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Use the right charge out rates and team structure
By: Chan & Naylor
Companies are marking up around 3 to 4 times their staff wages, depending on what they are doing. Bookkeeping is hard to get more than three times but tax planning and strategic work are at a higher multiple compared to "what the market will bear."
To get a bigger picture, here is an example:
minus 4 weeks of annual leave
minus 2 weeks of public holidays
minus 2 weeks of sick leave
= 44 weeks x 37.5 hours/week x 85% productivity
equals 1,402.5 chargeable hours
If package is $70,000 including Super
divided by 1,402.5 hours
= $49.92 per hour x 3.4 mark up
equals $169.73 charge out rate
1,402.5 chargeable hours x $169.73 per hour = $238,043
You can use this to determine your whole team's capacity and the resources you need. You should prepare your capacity spreadsheet before hiring extra staff even when your work load peaks and it is tempting to hire more. Remember that when workload drops because it's cyclical, you will have excess staff that will hit your bottom line.
You have to be responsible in making sure you are achieving a 25% EBIT (earnings before interest and taxes) to ensure shareholders are getting a fair ROI.
You have to achieve a win win balance for everyone through proper management of business and teams. Poor management means some stakeholders losing, staff not being paid decent wages, creditors not being paid, clients paying excessive fees or shareholders not getting their fair return of investment.
As a manager, make sure you are achieving the $185,000 of fees per full time employee. Only if you do will you achieve about 25% EBIT. To achieve this, you have to run your teams "Narrow and Deep" and not "Shallow and Wide."
This means your teams should have a Client Manager with three Accountants. The Narrow and Deep structure is easier because there are more working accountants who are easier to find than managers. This is not only profitable, your Client Managers will also get the opportunity to develop their careers.
You should avoid the Shadow and Wide structure where Client Managers work on their own with no staff doing the work. This means you have to find a superstar who is expensive and hard to find. These people charge their admin and bookkeeping tasks at accounting rates which can be a loss to clients. Alternatively, time is also written off.
I encourage you to use the right charge out rates and the Narrow and Deep structure to run your teams for a more profitable and successful business.
For more information about business in Australia, contact a Specialist (http://www.chan-
For more tips and advice from other industry experts, visitwww.chan-naylor.com.au