Chamber Insider Blog

Plan Now or Fail Later – Why your Wrap Rate Matters

Written by John Janek, CEO, cBrain North America. Learn more about the Loudoun GovCon Initiative and upcoming events, click here.

The Loudoun Chamber of Commerce has a lot of great events that it holds throughout the year.  The Government Contracting committee typically pulls together a number of these events focused exclusively on the government contracting community.  And they cover a lot of topics!  I missed a recent workshop that covered Wrap Rates, a concept in government contracting that’s critical to winning business.  I was lucky enough to catch up with Jay Gruendl, Vice President and Director of Contracts for Corporate Results, Inc. to talk about wrap rates.

So what is a wrap rate? The term “wrap rate” is the cost of a service when adding together the base labor rate and the overhead.  It’s a simple concept that can be difficult to accurately calculate because there’s a lot that goes into the “overhead” category. Facilities, indirect labor costs, technology, human resources, accounting, and business development all factor into the rate.

With more than 30 years of experience in the field, and 20 in contracting, Jay’s advice to small businesses is straight forward.  Plan now or risk failing later.  In his experience, companies that spend the time and energy now as the new Federal fiscal year starts will be able to calculate wrap rates they can stick with, helping drive business development and cost decisions.

Planning for that wrap rate means bringing together the people and information to help make tough decisions.  Company leadership from business development, account, and human resources all need to participate with data in hand.  Most important, Jay says, is participation from Program Managers.  It’s often overlooked, and their input is critical to developing wrap rates directly tied to service delivery.

The name of the game is cost control.  Jay said that the competition for services puts a constant downward pressure on pricing, especially as years of sequestration took their toll.  So what are some of the tips and tricks of the trade on keeping costs low while delivering high quality services?  Here’s a list of some of the ideas that came up:

  • Facilities are a huge cost that must always be scrutinized.  Although there’s an allure to hanging your shingle, the reality is that your contracts may be mostly at a government site.  Always keep the profile as small as possible and consider subletting space or making use of modern co-working spaces.
  • Indirect labor costs – support staff can quickly push your contract proposals out of a competitive range. Jay says that outsourcing, especially for small businesses, can allow the business to focus on development and delivery while scaling to meet demand.  Ask colleagues who they work with and who is reputable.  Most outsourcing happens by referral.
  • Watch out for outsourced recruiting and marketing efforts, though!  Money can go fast on referral programs, recruiting events, and spread-the-word efforts which may not end up with the results you want.  Weigh carefully these activities verses more traditional in-house referral, scouting, and recruiting methods.

With all this new information in hand, it’s clear that winning contracts starts with having a good handle on overhead costs and what the organization’s wrap rate is.  Thanks to the Loudoun Chamber of Commerce and Unanet for putting together the fantastic event and shedding some light on a topic that challenges many small businesses!