How to Calculate Wrap Rates

AndreyPopov/iStock/Getty Images

Wrap rate calculations offer a convenient hourly expense that includes all costs of a contracted job, including labor, materials and overhead. Wrap rate is useful in comparing quotes or projected expenses, assuming the material, labor hours and overhead costs are similar or proportional. However, wrap rate quickly loses reliability and accuracy when such costs are skewed. Therefore, wrap rate should be not be relied upon in all situations.

Wrap rate calculations offer a convenient hourly expense that includes all costs of a contracted job, including labor, materials and overhead. Wrap rate is useful in comparing quotes or projected expenses, assuming the material, labor hours and overhead costs are similar or proportional. However, wrap rate quickly loses reliability and accuracy when such costs are skewed. Therefore, wrap rate should be not be relied upon in all situations.

Estimate the labor costs involved. As an example, if you required 20 employees working 40 hour weeks for 3 weeks at a rate of $15 per hour, you would multiply those figures together for your total labor costs, i.e., 20 employees times 40 hours/week times 3 weeks times 15 dollars/employee equals $36,000.

Estimate any additional costs, such as materials or overhead. In the example, say you required $20,000 in materials and $3,000 in incidentals, such as gas, electricity, site licenses and equipment maintenance. Your additional costs would then total $23,000, i.e., $20,000 plus $3,000.

Add all costs together. In the example, you would add the $36,000 in labor costs and $23,000 in additional costs, which totals $59,000.

Calculate the total number of man hours on the project. In the example, you already determined the project would run 3 weeks with 40 hours per week and 20 employees. Therefore, the total number of man hours would be calculated as 40 hours/week/employee times 3 weeks times 20 employees, which equals 2400 hours.

Divide the total cost by the total number of man hours. In the example, you would divide the total cost of $59,000 by 2400 hours. Therefore, your wrap rate would be $24.58 per hour.

References

Photo Credits

  • AndreyPopov/iStock/Getty Images