Net Multiplier

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Next on the list of super important numbers to know about your business is Net Multiplier.  If the Net Multiplier is higher than your Break-Even Rate, you are making profit.  If lower, you’re losing money.

Net Multiplier = (net operating revenue) / (direct labor cost).

Simply, this number indicates how many dollars you bring in per dollar spent on direct labor. 

Net operating revenue = [Fees + Reimbursable expenses] - [Outside consultant costs + project costs]

Your direct labor should be about one third of the net operating revenue (NOR), and the Net Multiplier should be in the range of 2.75 to 3.25 (always higher than your break-even point).

If the direct labor is more than a third of the NOR range for a while, it probably means you have more work than your staff can handle.  If the direct labor is less than a third of the NOR, you don’t have enough business to keep your staff busy.

[Credit where credit is due: “Financial Management for Design Professionals” by Wintner and Tardif]

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Notes

  1. oscia posted this