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Why Resource Classes Matter - Billing Rates

Why Resource Classes Matter - Billing Rates

4castplus offers the capability for you to categorize your Labor, Equipment and Materials resources into what are called resource classes. This capability is an extremely powerful control and reporting mechanism that enables you to achieve two key objectives:

  1. To standardize billing rates
  2. To organize resources into strategic groupings for reporting and vendor negotiations

To get a handle on how you would make best use of resource classes in your organization, I’ll give you a few examples below. I’ll break out the discussion into two areas: Billing and Reporting to give you some ideas as to how they’d be used in either scenario.  There’s a lot of overlap between the two usages and most organizations can make use of both – even if you have no billable resources in your projects. For this post, I’ll focus in on the Billing side.

Billing

Having a standard set of project billing rates is a key part of the business of generating revenue from billable resources.  Establishing the rates themselves, however, is only one part of the whole picture.  Resource Classes in 4castplus are there to help bring some structure to simplify the often complex management of Billing Rates.

In a nutshell, resource classes are a convenient way to group resources together that have the same billing rate. Each actual resource grouped under the same Class may have a unique Cost Rate (what the cost is to you), but using a Resource Class, you can bill them out at the same Billing rate. For instance, when negotiating with customers on a project bid, you’ll probably share your charge-out (billing) rates with them; and on your rate sheet that you send to your customer, you’ll most likely specify the type of resource rather than naming the resource itself. In other words, you’ll organize your billing rates by Role rather than the actual resource. So, for example, you may have 30 people on staff that are billable, but you obviously won’t have 30 separate rates you show your customers – you’ll group those people into role-types or Classes. Such as:

  • Project Manager
  • Journeyman Level 1
  • Welder
  • Senior Designer
  • Business Analyst

 If you have a standard billing rate for Project Manager, but you have 4 project managers on staff (each at a different salary – or cost), you can create a Project Manager Labor Class and assign all 4 to that class. Their costs will be unique – based on Salary - but their billing rates will be standardized. You could also have 2 levels of that class: Senior Project Manager and Junior Project Manager and divide your PMs accordingly.

Here’s another example that uses Materials rates instead of Labor. Let’s say you have a landscaping company that plants a lot of trees as part of your business. You may have several sources where you buy your trees and you’ll also have many types, sizes and costs of trees. To simplify your billing rates, you might reduce the variety of types & sizes down to 3 categories on your rate sheets:

  1. Large Tree           $220.00 ea
  2. Medium Tree    $140.00 ea
  3. Small Tree           $80 ea

Your costs on a Large Tree can vary from $100 to $160 and can include Cherry, Oak, Elm and Maple. Your customers don’t need to know that you make more from a Maple than you do from an Oak or that you’ve just secured a good supply of Elm for $90 per tree. You’ll always charge $220 each for simply a Large Tree.

Using a 4castplus Materials Class to represent a “Large Tree” makes it very simple to manage scenarios like this. You could, by the way, be more specific than “Large Tree”, by creating a more precise material class called ‘Maple, Cherry or Oak’ if that’s what your customers would prefer to see. Either way, once you have the material class in place, you can create one or more Billing Rate Tables to represent the rate strategies you have. What this means is that you’re not stuck with always charging $220 for a Large Tree. Billing rates can be tricky to manage when you have many customers and situations that require a unique rate strategy for each.  4castplus gives you the ability to create Billing Rate Tables to store and manage your normal rates along with any unique billing rates you may need to apply. Some examples might be, “Standard Rates”, “High-Risk Rates”, “Preferred Rates”, “2011 Rates for Customer X”, etc.

So, in your “Standard” billing rate table, a Large Tree may be set to $220 ea. In your “Preferred” billing rate table, you could set your Large Tree rate to be $200 ea. A Preferred rate strategy could be used for very large projects where thousands of trees are involved.

Once you setup your classes, your rates, rate tables and assign classes to your billable resources, the rest is taken care of automatically by 4castplus.  With the initial configuration out of the way, your staff need only enter time on their timesheets as normal, and the software tallies up all the costs and revenue.

Organizing and Standardizing Rates

Every day, companies are losing money because they have insufficient structure and organization around their rates – especially Billable Rates. Having all your Cost and Billing rates organized in one, centrally managed location takes away a huge chunk of the headache and uncertainty of having billable resources. It gives you the power and control over your rates that just can’t be achieved if you’re using a spreadsheet or common time-tracking software.

Consistent Billing at the Correct Rate

Scrambling around at the end of the month trying to gather together who did what and how much to bill your customers is not an ideal use of your or your finance department’s time.  Getting your rates and your resources organized will also give you tremendous credibility with your client base as a company that doesn’t make billing mistakes.

Organizing your rates and resource classes in 4castplus is simple and painless. It’s just a little upfront configuration that will pay off handsomely over and over.

 

By Chris Ronak | May 03, 2011 | Categories: Billing Rates, Business Process Innovation, Estimation, Negotiation, Project, Project Negotiation, Resource Classes | 0 Comments

About the Author: Chris Ronak

Chris Ronak
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