Why is Efficiency different from Effective Rate?
Efficiency and Effective Rate are both indicators that measure the health of your FFA agreements.
The metrics are as follows:
FFA Shadow Billable = FFA hours worked X Member billable hourly rate
FFA E/R (effective rate) = FFA labor revenue / FFA hours worked
The FFA effective rate shows the hourly revenue for labor where every hour worked is considered equal. This statistic does not take into consideration the billing rate of the engineer.
(Average $ rate for each hour worked on a FFA agreement)
FFA Efficiency = FFA labor revenue / FFA shadow billable
The Efficiency measures the client's FFA labor revenue compared to what would have been billed had the time been billed at straight T&M rates.
(i.e. Efficiency of 1.0 means labor revenue on FFA agreements is equal to member's billable hourly rate)
Example:
Agreement 1 (A1) and Agreement 2 (A2) are identical in labor revenue and hours worked. A1 uses a member whose rate is $100 per hour, where A2 uses a member whose rate is $200 per hour. This results in Shadow Billable of $2,000 in A1 (20 hr. X $100) and $4,000 (20 hr. X $200) in A2.
The FFA E/R does not take into account the member billable hourly rate so in both agreements the rate is $150 ($3,000/20 hr.).
The FFA Efficiency differs for the two agreements. For A1, the Efficiency is 1.5 ($3.000 / $2,000) and for A2 the Efficiency is .75 ($3,000 / $4,000).
| FFA Labor Revenue | FFA Hours Worked | Member Billable Hourly Rate | FFA Shadow Billable | Effective Rate (E/R) | Efficiency | |
|---|---|---|---|---|---|---|
| Agreement 1 (A1) | $3,000 | 20 | $100 | $2,000 | $150 | 1.5 |
| Agreement 2 (A2) | $3,000 | 20 | $200 | $4,000 | $150 | .75 |