“All in” what employees cost – Burdened Comp
Payroll is the life blood of running an agency, but there’s more to payroll than salary. You pay taxes, health insurance, benefits, worker’s compensation insurance – the hidden costs of payroll. You know your team’s billable rates, but what about the true all in cost of employment by the hour?
Unburdened Comp
Unburdened comp is simply salary. It’s easy to figure out and is what most agencies use to price clients.
- Agency unburdened comp, should range between 45 and 50%.
“All In” Burdened Comp
Burdened Comp is the “all in” amount of your revenue that is going to employees. It’s what should be used to price clients.
- Average burdened comp adds on an additional 12-15%.
- “All in” burdened comp should range between 50.4% – 57.5%.
Understanding “all in” burdened comp drives pricing and profitability.
Pricing
A good rule of thumb is to bill at least two times your burdened comp.
- Submit a $200k proposal based on $100k in unburdened payroll costs and you may be projecting a $100k profit.
- The true profit is $85k or 42.5% after factoring in unburdened comp.
- Using “all in” unburdened comp would have signaled to quote the project $30k higher, resulting in a $115k project profit.
- Compared to $85k, that’s a 35.29% increase in profit!
When pricing, make sure you’re using “all in” burdened comp. The results show up in profit.