There are firms that use multipliers as low as 1.5 and others that approach 4.0. Your math may work for your firm - but there are so many variables that are specific to each firm.

Consider that the hours billed need to cover all the hours that aren't billable. So, if your employees are billing 90% of their hours you may need a lower multiplier than a firm that is utilizing large amounts of staff time on creating brochures, networking computers, writing books on CAD standards, etc.

If you give only 1 week of vacation per year to your interns then your muiltiplier can be lower than the firms that give 2 or more weeks.

If you provide any of: sick days, time for training and staff development, time off to take registration exams, etc. then your multiplier must be higher.

If your firm bills more reimburseables to clients (travel, meals, postage, reprographics...) then you can bill lower hourly rates...

A huge amount of overhead can be insurance: professional errors and omissions (liability), business property, employee dishonesty (theft), firm's vehicles, etc. etc. If your firm omits some of these it may be able to bill less. If it has had recent insurance claims it may have to bill more....

The firm's location, type of office acommodations, equipment, lifestyle, practices, size, etc. are all going to factor in. Every printer cartridge, desk, Christmas gift to client, bonus to employee, electric bill and AIA membership have to come out of these billings....

LFLH is correct about the range of billing range. I have typically seen a range of 2-4, but rates as low as 1.5 seem reasonable for small firms with extremely low overhead...

I can't think of any good reason to pick a number like 2.6 or 3.0 and then go with it. Every firm is different, and you need to take all of the related business costs into consideration when coming up with an appropriate billing rate. Another thing that is often overlooked in small firms is growth and promotion, you need to accomodate future/potential growth and the neccessary raises you will need to give your employees. You should always consider a prudent contingency as well.

Thanks for your input. My firm is not especially business savvy, and not willing to share the inner workings of their devious minds. I'm trying to figure it out piecemeal, so I can make some recommendations for change in the office. We're all underpaid, but the hourly billing rates we include in our proposals haven't changed in 3 years.
I know there's a direct correlation between the staff morale (and primarily their complaints about salary) and the business skills of the leadership. I'm out to fix that. If I can't, at least my research will get me off on the right foot out the door.

Do they actually bill hourly? or is that rate just there to use if the client ever demands timecards or if there is a question of extra services? It would be important to find out - I know at the last large firm I worked at they did include hourly rates in the proposals, but in practice always billed percentage of construction cost so the hourly rate didn't really mean anything.

perhaps a salary/billable ratio would be more usefull than the salary poll.

ill start

$22hr/$105hr = 4.77

17hr/100hr = 5.88

$17.5hr/$70hr = 4

I would prefer not to include financial details here, but my ratio is 1.8.

4.56

4.05

Six days vacation, no bonuses, 95% of time is billed directly to client.

but my boss stays in $2500 per night hotels.

4.0

12- 15 person firm, 3 weeks vacation, small bonus, 1 week personal/ sick, 95+ hours billable.

this is a great thread and one I have pondered.....

2.2 ratio

4-person firm, 2-3 weeks vacation (no official set amount -it's negotiable), bonus of about 20% of base salary, 6 sick days, +/-80% billable hours (the rest of the time is spent on IT management and other firm management and marketing.)

3.1

was 2.8 until recently- we just raised our hourly rates

our situation in the same as RA Rudolph post- only rarely do we work hourly but we do use the rates internally to fugure job profitability since profits and overhead are already built in

3.0

in my experience, most projects are lump sum. hourly figures are used to figure out this lump sum amount (my firm uses what we call a work plan).

hourly billing is done for additional services.

We bill strictly hourly. This may be one reason that we're able to use a lower multiplier.

3.2 with 95% billable

Most firms use a multiplier of 2.8 to 3.2. This is defined as Net Revenue divided by Direct Labor. All other labor, Indirect Labor, which includes sick days, vacation days, wasted time, etc is part of the overhead. Also, keep in mind that most multipliers are figured out firm wide, not just per person. So a principal who spends half their time marketing and managing is a "drag" on the multiplier ratio. (they are adding to the overhead with Indirect Labor), but it is necessary, just like the book keeper and receptionist add to the overhead and create a larger multiplier. Most firms figure out their break even multiplier once a year, based on actual budget numbers and last years numbers, then apply the same multiplier accross the board to all staff. In reality, what you want is a multiplier that is low (like 2.5 times direct labor rates) because you are a well managed firm that has a low overhead, and a billing rate that is high, because the market can bear it. Don't you think it would be silly to charge $60 per hour for your time because that is your break even point if the market will bear $90 per hour for your time? that is where profit (and Profit sharing with employees) comes in. For those who have said their multiplier is 1.5, that is kind of crazy. If you make $60,000 a year, and are productive 80% of the time (pretty high for a small firm where you wear the marketing, book keeper, janitor hat), then your direct labor rate is $60,000 /2040 = 29 per hour worked. But you only work (Direct Labor) for 80% of the time. Your billings for the year, at 1.5 times multiplier would be $29X 1.5 or $43.5 per hour times 2040 times .8 =$70,992 per year. That only leaves you $10,000 for overhead, most of which is your time that you couldn't bill! Wouldn't you bill your time out at $80 per hour or some other going rate if you could? Then for the year, you would bill $80 times 2040 X .8 = $130, 560 for the year, leaving you money to pay for your health insurance, your liabilitiy insurance, your rent, your computer, and PROFIT. Any firm that says their multiplier is 1.5 is just crazy if that's what they use to estimate their hourly rate. Gosh, just the taxes, pension plan, health insurance and paid time off is a multiplier of 1.38 at our firm!

