How it's calculated
A proposal price should cover the cost of the people doing the work, a buffer for estimation risk, the overhead the project does not pay directly, any third-party costs, and the profit you want. The calculator builds the cost up role by role and then prices it for a target margin: profit as a share of the price.
The formula
- Labour cost = Σ (days × cost per day) for each role
- Contingency = labour cost × contingency %
- Overhead = (labour cost + contingency) × overhead %
- Total cost = labour + contingency + overhead + expenses
- Price = total cost ÷ (1 − target margin); profit = price − total cost; markup = profit ÷ total cost
Worked example
A lead for 10 days at 600 a day, a senior for 20 days at 500 and a mid-level person for 25 days at 400 cost 26,000. With 10% contingency, 20% overhead and 1,000 of expenses, total cost is $35,320. Priced for a 30% margin, the proposal comes to $50,457, a blended $917 a day and a markup of 42.9% on cost.
| Line | Amount |
|---|---|
| Lead / project manager: 10 days | $6,000 |
| Senior: 20 days | $10,000 |
| Mid-level: 25 days | $10,000 |
| Labour cost | $26,000 |
| Contingency (10%) | $2,600 |
| Overhead (20%) | $5,720 |
| Expenses and third-party costs | $1,000 |
| Total cost | $35,320 |
| Profit (30% of price) | $15,137 |
| Price | $50,457 |
Assumptions and limitations
- Fully loaded day costs. Include employer taxes, benefits and paid time off, not just salary.
- Overhead as a percentage. If you know the overhead in money, convert it to a share of delivery cost for this project.
- One price. Payment terms, discounts and currency risk are not modelled; the pricing model calculator compares fixed price, time and materials and retainers.