Fee Burn Calculation

Fee Burn — sometimes labeled Labor Burn or Labor Fee Burn — tells you how much of a contract's net fee has been consumed by labor and overhead relative to your target profit. This article explains how it's calculated on time slips and rolled up to contracts.

The Time Slip Formula

Fee Burn is calculated and stored at the time slip level, using the following formula:

( Direct Labor + Overhead ) ÷ ( 1 − Target Profit Percentage )

Rolling Up to Contracts

At the contract level, Fee Burn is the sum of Fee Burn from all time slips, plus any unbilled direct expenses.

This figure reflects your Net Fee, so it does not include consultant costs — consultant fees are already subtracted from the Gross Fee to arrive at the Net Fee, so they're excluded here to avoid double-counting.

Example

Assume the following for a project or phase:

Step 1 — Calculate Overhead:

Direct Labor × Overhead Factor = $2,800 × 1.65 = $4,620

Step 2 — Calculate Fee Burn:

( Direct Labor + Overhead ) ÷ ( 1 − Target Profit Percentage )

( $2,800 + $4,620 ) ÷ ( 1 − 0.18 ) = $9,048

With $9,048 of a $10,000 net fee burned, the project or phase should be wrapping up — and this doesn't yet include expenses such as printing or travel, which would bring it even closer to the full fee.

Why Divide Instead of Multiply?

BaseBuilders uses a Target Profit Percentage, not a markup — and these produce different results, even at the same stated percentage.

Continuing the example above:

• Profit = Fee Burn − (Direct Labor + Overhead) = $9,048 − $7,420 = $1,628
• Operating profit percentage = $1,628 ÷ $9,048 = 17.99% ≈ 18%, matching the target.

If an 18% markup had been applied instead ( multiplying costs by 1.18 ), the result would be:

• Income = $7,420 × 1.18 = $8,756
• Profit = $8,756 − $7,420 = $1,336
• Operating profit percentage = $1,336 ÷ $8,756 = 15% — short of the 18% target.

The Key Distinction

Operating profit percentage is always profit divided by net revenue — and net revenue includes both your costs and your profit. A markup calculates profit as a percentage of cost alone, which understates your actual operating profit percentage. Dividing by ( 1 − Target Profit Percentage ) ensures the fee actually delivers the profit percentage you're targeting, calculated against total revenue rather than just cost.

Summary

Fee Burn is calculated per time slip as ( Direct Labor + Overhead ) ÷ ( 1 − Target Profit Percentage ), then summed across time slips and added to unbilled expenses at the contract level. It reflects Net Fee only, excluding consultant costs. Dividing by ( 1 − Target Profit Percentage ) rather than applying a markup ensures your target profit percentage is achieved against total revenue, not just cost — which is what "operating profit percentage" actually measures.