archie - thanks for the thoughtful insight.

RAR - our firm bills lump sum as a percentage of construction, and includes hourly rates for additional services in proposals and contracts. However, our manpower schedules get very skewed because the management insists on pinning hours per employee to their task in a given job - per phase. These figures very rarely come even remotely close, and are based - at least internally - on our hourly rates. I've recommended boosting our hourly rates, which would effectively shorten our project time (on paper) and make a very real statement of commitment to timely project delivery. 80% of the staff has been with the firm more than 5 years, all the management level more than 20 years. We have all become pretty lazy. Further, our biggest client, for whom maybe 50% of our work is alotted, caps our fees at 6% of construction cost. That really sucks.

Aside from that, I want a raise. And I haven't been able to figure out a consistent billing rate to hourly pay rate in any of the projects I've worked on. I'm going to go in and ask for the raise, and wanted to be able to suggest either an effort to reduce overhead, or new hourly rates and a reasonable, consistent ratio to figure the manpower schedules.

PS - I'm billed at slightly more than 3x my hourly rate.

to Ddot;
6% is not terrible for most types of jobs, especially if they are repetitive, which they probably are if they are for the same client. We have done many percentage jobs for a lower percentage fee, and made a killing, much more than we would have if we had done the work hourly. It sounds like the problem isn't one of hourly rates and multipliers, just bad managment. Do they have some kind of incentive program where if your projects make money, you get a bonus? Do you know what kind of money the owners are making? Maybe they are "lazy" because they are making good money and are satisfied with it. I think you might be better off looking at what salaries are in your area (you can use the AIA study as a start) and see how your wages fit in with that. I have employees who are billed at the same rate because their salaries are similar, but one is twice as effecient as the other. The effecient one gets much bigger bonuses. so in effect, his salary is higher. Of course, if they are not managing the projects well, and are not keeping overhead in line, it is all a moot point anyway. With percentage fees, the amount you will earn is already determined. It is just a matter of how much time you spend getting there, and how much overhead you have. You might want to look at some of your own ratios to make your point that you deserve a raise. If you know what the fee was on some projects, and how many hours you took to do the project, you might be able to show them that you have a high multiplier yourself, and therefore deserve a raise. Again though, its still what the market will bear. FYI, in a firm that has a really high percentage of repeat work, the profit margin is usually much higher than normal- "marketing" cost, including principals time, can eat up a huge amount of overtime. I would focus on project managment to get the work done in a reasonable amount of time as a way to turn things around.

where can i find this "aia study" for salries

The AIA sells the 2002 salary survey on its website (www.aia.org)
It is about $45 to download each region of the country, or over $100 to get the entire survey covering the whole US.
You can usually view the survey at your local AIA chapter, though some chapters are more cooperative than others about letting people read publications within their office without buying them.

thanks!

Ok that's gotta be one of the best bot-posts I've seen here in a long time. Get on the custodial arts bandwagon!

You can get the 2015 salary report from the AIA for the low, low price of $349. Act now and you can download it twice (really!). Operators are standing by. Have your credit card ready! 

13 year old thread, revived by spammer.

So I'm paid $70,000 per year = $35 per hour.  My employer bills me out at $175 per hour.  That's an X 5 factor.  Does that mean I'm either vastly underpaid, or highly inefficient?  

I'm one of the most productive employee's in the office, so I'm pretty sure that's not the problem.  Our overhead is not enormous (our rent is about as cheap as it can be)

My firm is a Pharmaceutical lab that deals in training students, regulatory officials, testing of Pharmaceutical manufacturing products and providing consultancy services. I want to know how to develop a rate to charge for each training session, testing and consultancy services.

Can anyone help?