The Wind2 Software survey presents a wide range of useful information: comparison of data for each year from 1978-2004, profit and loss statements, key financial ratios (e.g. current ratio, average collection periods), identification of key overhead cost elements (e.g. all fringe benefits, insurance, indirect labor, depreciation, marketing costs etc.), key measures of productivity, and other financial measures (e.g. work-in-process incurred but not billed, number of firms that charge interest on late accounts). The following table and explanations represents a selection of measurements for 2004 we chose that will provide interesting comparisons for our government contractor readers. For those who (like us) forget statistics terms, "mean" refers to an average while "median" refers to a midpoint.

1. Net Profit Before Tax and Distribution on Total Revenues. This factor measures the percentage of net profit (income) before taxes and distributions (bonus, profit sharing, etc.) based upon annual total revenues (net revenues plus consultants and reimbursables). For many firms, where bonuses and profit sharing are not considered an annual benefit of employment, this figure is more meaningful than the after distribution net profit ratio (see next item). This ratio is calculated by dividing profit before tax and distributions by annual total revenue.

2. Net Profit Before Tax and After Distributions on Total Revenues. This ratio provides a measure of the percentage of net profit (income) before taxes based upon annual total revenues. It is calculated after distributions for bonuses, profit sharing, pension programs and the like. For many firms, particularly those with a heavy reliance on outside consultants, it is not as meaningful a figure as are the net profit on net revenue measures (see items 3 and 4). This ratio is calculated by dividing profit before tax and after distributions by annual total revenues.

3. Net Profit Before Tax and Distributions on Net Revenues. This factor is the same as number 4 below, except that this percentage is calculated before distributions. Net revenue calculations are more meaningful than those based on annual total revenues for those firms that use sizable amounts of outside consultants or have large reimbursable expenses or both. The calculation uses profit before tax and distributions divided by net revenue.

4. Net Profit Before Tax and After Distributions on Net Revenues. This index measures net profit (income) before taxes based upon net revenues. As a result, it bases profit percentages only on your efforts and not on consultants and reimbursables. It is calculated after distributions for bonuses, profit sharing, and the like. The calculation uses net profit before tax, but after distributions, divided by net revenues.

5. Return on Owner’s Equity. This figure provides the after-tax return on owners' investment in the firm (for a corporation). As is true for all after-tax measures in professional consulting firms, this figure is of primary value to those performing comparative financial analysis. It is determined by dividing after-tax profit by total owner’s equity.

6. Return on Total Assets. This factor is a measure of the efficiency of asset utilization in a firm. It is calculated by dividing after-tax profit by the firm's total assets.

7. Contribution Rate. The contribution rate is the portion of each dollar of net revenues remaining after all direct project costs (both labor and expenses) are covered. Thus, it is the contribution of each fee dollar to overhead and profit. It is calculated by dividing gross profit by net revenues.

8. Overhead Rate (Before Distributions). The overhead rate is the percentage of total office overhead to total office direct labor. Overhead also includes that portion of principal's time that is not chargeable to projects. This ratio is calculated by dividing total overhead (before distributions) by total direct labor expense (raw labor without fringes). What the survey refers to as "overhead" is what many firms consider indirect costs, which often includes overhead and general and administrative costs.

9. Overhead Rate (After Distributions). The after distribution overhead rate includes bonus, profit sharing, and other discretionary distributions as part of the overhead rate and not separately as a distribution of profit. If your firm considers these items an annual business cost, then this after distribution factor is more meaningful for you. This overhead rate is calculated by dividing total overhead, plus discretionary distributions, by total raw direct labor expense.

10. Net Multiplier. This is the effective multiplier firms achieved on direct labor (it is not the target multiplier). It is calculated by dividing net revenues by direct labor and is more meaningful than a gross multiplier (which includes consultants and reimbursables) in that it calculates the actual multiplier you achieve on your own efforts.

11. Current Ratio. The current ratio measures reserve financial strength: the higher the index, the greater the ability of the firm to withstand unexpected expenses. It is calculated by dividing current assets (cash and near cash assets) by current liabilities (those due in one year or less). .

12. Average Collection Period. The average collection period is the length of time it takes to collect receivables from your clients. This period begins when the invoice is entered into accounts receivable and ends when the collection is credited against accounts receivable. The average collection period is calculated by dividing annual total revenues by the days in the year (360 or 365). The result is then divided into the average accounts receivable for the firm. This survey uses a 360-day year for the calculation.

13. Completion to Collection Period. This factor is the length of time from completion of work (and inclusion in work-in-process) to receipt of payment by clients.

14. Completion to Billing Period. This figure measures the time from completion of the work (measured by work-in-process) until it is billed to the client.

15. Net Revenues Per Total Staff. This rough productivity index measures the dollar amount of net revenues each employee or part-time equivalent represents. Calculate this figure by dividing net revenues by average total staff, including principals and part-time equivalents.

16. Net Revenues Per Technical Staff. This index is calculated by dividing net revenues by the average total technical staff (defined as including all planning or design professionals technicians and employees who work on projects, including principals). Some managers feel that this ratio is a more accurate representation of general productivity than revenues per total staff because it assigns revenues to those who are directly responsible for generating them.

17. Net Profit Before Distributions Per Total Staff. Calculate this ratio by dividing net profit before tax and distributions by your average total staff, including part-time equivalents and principals. Before-distribution profit measures are often more useful than after-distribution figures for those firms that do not treat bonuses and profit sharing as an expected, annual benefit of employment.

18. Net Profit After Distributions Per Total Staff. Each member of the staff represents a dollar figure of net profit before tax. The figure is calculated by dividing net profit before tax and after distributions by your average total staff, including part-time equivalents and principals.

19. Net Profit Before Distributions Per Technical Staff. This figure is calculated by dividing net profit before tax and distributions by the average technical staff as defined in item 16 (revenues per technical staff).

20. Net Profit After Distributions Per Technical Staff. This figure is calculated by dividing net profit before tax and after distributions by the average technical staff as defined in item 16 (revenues per technical staff). As noted earlier, some managers feel that profit per technical staff measures are a more accurate representation than profit per total staff, because it assigns profits to those who are directly responsible for generating them.

21. Chargeable Rate. This ratio measures the percent of total staff time charged to projects (whether later billed or not). It is calculated by dividing total direct labor by total firm labor (direct labor plus indirect labor and vacation, sick leave, and holiday time actually paid).

22 and 25. Unallowable Overhead as a Percent of Direct Labor and Total Revenues.

This figure is of primary interest to those firms that work for U.S. government agencies. It consists of the total overhead either deleted by contractors or disallowed by government auditors, expressed as a percent of direct labor. For internal management purposes, unallowable overhead should be included in total overhead.

23 and 24. Unallowable Overhead as a Percent of Total Overhead Before and After Distributions. This ratio is calculated by dividing unallowable overhead by total overhead before distributions.

26. Unallowable Overhead as a Percent of Direct Labor. This factor shows the actual overhead rate (before discretionary distributions) allowed to firms after removing unallowable costs. Note the significant variance between firms' actual rate (before and after distributions) and this item's median. For many firms this unallowable portion comes directly out of profit.

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