Firm Financials - Equations

Utilization Rate

The ratio of actual billable hours to total available hours, often used to measure employee productivity in professional services firms.

Utilization Rate Formula

= (Billable Hours / Total Available Hours) x 100

Net Multiplier

Amount of revenue that must be generated for every dollar of direct labor to earn a profit.

Net Multiplier Formula

= (Net Operating Revenue / Direct Labor)

Overhead Rate

Labor costs not directly attributable to specific projects, essential for supporting overall business operations; ratio of overhead costs to direct labor costs

Overhead Rate Formula

= (Total Indirect Expenses/ Direct Labor)*

*both amounts have to be in dollars

Break Even Rate

A measure of the total cost of operations for each dollar spent on direct labor; Overhead Rate plus the unit cost of 1 hour of salary

Break Even Rate Formula

= Overhead Rate + 1.00

Profit to Earnings Ratio

Firm’s profit margin, solid business plan; how much NOR is retained as profit.

Profit to Earnings Ration Formula

= Net Profit / NOR

Net Revenue per Employee

determines the firm’s targeted net profit in the next annual budget; confirms profit given the firm’s size.

Net Revenue per Employee Formula

= NOR / # of Full time Employees

Aged Accounts Receivable

average time for clients to pay invoices