There are three factors that get applied to time slips and one that is used when budgeting time for phases.

**Overtime Factor** - this is generally 1.5. When a time slip is marked as overtime the labor cost at calculated at the employee base rate times this factor. If the employee base rate is $20 per hour then the overtime rate at 1.5 would generate a labor cost of $30 per hour.

**Overhead Factor** - this is used to burden projects with overhead costs so that net profits can be calculated. Every firm has a different overhead factor and it is covered in a separate article. The overhead factor is multiplied times the direct labor costs to determine the overhead costs to apply towards the phase and project associated with the time slip. We have clients with an overhead factor down close to 1.0 and others pushing the higher end near 2.0. The average overhead factor is around 1.6.

**Target Profit Percentage** - this is the minimum ideal net profit that the organization would like to achieve each fiscal year. Using this value we calculate how much of the fee has been burned through based upon direct labor + overhead and finally allocating funds for the bottom line.

Here is an example set of values:

Let's assume you have 1,000 dollars of direct labor with an overhead factor of 1.6 and a target profit of 18%. The total fee burned through would be (1000 + 1000 x 1.6) / (1 - .18) = 3,170.73. Now to check the numbers. If revenue was 3,170.73 and direct costs plus overhead was 2,600 how much would be left for net profits? The answer is 570.73. Net profit percentage is net profit divided by revenue which gives us 570.73 / 3170.73 = 0.18 or 18%.

**Blended Billing Rate** - this is the average billing rate charged to your time slips. You could also use a blended burden rate. Wait, what is a burden rate? The burden rate is direct rate + overhead + profit. We use this to assist you in calculating how many hours you should budget for each phase of a project. We take the net fee and divide it by this rate to calculate how many production hours you should spend on each phase. If you hit this value your less, you should obtain your target profit goals.