## Budget Hour Rate - How it is Calculated Budget Hour Rate - How Calculated The Budget Hour Rates used in this guide are calculated from financial models developed by us using key indicators as variables. These calculated cost rates are then compared with other published studies and internal data developed from our work with specific clients. It is our opinion that these rates are representative of cost levels at the 70th, 50th and 40th percentiles. (See the explanation of percentiles below for more details.) Explanation Of The Percentile Method Assume the printing prices are charged for the same item by ten different printers who are in the same market.
Prices Rank $100.00 10th $ 95.00 9th $ 89.00 8th $ 86.00 7th $ 85.00 6th $ 82.00 5th $ 81.00 4th $ 70.00 3rd $ 65.00 2nd $ 40.00 1st Total: $793.00 Average: $79.30
Further assume it is your policy for your price to be right in the middle of the competitors. One way to attempt that marketing goal would be to use the average (mean) price of the 10 resulting in your average price of $79.30. Averages are easy to calculate and are easily understood. However, as this example illustrates, a price of $79.30 would place you between the third and fourth printer from the bottom with regard to price. That wasn't your goal. You wanted to be in the middle. This is where the percentile method is effective. By ranking various prices from highest to lowest, we can easily see the mid-point of pricing is somewhere between $82 to $85 or between the fifth and sixth printer in the group and not the average or mean price of $79.30. This middle number is as the median. Similarly, we can see the 4th price from the bottom of $81.00 is 40% up the stack of prices. That is, 40% of all prices are at that price or lower. Similarly, the price of $82.00 is at the 50th Percentile (50%) and $86.00 is at the 70th Percentile or 70%. Our use of percentiles throughout this book is set on the same principle. Our Z book is set at a price which we believe to be at the 70th Percentile meaning 70% of all printers are at that price or below. The Y book is set at the 50th Percentile meaning 50% of all printers are at that price or below. And the X book is set at the 40th Percentile meaning 40% of all printers are at that price or below. Budget Hour Rates at Various Percentage of Capacity Factors Table 2 illustrates the budget hour rate used for the various levels. Converting Rates Conversion of the 100% chargeable time (capacity) rate to other percentages of chargeable time is also shown in Table 2. If your budget hour rate is calculated on a 70% chargeable time factor, for instance, then compare the 70% line in Table 2 with your rate and choose the one most similar. You may charge any budget hour rate