully 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? For example, what is the daily rate for training consultant services. If you hope to win the deal, you will need effective labor rate formula that takes into account all fixed and variable cost.
What is Included in the 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.
Basic Costing Formula Shortcut
Our approach (which is in use by many Professional Services firms in some form or another), allows you to consider variable cost, total fixed costs, direct labor costs and provides a basis to arrive at a total cost. Taken a little further, you can use it come up with an expense run rate. You can also come up with a project budget run rate with this same piece of critical information.
Compare Cost Between Geographic Locations
You can also use this approach employment cost index calculator to compare your cost to deliver services in different locations. We've actually built geographic. comparison calculators available (you may know this type of calculator as a geographic differential calculator) elsewhere to allow you to prepare bids for such situations. It is driven by real data. For many clients, they use these calculations as inputs into their financial intelligence for labor cost analysis system. They also can use them to set an average cost rate a specific geographic region when needed. They can quickly set geographic pay rates using this tool. When you're using a system like SAP IS EC&O, you can also use this as cost input sheets for your Project System (SAP PS) and use it track run rate expenses as they ramp up. SAP PS, as it happens, also allows contractors to set up a realization rate formula and achieve earned value management reporting, a key requirement for many government construction projects.
Quick Total Cost Formula
This approach 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. It can include many elements, i.e., your salary, health insurance, payroll taxes (there are many, due to the Federal Insurance Contributions Act and the Federal Unemployment Tax Act as well as the State Unemployment Insurance Tax). You can see the average fully loaded employee cost calculation can get complicated, fast.
- Your Daily Fully Loaded Cost rate. You will often be asked or offered this number. Even if you're an independent, a staffing agency may ask you for this number. They use it on their side to determine pay and bill rates, as do many other key stakeholders.
- 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. Keep in mind this is different from your overall Gross Margin.
- 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. Your required markup percentage should also be included in this figure - and you need know what percentage or day rate you won't go below!
- 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). It provides an easy button to calculate your effective labor rate(s).
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. This approach helps you determine cost per hour, taking into account all costs.
Fully Loaded Cost Calculator
The loaded rate calculator is currently a downloadable calculator but will soon be turned into a web app so get it quick. We know that calculating employee cost is a never ending challenge, and want you to have the tools you need to get the job done.
If you would like to, you can download your copy today.
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Some Common Terms and Definitions You Should Know
In addition to determining your FLC rate, there are a number of other related concepts that both consulting companies and other types of companies, i.e. construction companies, typically need.
Direct labor multiplier formula: The direct labor multiplier formula is a calculation used by consultants and businesses to determine the fully loaded cost of labor. This formula takes into account various factors such as salary, benefits, overhead costs, and expenses associated with a particular position. By using this formula, consultants can accurately calculate their total labor cost per hour and set their fully loaded salary accordingly. The direct labor multiplier formula plays a crucial role in determining the future financial performance of consultants and their employers. It helps consultants set their consulting fees competitively, ensure profitability, and make informed decisions about pricing and project budgets. Additionally, this formula can be used to compare labor costs between different geographic locations and analyze cost variations. It provides a shortcut for calculating the fully loaded cost and allows consultants to estimate their expenses accurately. By understanding the direct labor multiplier formula, consultants can effectively manage their costs and optimize their financial performance.
Direct Construction labor cost: Construction project management success heavily relies on accurate construction labor costs and the concept of labor burden. The direct labor multiplier formula is a crucial calculation used in the construction industry to determine the fully loaded cost of labor. This formula takes into account various factors such as wages, benefits, overhead costs, and expenses associated with construction labor. By accurately estimating the direct construction labor cost, project managers can quickly estimate the overall construction project cost. This information is essential for setting project budgets, determining labor rates, and making informed decisions about pricing. The concept of labor burden, which includes indirect costs such as payroll taxes, insurance, and benefits, allows construction companies to fully understand the true cost of their labor force. By considering both the direct construction labor cost and the labor burden, project managers can ensure that their estimates are comprehensive and accurate, leading to successful project outcomes.
