Do you know what Direct Labor (DL) rate utilization is and how to calculate it?
Your #govcon company should be tracking this metric and keep it optimized as it can make or break the profitability of your company.
For your direct billable full-time equivalents (FTEs), strive for a metric of ~90% depending on your leave offerings.
Each company will likely have a different leave offering so you’ll need to make adjustments for your organization and your opportunity as many requests for proposals/quotes (RFP or RFQ) will specify hours that equate to an FTE, like 1912, 1872, etc.
40 hrs/week * 52 weeks/ year = 2080 hours
2080 hours less 88 hours federal holiday & 80 hours PTO (2 weeks) = 1912 hours
1912 hours divided by 2080 hours 91.9%
—————————or ————————
2080 hours less 88 hours federal holiday & 120 hours PTO (3 weeks) = 1872 hours
1872 hours divided by 2080 hours 90.0%
Also, each main contract type (FFP, T&M, CPxF) will provide unique opportunities to make tweaks that will impact your profitability.
Be advised that your DL rate utilization will fluctuate on each individual person’s time sheet and time period.
So whether your payroll is weekly (40 hours), bi-weekly (80 hours), semi-monthly (72 – 96 hours), or monthly (152 – 184), you should be able to calculate these metrics as it drives the percentage of (proportional salary) to be billable to the customer and what goes into other fringe/overhead/G&Atype indirect accounts, like PTO, vacation, sick leave, training, conference, and the like…
Failure to monitor this metric will be disadvantageous to your fringe indirect rates which in turn damages your overall price competitiveness and weakens your profits.
Please book an appointment with PTW if you are looking for guidance about anything #govcon, let’s explore and dive into your challenges today and explore options for helping your team tomorrow.
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