Net multiplier formulas producing different answers?

Hi all, I am studying for practice management, and am having trouble with some of the equations that involve the net multiplier.

Throughout studying, I have seen multiple formulas, however the formula suggested in the attached practice problem (break even rate + profit) and the formula I have seen elsewhere (net operating revenue/ direct salary expense) produce different answers.

Is there something obvious here that I am missing? Or are these equations not equal ways of solving for net multiplier? Thank you in advance!

Hi Natalie,

Net multiplier measures the revenue generated for every dollar spent on direct labor. This indicator must be greater than the break-even rate for there to even be a net profit in the first place.

Profit multiplier is like the answer shown here says, the projected profit divided by the direct labor costs. So the profit you intend to make but that over the cost of what’s required to do the services in the to gain that profit.

That instance amount of profit multiplier is the exact amount of profit in a multiplier format that you will make in profit. With that you can have your intentions and goals for how much profit you want to make on a specific project, task, etc.

I would use the formulas here and from the Architect’s handbook of professional practice because it’s likely where NCARB will get formulas from since AHPP is in the NCARB Handbook.

The calculations shown in the answer are correct.

Hope this helps, let me know if you have any questions.

I ran into the same issue here. Could it be that the quiz question just made up unrealistic numbers that do not match?
In the examples PL statement given in the lecture, calculating the Net Multiplier with (NOR/direct labor) yields the same Net multiplier as: break-even + profit multiplier (profit/direct labor).

Hi @CChu,

The quiz question of course has hypothetical numbers the main idea is to have numbers in terms of practicing using the equations and conceptual understanding. When calculating net multiplier you can use the original formula based on the information you have. But when considering a certain profit and you want to get a net multiplier from including what it would be to include that profit, then you’d have to include that in calculating the NOR you need to gain that. So in this case that works but adding the break even rate to the profit multiplier.

Hope that helps, let me know if you have any questions.