Fee Burn is the amount of the Net Fee that you have burned thru internally. There are two calculations for Fee Burn, one for Labor (time slips) and one for Contracts (projects).

For Labor, Fee Burn is the cost of Direct Labor plus Overhead plus Profit: Direct Labor + Overhead + Profit.

For Contracts, it is the sum of the calculated Fee Burn from Labor plus non-billable direct expenses. Because this is a reflection of your Net Fee it does not include consultants as their fees have already been subtracted from the Gross Fee to get to the Net Fee.

Example: Let's assume a Net Fee of $10,000, Direct Labor of $2,800, an Overhead Factor of 1.65, and a Target Profit Percentage of 18%.

Overhead = Direct Labor x Overhead Factor: $2,800 * 1.65 = $4,620

Burn = (Direct Labor + Overhead) / (1 - Target Profit Percentage): ($2,800 + $4,620) / (1 - .18) = $9,048

This project or phase should be wrapping up because 90% of the fee has been "burned thru" and we have not yet accounted for any expenses such as printing or travel.

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Why do we divide by 1 - 0.18 rather than multiply by 1.18? The answer is this, we are using a Target Profit Percentage rather than a Markup. Check out the following.

In the above example 9,048 - (2,800 + 4,620) = 1628 in profit. 1628 / 9048 is 0.1799 so the operating profit is 18% of the total. If we did a markup of 18% we would have ended up with only 1,336 of profit on 8,755 of income for a profit percentage of 1,336 / 8,755 = 15% operating profit.

A lot of folks miss the point that operating profit percentage is operating profit divided by net revenue. The net revenue number includes BOTH your costs and your profits.