Cost rate

The cost rate represents how much one hour of a person's time actually costs the firm. It is not limited to salary: it includes payroll taxes (often 30-35% on top of gross in Italy), severance, benefits, training, workstation and a share of indirect costs (overhead) such as offices, management and support functions.

The cost rate is the basis for computing actual engagement margin. Compared with the bill rate it yields gross margin. A modern PSA calculates cost rate by role, seniority and geography, refreshing it periodically to reflect salary increases and overhead changes.

The choice that most affects a cost rate is how overhead is allocated, and there is no neutral answer. Spreading it evenly across headcount makes junior time look expensive; allocating it in proportion to salary makes senior time carry it. Both are defensible, and the important thing is that the firm states which one it uses, because otherwise two projects with identical delivery will report different margins depending on who prepared the numbers.

Cost rates also go stale faster than most firms refresh them. Salary increases, a change in the benefits package and a move to larger offices all shift the real figure, and a rate computed eighteen months ago quietly overstates every margin in the portfolio. Recomputing on a fixed cadence, and dating the version used, is what keeps historical comparisons meaningful.