A wrap rate is a simple way to calculate what rate you can charge to the government under a Cost Plus Fixed Fee or Cost Reimbursable contract.
The way you calculate the rate you can charge is typically done this way assuming these are the salaries and indirect rates for your company:
Direct Labor Rate: $50,000/2080 = $24.04
Fringe: $24.04 * 30% = $7.21 (Subtotal $24.04 + $7.21 = $31.25)
Overhead: $31.25 * 20% = $6.25 (Subtotal $31.25 + 6.25 = $37.50)
G&A: $37.50 * 15% = $5.63
Total to be Charged before Fee: $43.13
That’s a lot of calculation and if you are sitting with a client and they want a quick Rough Order of Magnitude (ROM) – or in the midst of writing a proposal, you don’t want to be scribbling on paper that long.
So, a simplified version would be to calculate your wrap rate and use that instead.
Doing the same calculation above, but using $1.00 instead of $24.04 gives you the number 1.794. That would be your wrap rate.
Now take your Direct Labor and multiply it by the wrap rate:
24.04 * 1.794 = $43.13
Much easier, right?
You can then take each of your employees and make a simple chart that you can use when creating proposals that let’s you know what you “break even” (price before profit) would be on each staff member.