Business Question

[impressive]

Doing some research for a RL project (and I am writing about it (just not for Lit), so it is an "authorly" topic).

What is, particularly in the USA, a fair percentage for administrative overhead?

Take, for example, the Combined Federal Campaign. Charities enroll in order to receive contributions from federal employees via payroll deduction. In order to enroll, each much disclose its administrative overhead. These are listed in the brochure so that potential contributors can see how much of their donation will actually reach, say, the starving kid in Africa. Figures range from 5% to 50% (depending on how top heavy the organization is, I suppose).

Is there somewhere I can find an "industry standard" overhead figure or "best practice" guideline? I'm particularly interested in the service industry (as opposed to manufacturing) where the product is the service.

If you run a business (or do the books for a business), what is your business' overhead percentage?

TIA,

 

[cloudy]

The biggest chunk of overhead in any business, and surely in the service industry, is payroll, payroll, payroll. Anyone that's been in management of any type will tell you that, right off the bat.

I can't speak for all business, but I was in retail management for almost 20 years, so that, I know.

In retail, our P & L statements always used monthly sales as a reference point, and all other figures would be presented as a percentage of sales.

Payroll during slow months, like January and February (traditionally the slowest months in retail) is high...sometimes as high as 15 - 20%. In months like November, where you have Black Friday to deal with, your payroll percentage will be very low, maybe around 4 - 5%, simply because sales are so damn high.

In the clothing industry, which is were most of my experience is, you would run a profit percentage of around 10 - 15% if you were doing well, and average would be a little lower than that.

Does that help? If you have any other questions, you can PM me, and I'll try to help out.

 

[dr_mabeuse]

Jesus, Imp, that has got to be the unsexiest question that's ever been posted to the Author's Hangout.

---dr.M.

 

[R. Richard]

Payroll during slow months, like January and February (traditionally the slowest months in retail) is high...sometimes as high as 15 - 20%. In months like November, where you have Black Friday to deal with, your payroll percentage will be very low, maybe around 4 - 5%, simply because sales are so damn high.

In the clothing industry, which is were most of my experience is, you would run a profit percentage of around 10 - 15% if you were doing well, and average would be a little lower than that.

Does that help? If you have any other questions, you can PM me, and I'll try to help out.

Cloudy showed you a picture of the clothing industry, a commercial, highly competitive area.

I used to work as a contractor in the defense software area. The payroll would usually run from 60% to 110% of a contract (They lose money on some of the contracts, mainly due to incompetence.) Profit figures ran from 30% (my operation) to at least 240% (I am not naming names here, they have a lot of expensive lawyers.) While the profit figures are high, the risks are also very high. In many of the projects, the labor figures were essentially the only expense except for paper for program listings, government computers were used.

 

[Edward Teach]

Doing some research for a RL project (and I am writing about it (just not for Lit), so it is an "authorly" topic).

What is, particularly in the USA, a fair percentage for administrative overhead?

Take, for example, the Combined Federal Campaign. Charities enroll in order to receive contributions from federal employees via payroll deduction. In order to enroll, each much disclose its administrative overhead. These are listed in the brochure so that potential contributors can see how much of their donation will actually reach, say, the starving kid in Africa. Figures range from 5% to 50% (depending on how top heavy the organization is, I suppose).

Is there somewhere I can find an "industry standard" overhead figure or "best practice" guideline? I'm particularly interested in the service industry (as opposed to manufacturing) where the product is the service.

If you run a business (or do the books for a business), what is your business' overhead percentage?

TIA,

Imp, your question is very difficult if not impossible to answer. "Administrative Overhead" has to be defined completely. In fact, to my knowledge, AO is not actually an accounting term, plus almost all accounting terms have to be defined. Gross Profit in one business is not the same as Gross Profit in another.

I'm involved with three different businesses and each one's books is set up differently.

A charity would probably consider AO everything that does not go directly to the cause; salaries, rents, insurance, travel, etc., etc.

An insurance agency, would probably consider officer's and manager's salaries and management support staff salaries in AO but not salesperson's salaries, rent, software, travel, auto expense, etc.

It often depends on the industry and even the individual company.

I would suggest you contact a trade organization for the industry you are writing about and get their feedback. Sometimes there are standard accounting practices for specific industries.

edited to add:
As for charities, the AO runs all over the lot. Some are above 90% yet they justify their expense by saying that their function is to call attention to the cause, not donate to it. They claim that they get people and government involved in the "cause." Other charities, The Rotary Foundation for example, actually donate more money to the causes than they receive. Rotary does that by holding and investing its donations for three years, earning more than its AO costs, which run about 8% the last I checked. A charity who donates 85% or more of its donations to the "cause" is considered very efficient and I may stand corrected on this, but I believe anything over 50% is considered excessive.

Ed

 

[BlackShanglan]

Dr. M. is right. Ed, you just took all of the sexy fun out of your AV. Damnit. Next time I see that movie, I'll be thinking of accounting.

 

[Edward Teach]

Dr. M. is right. Ed, you just took all of the sexy fun out of your AV. Damnit. Next time I see that movie, I'll be thinking of accounting.

A lot of fucking and anal sex goes on with accounting and in the board rooms, Shang, so you and Zoot don't be too quick to judge.


Eddie The Sexy

 

[impressive]

Jesus, Imp, that has got to be the unsexiest question that's ever been posted to the Author's Hangout.

---dr.M.

Is there an award for that?

 

[cantdog]

Is there an award for that?

Name it, I'll do my best to provide it!

 

[impressive]

A lot of fucking and anal sex goes on with accounting and in the board rooms, Shang, so you and Zoot don't be too quick to judge.


