Billable Percentages
Taking a simpli ed example, if a
hypothetical rm is paying $10.00 for
an overnight package, is shipping
20,000
packages per year and billing
70%
of those packages to a billable
client matter number, their cost
recovery revenue and overhead
situation is as follows:
Cost at $10.00 per package,
70%
Billable Percentage
Cost per Package
$10.00
Packages per Year
20,000
Billable Percentage
70%
Billable Revenue
$140,000
Overhead Impact
$60,000
Let’s say a er a round of negotia-
tions with the overnight vendor, this
hypothetical rm succeeds in reduc-
ing the price to $9.00, a solid 10%
decrease. e rm under this scenario
realizes an overhead savings of $6,000
per year and is able to save their
clients $14,000. Overall, this would be
deemed a successful project and
possibly worthy of bragging rights.
Cost at $9.00 per package,
70%
Billable Percentage
Cost per Package
$9.00
Packages per Year
20,000
Billable Percentage
70%
Billable Revenue
$126,000
Overhead Impact
$54,000
However, suppose instead of
focusing on price reduction, this
hypothetical rm focused on increas-
ing their billable percentage from
70%
to 85% (Mattern Method®
Benchmark). With price remaining
constant at $10.00 from the rst
example, the results in this scenario
would be as follows:
Cost at $10.00 per package,
85%
Billable Percentage
Cost per Package
$10.00
Packages per Year
20,000
Billable Percentage
85%
Billable Revenue
$170,000
Overhead Impact
$30,000
e net result here when increas-
ing billable percentage only is a
bottom line increase for the rm of
$30,000.
is result comes directly
from increasing the rm’s billable
revenue which manifested in a signi -
cant decrease of $30,000 to the rm’s
overhead charges. In this scenario,
focusing only on increasing billable
percentage resulted in a remarkable
500%
impact in comparison to only
reducing the rm’s price by 10%.
Let’s say our hypothetical rm,
having now been apprised of the
impact of billable percentage, is able
to both increase their billable
percentage to 85% and decrease their
costs by 10%.
Cost at $9.00 per package,
85%
Billable Percentage
Cost per Package
$9.00
Packages per Year
20,000
Billable Percentage
85%
Billable Revenue
$153,000
Overhead Impact
$27,000
is allows the rm to reduce
their billable charges to their clients
by $17,000 and their non-billable
charges (overhead) by $3,000.00. is
is a nice improvement, but we can
now see the majority of the overhead
savings can be attributed to the
increase in billable revenue.
e above example, shows in a
very simpli ed way, that pricing
exercises are good, but cost recovery
analysis and implementation of strate-
gies to increase the billable percentage
are better and will have a much
greater impact on the bottom line.
The Cost Is Right:
(
continued from page 3)
Door Number One
4
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Mattern & Associates