Standard Hours Realization Factor: The standard hours realization factor is a key concept that can greatly impact the revenue and profitability of a firm. This factor refers to the ratio of the actual hours worked by employees to the standard hours that were initially estimated for a project. A high standard hours realization factor indicates that employees are efficiently utilizing their time and completing tasks within the estimated timeframe. This can have a positive effect on the revenue and profitability of a firm, as projects are completed on schedule and within budget. On the other hand, a low standard hours realization factor suggests that employees are taking longer than expected to complete tasks, leading to delays and increased costs. This can negatively affect the revenue and profitability of a firm, as additional resources may be required to complete projects. The standard hours realization factor is closely related to the fully loaded cost of a firm. When employees take longer than expected to complete tasks, it increases the labor costs associated with a project, which in turn affects the fully loaded cost. Therefore, effectively managing the standard hours realization factor is crucial for maintaining profitability and ensuring the success of a firm.
SAP EC&O Solution: The SAP EC&O Industry Solution offers an advanced software capability for calculating construction worker rates. This feature allows construction companies to accurately determine the labor cost per unit, taking into account factors such as wages, benefits, and overhead costs. Additionally, the solution enables quantum costing calculations at the line item level and allows these calculations to be rolled up to the project portfolio level. By utilizing the internal labor cost per unit calculator capability of SAP HCM and the SAP Data Warehouse and partnering with other integrated software products, the solution provides unparalleled project estimation and cost projection capabilities. This allows construction companies to have a comprehensive understanding of their labor costs and enables them to make informed decisions regarding project budgets and pricing. With the SAP EC&O Industry Solution, construction companies can effectively monitor and manage their project expenses, ensuring successful project outcomes.
Labor burden costs refer to the additional expenses that companies incur beyond an employee's salary or wages. These costs are essential to consider as they contribute to the fully loaded cost of labor. When calculating labor burden costs, various factors are typically included.
These factors may consist of:
- Health insurance premiums
- Worker's Compensation Insurance
- Payroll taxes, such as those imposed by the Federal Insurance Contributions Act
- Federal Unemployment Tax Act
- and other employee costs and benefits provided to employees.
By taking into account these factors, companies can accurately determine the true cost of their workforce and make informed decisions about project budgets, pricing, and profitability.
An Employee's Labor Burden
When calculating labor burden understanding the concept of labor burden costs is crucial for businesses across industries, including consulting companies and construction firms, as it allows them to assess their overall labor expenses and optimize their financial performance.
Direct Labor Formula
The direct labor formula is a crucial calculation used by consultants and businesses to determine the fully loaded cost of labor. This formula takes into account various factors such as salary, employee benefits, overhead costs, direct costs, and other payroll costs and administrative expenses associated with a particular position. By using this formula, consultants can accurately calculate their total labor cost per hour and set their fully loaded salary accordingly. In the professional services industry, this formula can be applied to determine the overall fully loaded cost of running a small medical practice and the income it is likely to produce. By understanding the direct labor formula, professionals in the industry can effectively manage their costs and optimize their financial performance.
Labor Cost Productivity
Labor cost productivity is a measure of how efficiently a professional service organization, such as SAP Consultancies, utilizes its labor resources to generate revenue. It is commonly measured by calculating the ratio of output or revenue to labor costs. This metric helps organizations assess the effectiveness of their workforce in delivering value to clients and achieving profitability. Professional service organizations, like SAP Consultancies, typically track and measure labor cost productivity by analyzing key performance indicators (KPIs), such as billable hours, utilization rates, and project profitability. These metrics provide insights into the efficiency and effectiveness of the organization's labor force, allowing them to make informed decisions about resource allocation, pricing, and project budgets. By continuously monitoring and improving labor cost productivity, professional service organizations can optimize their financial performance and ensure the success of their projects.
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