Do you plan for travel time and travel expenses when bidding, proposing, or planning projects? If not, you should and here is why.
Let’s say that you are bidding a 4 week project that will that will be accomplished entirely at your customer site in another state. Your on-site resource will work 40 hours each week and your billing rate is $200 per hour. Your revenue for this project is:
4 weeks x 40 hours per week x $200 per hour = $32,000.00
You are planning for your on-site resource to fly to the site each Sunday and return home after work on Friday. Your resource will post 4 hours to the project each Sunday and Friday for travel time. The burdened labor rate for your on-site resource is $80 per hour
Your Travel expenses are based on the following assumptions:
Airfare: $400 round trip
Hotel: $120.00 per night or $600 per week
Rental Car: $175 per week
Meals: $50 per day or $250 per week
Parking: $20 per day or $100 per week
Using these calculations, your resource will post $1,525 each week to the project for travel expenses or $6,100 total expense for the entire 4-week project.
Don’t forget that your resource will also post 8 hours per week for travel time or 32 additional hours for the entire project.
Okay, so here’s the Profit and Loss calculation using the margin formula:
(Sale Price – Cost) / Sale Price = Margin
Margin without Travel Expenses
(32,000 – (160 hours @ 80)) / 32,000
(32,000 – 12,800) / 32,000 = 60% Margin ($19,200 profit)
Margin with Travel Expenses
(32,000 – ((160 hours + 32 hours @ 80) + ($6,100 travel expenses)) / 32,000
(32,000 – (15,360 + 6,100)) / 32,000
(32,000 – 21,460) / 32,000 = 32.9% Margin ($10,540 profit)
As you can see, not considering travel time and expenses when you are bidding or planning your project can significantly impact your profit margins. Most organizations will either include estimated travel expenses in the bid pricing or inform the client and invoice for actual travel expenses.