We have a special guest poster today. I first met Matt Handal, from HelpEverybodyEveryday.com, at the SMPS national conference. Since then he has become what I can only describe as my personal Jesus. Here he takes the concept of 100 percent overhead to heart.
Thanks Brian…What am I going to talk about on 100percentoverhead.com? Well, one of my favorite topics…overhead.
Overhead sometimes gets a bad rap. People in marketing get stuck with this label of overhead. “Oh, you are just overhead.” That’s something the technical staff might say to you to take you down a notch. They mean you aren’t billable, just a cost the company has to suck up. And don’t you wish you had a clever comeback?
“Hey, I’m more than overhead. I’m a person! With feelings! And you, my friend, just hurt every one of them!”
Don’t use that. Here is a better one. “Every hour I work on a proposal is billable. Every minute I sit down with a client in an effort to keep food on your table is billable.”
Yes, that is actually true.
I think overhead is something marketers should understand better, because it is misunderstood. Overhead is simply the cost of doing business. Electricity is overhead. Bonuses are overhead. Taxes are overhead. Rent is overhead. Everybody’s salary is overhead. Yes, everybody’s salary is overhead. Not just yours.
It gets better.
Further Down The Rabbit Hole
Based on the Federal Acquisitions Act (FAR) and generally accepted accounting principles there are two general categories for overhead to fall under: allowable and disallowable. Allowable means you may charge government clients this expense. Disallowable means, “don’t even think about charging us for that.”
An example of an allowable expense is writing a proposal. Another example is meeting with a client to talk about their construction program. An example of a disallowable expense is taking the chief engineer to a strip club.
So the government will allow you to bill them to cover the expense of your proposal preparation. It’s lumped into your rates. Most design is billed lump sum. There are no hours directly tied to the price. But even if your firm works on an hourly basis, each time Joe Engineer bills an hour it is ludicrous to think that this hourly rate just represents Joe Engineer’s effort.
But what if your clients are just from the private sector? Well, in that case we just bill the client for everything. As a firm, you control your costs by forcing a multiplier on Joe Engineer. So if you have a $300,000 assignment and identify a 3.0 multiplier, that means that Joe Engineer and friends do the job for $100,000. The firm takes the $300,000, then pays Joe Engineer, me, you and everybody else.
Further down the Rabbit Hole
I can get further into it and talk about accounting practices like variance. But the long and short of it is it’s important for marketers to understand how business works. You can learn more about pricing structures for A/E/C services on my blog. Also, you might want to check out my post, What You Ought To Know About A/E/C Marketing Costs. It also helps to gain a basic understanding of the FAR act.
Armed with this knowledge, you’ll always be able to respond to any comment about overhead. I think that’s Brian’s point with this blog. Learn more and be more. That’s how you break free of the overhead stigma.
Matt Handal is a marketer, contributing editor of SMPS Marketer, and blogs about Marketing in the A/E/C industry.