The operating profit target multiple is a component of the net multiplier. The profit
plan operating profit target is measured as a multiple of direct labor and as a percentage
of net revenue. The multiple is calculated by dividing the operating profit target by the
budget direct labor dollars. A multiple of .50 means that for each $1.00 of direct labor
spent on projects, $0.50 is budgeted for profit before profit sharing distribution and
taxes. The profit multiplier is used to estimate the profit
for fixed-fee projects based on direct labor dollars. For example, a project budget with
$1,000 of direct labor expense would have $500 of profit built into the fixed-fee.
For time and material projects, the .50 profit multiple is included in the net multiplier of 3.00 as shown in the components of the net multiplier below:
Net Multiplier Components:
- plus 1.00 direct labor multiplier
- plus 1.50 overhead multiplier
- equals 2.50 break-even multiplier
- plus .50 profit multiplier
- totals 3.00 net multiplier
