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True Cost

Overhead rates and burden cost analysis

Overview

The True Cost dashboard (also called Burden or Rate Engine) helps you understand the real cost of your products and services by calculating overhead rates. It answers the question: "What does this actually cost us to deliver?"

This is essential for:

  • Pricing decisions
  • Bid preparation
  • Profitability analysis
  • Department cost management

What Is Burden Rate?

A burden rate is the overhead cost expressed as a rate per unit of activity. For example:

  • $45/hour — Each hour of billable work carries $45 of overhead
  • 120% of labor — For every $1 of direct labor, add $1.20 of overhead

Without burden rates, you might price a $100/hour employee at $100/hour, forgetting the rent, utilities, insurance, software, and management costs that must also be covered.

Key Metrics

Header Metrics

Metric Description
Composite Burden Rate Overall overhead per billable hour
Total Overhead Sum of all overhead costs for the period
Billable Hours Hours that can be billed to customers
Unbilled Hours Hours worked but not billable
Utilization Rate Billable hours ÷ total hours

Cost Categories

Overhead is broken into categories:

Category Examples
Facilities Rent, utilities, maintenance
G&A Insurance, legal, accounting
IT Software, hardware, support
Management Non-billable management time
Benefits Healthcare, retirement, training

The Rate Matrix

The Rate Matrix is the core feature of True Cost. It shows burden rates calculated against different bases:

Allocation Base When to Use
Per Hour When hours are the primary cost driver
Per Labor Dollar When labor costs vary by employee level
Per Headcount When costs are fixed per employee
Per Revenue Dollar When pricing as a revenue percentage

Reading the Matrix

The matrix shows overhead categories as rows and allocation bases as columns. Each cell shows the burden rate for that combination.

Example:

  • Facilities row, Per Hour column: $12/hour
  • Meaning: Allocate $12 of facilities cost for each billable hour

Cell Drill-Down

Click any cell to see:

  • Specific expense accounts included
  • Transaction details
  • Trend over time
  • Budget variance

How Rates Are Calculated

Basic Formula

Burden Rate = Total Overhead Costs ÷ Allocation Base

Example:

Annual Overhead = $500,000
Annual Billable Hours = 10,000
Burden Rate = $500,000 ÷ 10,000 = $50/hour

Multi-Base Calculation

Different costs may be allocated differently:

  • Rent — Per headcount (everyone uses space equally)
  • Software — Per headcount or actual usage
  • Management — Per labor dollar (managers spend more time on higher-paid staff)
  • Benefits — Per headcount or percentage of salary

The matrix lets you see each method.

Labor Overhead Factor

The Labor Overhead Factor accounts for employer costs not in base salary:

Component Typical Rate
FICA/Medicare 7.65%
State Unemployment 1-4%
Workers Comp 1-3%
Typical Total 10-15%

Default factor: 1.15 (15% wrap)

So $80,000 salary actually costs $92,000 ($80,000 × 1.15).

Using the Dashboard

Pricing Decisions

  1. Find your composite burden rate (e.g., $50/hour)
  2. Add the employee's direct cost (e.g., $40/hour)
  3. Total cost: $90/hour
  4. Apply margin (e.g., 25%): $112.50/hour minimum sell rate

Bid Preparation

Use the Selling Rate Calculator:

  1. Enter employee's hourly cost
  2. System adds burden rate
  3. Shows break-even rate
  4. Enter target margin
  5. Get recommended sell rate

Department Analysis

Compare burden rates by department:

  • Which departments have highest overhead?
  • Are some departments subsidizing others?
  • Where can overhead be reduced?

Trend Analysis

The 6-period trend chart shows:

  • Is your burden rate increasing?
  • Are overhead costs growing faster than activity?
  • Seasonal patterns in overhead

Account Classification

Gantry automatically classifies expense accounts into burden categories. You can adjust this:

Auto-Matching

Gantry uses patterns to match accounts:

  • "Rent" → Facilities
  • "Software" → IT
  • "Insurance" → G&A

Manual Override

For accounts that don't match automatically:

  1. Open Account Map in Settings
  2. Drag unclassified accounts to appropriate categories
  3. Save your classification

Excluded Accounts

Some accounts shouldn't be in burden:

  • Cost of goods sold (direct cost, not overhead)
  • Pass-through expenses (billed directly)
  • Burden-applied accounts (already allocated)

Mark these as excluded in Settings.

Scenario Modeling

What-If Analysis

Create scenarios to see impact of changes:

  • "What if rent increases 20%?"
  • "What if we add 5 employees?"
  • "What if billable hours drop 10%?"

Save and Compare

  1. Create a baseline scenario
  2. Modify variables
  3. Compare rates between scenarios
  4. Save scenarios for future reference

Configuration Options

Access via Settings → True Cost:

Setting Purpose Default
Labor Overhead Factor Wrap factor for fully-loaded labor 1.15
Burden Applied Accounts Accounts with already-allocated overhead Auto-detected
Hidden Departments Exclude from analysis None
Account Classification Map accounts to burden categories Auto-detected

Best Practices

Update Regularly

Burden rates should reflect current costs. Review quarterly at minimum.

Be Comprehensive

Include all overhead costs. Missing items mean underpriced work.

Know Your Drivers

Choose allocation bases that match how costs actually behave.

Compare to Industry

Know your industry's typical burden rates. If you're significantly different, understand why.

Communicate the Rate

Ensure salespeople and project managers know the burden rate for pricing and estimation.

Common Questions

Why is my burden rate so high?

High burden rates often indicate:

  • Low utilization (too few billable hours to spread cost over)
  • High fixed costs
  • Overstaffed support functions
  • Expensive facilities

Should I use the composite rate or category rates?

  • Composite rate — Simple, good for general pricing
  • Category rates — More accurate when certain work uses more of specific resources

How often should I recalculate?

At minimum, quarterly. Monthly during rapid growth or change. Annually for stable businesses.

What about project-specific overhead?

Some projects have unique overhead (special equipment, dedicated staff). Track these separately rather than averaging into the general burden rate.

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