How do I deal with 'pass-throughs' or revenue I don't want to land in budget?
The easiest way to use incentives is by percentage, but some times we don't want to take a percentage of the entire budget...
Pass-throughs are amounts included in the contract price that should not increase the crew’s labor budget. Common examples include taxes, financing charges, permits, administrative fees, material-only upgrades, and product markups that do not require additional labor.
Because Percentage incentives calculate the labor budget from contract revenue, pass-through revenue must either be excluded from the percentage calculation or offset with a negative incentive.
Contents
- Consistent Percentage-Based Pass-Throughs
- Fixed-Dollar Pass-Throughs
- Variable Pass-Throughs and Product Upcharges
Consistent Percentage-Based Pass-Throughs
When a pass-through consistently represents the same percentage of every job, reduce the standard labor percentage by the portion attributable to the pass-through.
Example: A $10,000 job normally receives a 12% labor budget:
$10,000 × 12% = $1,200
Assume 5% of the contract total is consistently treated as pass-through revenue. The labor budget generated by that portion is:
12% × 5% = 0.6%
Reduce the normal labor percentage by 0.6 percentage points:
12% − 0.6% = 11.4%
The adjusted labor budget is:
$10,000 × 11.4% = $1,140
This method is useful when the pass-through always represents the same percentage of the final contract total.
If the charge is calculated as a percentage added on top of the original price, its share of the final contract total will be different. For example, a 5% charge added to the original price represents approximately 4.76% of the final total.
Fixed-Dollar Pass-Throughs
When the pass-through is a consistent dollar amount, use a negative Item incentive to deduct the labor budget that the charge would otherwise generate.
Example: A $10,000 job receives a 12% labor budget, but the total includes an $800 financing charge.
The normal labor budget is:
$10,000 × 12% = $1,200
The financing charge would generate:
$800 × 12% = $96
Add a negative Item Incentive of −$96 and add it to the Budget of the Job:
$1,200 − $96 = $1,104
The final labor budget is $1,104, which is equivalent to applying 12% only to the eligible $9,200:
$9,200 × 12% = $1,104
If the same charge can appear more than once, the negative Item incentive can be applied once per occurrence.
Variable Pass-Throughs and Product Upcharges
When the pass-through amount changes from job to job, create a general-purpose deduction incentive that allows the exact adjustment to be entered on each job.
The incentive can be configured in either of these ways:
- Item: Set the rate to $1 per item.
- Percentage: Set the rate to 100%.
When adding the incentive to a job, enter the required labor-budget adjustment as a negative amount.
Example: A $12,000 job has a 5% labor incentive, producing a $600 labor budget. The contract includes a $2,000 material-only upcharge that should not generate labor budget.
First, calculate the labor budget generated by the upcharge:
$2,000 × 5% = $100
Enter a −$100 adjustment using either method:
- With a $1 Item incentive, enter −100 items: −100 × $1 = −$100.
- With a 100% Percentage incentive, apply it to −$100: −$100 × 100% = −$100.
The final labor budget is:
$600 − $100 = $500
The amount entered is the required labor-budget deduction, not the entire $2,000 pass-through. Deducting the full pass-through would reduce the labor budget by too much.
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