Time and Material Pricing Model
By Teerachai Arunruangsirilert
© 2010 The McGraw-Hill Companies, Inc.
Time and Material Pricing Definition
It is a pricing model for a service business charging
to a customer by using 2 components including
services time and material used.
Normally, the price charged is market based.
However, some companies apply this model by
using the cost-plus approach.
McGraw-Hill/Irwin
Slide 2
Time Component
Generally, it is a rate per labor hour. The
rate consists of 3 elements:
1. The direct cost of staff including salary
and fringe benefits
2. Allowance for other expenses of the
firm such as selling & Administration
expenses
3. Desired profit per hour of staff time.
McGraw-Hill/Irwin
Slide 3
Time Component
Some firms use the same hourly rate
regardless of actual works on job. The
rate may be the same or vary by
employee, such as consulting firm.
McGraw-Hill/Irwin
Slide 4
Material Component
A material loading charge to the invoice
price of any material used on the work.
It is set to cover the material management
cost, e.g. ordering, handling, carrying
materials, plus a profit margin on them.
McGraw-Hill/Irwin
Slide 5
Example of Time and Material Pricing
Best Auto Care (BAC) use time and material pricing for all repair
services. The budget cost of the incoming year is showed below.
Service
Mechanics' wages
Service manager - Salary
Parts
300,000
40,000
Parts Manager - Salary
35,000
Clerical – Salary
20,000
15,000
Others
10,000
10,000
Invoice cost of parts used
300,000
Suppose, BAC anticipates to bill customers for 20,000 hours of
service time. A profit of $5 per hour of service time. For parts, it will
charge at 15%
McGraw-Hill/Irwin
Slide 6
Example of Time and Material Pricing
Time component
Total
Mechanics' wages
Service manager - Salary
Total
Per hour
Parts
Total
%
300,000
40,000
340,000
$17
Parts Manager - Salary
35,000
Clerical – Salary
20,000
15,000
Others
10,000
10,000
30,000
1.5
60,000
20%
Desired profit
100,000
5
45,000
15%
Total amount to be billed
470,000
$23.5
105,000
35%
McGraw-Hill/Irwin
Slide 7
Example of Time and Material Pricing
Charge at $23.5 per hour and material loading charge is 35% of
invoice cost of materials. If a job requires 5 hours of services and
$200 materials used, its’ price would be:
Pricing Charge
Labor Charge (23.5 x 5)
117.5
Parts used:
Invoice Cost of Material used
Loading Charge: 35% x $200
Total price of the job
McGraw-Hill/Irwin
$200
70
270
$387.5
Slide 8