Ever hear the bosses discuss the "multiplier?" simply, its your base salary by hour multiplied by the overhead and fee rates. For instance, a 2.35 multiplier would be your wage (100%) with an additional overhead of 125% of your wage plus a fee (profit) of 10% of your wage.
How do they come up with that overhead multiplier anyway?
Voodoo.
No, seriously, here are some things that can be considered overhead expenditures:
Fringe Benefits for employees, including payroll taxes, vacation, health insurance contribution, unemployment taxes, 401k contributions, oh and BONUSES and INCENTIVES (ever get those? corporate officers do, often it is their method of pay). Typically, these fringe benefits constitute 30-50% of overhead. Keep these low (like don't pay insurance or benefits) and your overhead will be really competitive.
The rest of overhead may include office administrative staff (oh, that includes salary for admin and often owners), rent, office supplies, motor pool and equipment, other capital purchases, company parties, client entertainment fees, consultant fees, memberships, professional organization fees, depreciation of assets, and other unreimbursed items like hotel rooms, miles driven, postage sent, etc. Keep these costs low and overhead can hover in the under-100% range. Keep the fringe and other overhead low? 50-60% overhead would not be out of the question.
Given today's lowballing environment (strike that...."best value"), an overhead of between 60% and 90% is the only way for a firm to be competitive.
Work for the lowballers? Then you know how they keep that overhead low. Like drive your own car or the dilapidated 1987 bronco? Ancient copiers? Work in an "old house" instead of a proper office? Or is the office falling apart? Shitty computers? No benefits? No sick time? No vacation?
shall I go on?
multiplier voodoo feeds fat pigs and their sidekicks
ReplyDeleteThank you, that is very informative.
ReplyDelete