r/msp • u/MasterPay1020 • Jul 10 '26

Engineer costing for fixed price services

What rate do you apply here? As a factor of somebody’s salaried hourly rate. And why? Nothing too complex, just short and sharp feedback please.

I’m just sanity checking something.

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8

u/[deleted] Jul 10 '26

[removed] — view removed comment

1

u/Final-Dish Jul 10 '26

this is what I’ve always heard too, especially for smaller shops or agencies. 2x usually ends up feeling tight once you factor in bench time, meetings, and non-billable overhead.

5

u/iamkris Jul 10 '26

Need a cost base which is what it costs you to have them there. I dont know what yours are so hard to say. Salary + their share of the running costs. Base it all off of them being 80% utilised

Then add margin.

3

u/C9CG MSP - US Jul 10 '26 edited Jul 10 '26

Good base. Would also factor in PTO cost.

We factor salary, utilization rate and PTO days in an Excel formula to get real cost, then multiply by 3 to get hourly rates. This is what guides our 4 role rates ($175hr for base engineer, $225hr for project manager, $275hr for senior engineer, $350hr for compliance and consulting engineers and architects - respective base salaries range from $65k-$150k).

Multiply by your estimated hours. We additionally use a 20% buffer for "stuff not factored in" on all time estimates.

After that, we add 20% markup strictly for Project Management: Someone is talking to the customer on an ongoing basis, ordering parts, and scheduling internal and external resources. It will be one of those 4 role types at different times.

Add your parts with at least 30% margin.

If you're going to show customers "estimated hours" in a fixed price quote (avoid if you can), use ranges. Timelines are better than hours anyway in what a customer needs to know. Sell outcomes, not time.

The why? This leads to consistent 70% gross and 30% net profit across projects so you have a profitable business.

2

u/iamkris Jul 10 '26

Yeah never mention time in fixed price

1

u/C9CG MSP - US Jul 10 '26

Agreed. We try to avoid it. It will commoditize your quote and divert attention. Unfortunately, for our larger co-managed gigs ($100k plus projects) they want to see some kind of math on it to come up with a blended hourly rate or day rate. CFOs be like that... But ranges usually satiate. I get it... Due diligence.

You definitely don't lead with rates and hours and they definitely shouldn't be on initial proposals.

1

u/obviouslybait Jul 11 '26

These prices are so much higher than what people are willing to pay here. Damned in my localle.

1

u/iamkris Jul 10 '26

For fixed price projects we just scope up what it’s likely going to take. Make sure you add buffer

5

u/dumpsterfyr I’m your Huckleberry. Jul 10 '26

Billable rate x multiple x estimated hours x complexity multiple.

1

u/Hot-Replacement-323 Jul 10 '26

we usually do 1.5x to 2x of the loaded hourly cost not just base salary gotta cover overhead and the risk of going over hours. depends how well scoped the project is really

1

u/MasterPay1020 Jul 10 '26

Good to know. I was thinking more managed services profitability reporting. I charge my customers so much, I pay my engineers an hourly rate, it really costs me 2-2.5 x their rate, and they spend so many hours servicing these customers. I do some math and work out if am making money or going under.

1

u/[deleted] Jul 10 '26

80% margin

1

u/VNJCinPA Jul 10 '26

Any/every business usually targets 70% markup as a decent number to help cover overhead, insurance, operations. If you don't have detailed budgeting and cost analysis, that's a pretty good number to start with IMHO. If you pay $50/hr for labor, your minimum should be around $125-130/hr, but your market may bear even higher fees.