Eddie The Sexy

I've been in the wrong board room, then! I'm gonna have to find YOUR board room.

To try to clarify, the businesses in question are nonprofits that provide a service. The service, once provided, is billed to the government for reimbursement.

Currently, these businesses are pocketing 50% of the government reimbursement and the staff actually providing the service are getting totally sucky pay -- which results in high turnover, inconsistent and ineffective services, and enormous frustration on all sides: client, agency, government.

We are trying to get the government to impose a cap on how much of the reimbursement an agency can withhold so that staff salaries will go up and turnover down -- as well as improving the quality and consistency of the services.

So, we're trying to find a reasonable percentage for that cap -- hence the question re admin expenses.

Clear as mud?

 

[impressive]

Name it, I'll do my best to provide it!

I really needed that tonight. TY

 

[Edward Teach]

I've been in the wrong board room, then! I'm gonna have to find YOUR board room.

To try to clarify, the businesses in question are nonprofits that provide a service. The service, once provided, is billed to the government for reimbursement.

Currently, these businesses are pocketing 50% of the government reimbursement and the staff actually providing the service are getting totally sucky pay -- which results in high turnover, inconsistent and ineffective services, and enormous frustration on all sides: client, agency, government.

We are trying to get the government to impose a cap on how much of the reimbursement an agency can withhold so that staff salaries will go up and turnover down -- as well as improving the quality and consistency of the services.

So, we're trying to find a reasonable percentage for that cap -- hence the question re admin expenses.

Clear as mud?

Sounds like a temporary help agency, is it? Regardless, i would imagine that the agency and the government have a conract spelling everything out completely. Generally, government contracts are very well written and contrary to popular belief, most are very good to the government. Most bureaucrats are dedicated and good at their jobs. It's usually the large contracts where the public gets bilked.

If it is a temp agency, keep in mind that the agency has to match traxes, pay workers comp and federal and state unemployment taxes. Those will run about 12%-15% or more of wages. A contract of wage plus 50% may be a bit high but it is not exorbitant. Wage plus 35% or less is very good. Also to be taken into consideration is what types of jobe the agency has to recruit for. Some are easy and don't cost much to find others are very expensive to find. Sometime there are other benefits attached to the contract such as onsite supervisors, etc.

In short, I can't answer your question. I hope this sheds some light however.

Ed

 

[fifty5]

It was in the UK, but I think 'Wimpy' was/is US based. When I worked for them (a student job) they split costs 3 ways: 33.3% cost of the food; 33.3% staff costs; 33.3% gross profit (so AO had to be less than that, to make a net profit).

In UK Further Education, they had 80% staff costs (with 80% of that teaching staff costs), leaving 20% for 'overheads'.

In UK textile dyeing, we simply made a loss!

I second Ed's advice: contact a trade organisation, or organisations. Only some such will be able to give you meaningful help. Any anecdotal evidence is probably almost worthless, but you could also look at individual (large) companies' published results on the 'Net.

Eff

 

[Edward Teach]

I've been in the wrong board room, then! I'm gonna have to find YOUR board room.

I can draw you a map.


Eddie The Cartographer

 

[impressive]

Sounds like a temporary help agency, is it?

No, but I can see the parallels. Wish I could be more specific, but I don't think my colleagues would appreciate it.

Thanks to all who've responded!

 

[Weird Harold]

Currently, these businesses are pocketing 50% of the government reimbursement and the staff actually providing the service are getting totally sucky pay -- which results in high turnover, inconsistent and ineffective services, and enormous frustration on all sides: client, agency, government.

It's still tough to pin down what's a fair percentage for administration, because there's know way of knowing from your description what is truly administrative and what is "indirect support of services"

Part of the problem is dispersal -- how dispersed is this agency?

For every location they support, they need one to three administrators for that location and one higher level regional administrator (with staff) for every 5-10 locations. A national organization would have 50-200 "regions" and a national administartion and Staff comensurate with the oversight required for the regional adminstrators.

If the "Service" provided generates lots of paper work, the higher levels would require larger staffs to deal with the paperwork -- probably one clerk for every 5-10 field workers.

If the "service" involves the distribution of goods, then there might be justification for 2-5 inventory management people for every field worker.

The closest I can come to a "standard" is strictly on local level -- there should be no more than one supervisory position for every five field workers -- 20% pure "administration" -- with another 10-20% "adminstrative" clerical or other support position for those same five field workers (although those positions could be classed as administrative or not.)

Of course, a ratio of one supervisor and one clerk and one support position for every 10-20 field workers could be managed in most "service" type charities that don't deal with a lot of paperwork or materiel goods.

An "administrative" overhead of 50% might easily be a reasonable amount for a widely dispersed organization that deals with a lot of paperwork and/or materiel goods.

 

[Seattle Zack]

I do some grantwriting for several small nonprofits here in King County, and that question about administrative percentage comes up quite often. Part of the problem, especially with smaller agencies, is that most of the staff members wear many different hats during the day. The Executive Director, for instance, may spend time switching between administrative functions and providing direct service several times during the day, often juggling two or three things at once. In most of the grant proposals I write, the administrative expense calculation is, at best, just an educated guess.

Another difficulty is that there's often no clear definition of what constitutes administrative functions. Fundraising, for instance, is usually classified as administration, yet it's crucial to the ongoing existance of the organization. Organizing volunteers is another one -- although the unpaid volunteers often provide direct services, the time and money spent organizing and training them are clearly an administrative expense.

Unless you have the staff log everything they do, hour by hour (resulting in even more administration), then there's really no clear way to calculate it.

With larger agencies, like the United Way, the staff has much clearer job descriptions and roles, and you can come up with a more accurate figure. In general, the larger the agency, the larger the administrative costs, in my experience.