Fully Burdened Rate Calculator

Fully Burdened Rate Calculator

Understanding the Fully Burdened Rate

The fully burdened rate is a crucial metric for businesses, especially those that bill clients based on labor costs. It represents the total cost of employing an individual, beyond just their base salary. Accurately calculating this rate ensures that pricing is sufficient to cover all expenses and generate a healthy profit.

Components of the Fully Burdened Rate:

• Base Salary: This is the direct compensation paid to the employee.
• Benefits Cost: This includes all expenses related to employee benefits. Common examples include health insurance premiums, retirement plan contributions (e.g., 401(k) match), paid time off (vacation, sick leave), life insurance, disability insurance, and other employee perks. These are often expressed as a percentage of the base salary.
• Overhead Cost: These are indirect costs associated with employing an individual, even if they aren't directly tied to a specific project. Examples include office rent, utilities, IT support, software licenses, administrative staff salaries, and general operational expenses. These are also frequently calculated as a percentage of the base salary.
• Profit Margin: This is the amount of profit the business aims to make on the cost of employing the individual. It's essential for business sustainability and growth. This is also typically expressed as a percentage of the base salary.

Why is the Fully Burdened Rate Important?

For service-based businesses, understanding the fully burdened rate is vital for accurate project quoting and profitability analysis. If a company only considers the base salary when setting billing rates, they risk undercharging, which can lead to financial losses. By incorporating all associated costs and a desired profit margin, businesses can set competitive yet profitable rates.

How to Calculate the Fully Burdened Rate:

The calculation involves summing up the base salary, the monetary value of benefits, overheads, and the desired profit, and then dividing by the base salary to express it as a factor or percentage. Alternatively, you can calculate the total cost and then determine the billing rate needed to achieve the desired profit.

The formula used in this calculator is:

Total Cost = Base Salary + (Base Salary * Benefits Percentage) + (Base Salary * Overhead Percentage) + (Base Salary * Profit Margin Percentage)

The calculator then displays the total cost, which implicitly represents the "fully burdened rate" in terms of total cost per employee per year. If you were to then divide this by the number of billable hours in a year, you would get the fully burdened hourly rate.

Example Calculation:

Let's consider an employee with an annual base salary of $60,000.

• Base Salary: $60,000
• Benefits Cost: 25% of $60,000 = $15,000
• Overhead Cost: 15% of $60,000 = $9,000
• Desired Profit Margin: 20% of $60,000 = $12,000

Total Cost (Fully Burdened Rate) = $60,000 + $15,000 + $9,000 + $12,000 = $96,000

This $96,000 represents the total annual cost to the business to employ this individual, including all expenses and the desired profit.

Calculated Costs:

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Total Fully Burdened Rate (Annual Cost):