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Question about contract work...

Are there some quickie formulas or resources for figuring out typical expenses for the purpose of targeting an hourly rate?

Thanks,

Crimson

Crimson
Wednesday, January 07, 2004

Our last 6 years of accounting data indicates that we're averaging across all employees and all 6 years, 1.56 times the annual salary.

For example, a 50K a year employee costs us 78K (50K * 1.56) when we add benefits, operating costs (cell phones, mileage, software licenses, computers, taxes, IRA, medical, office costs, etc).

We must run our outfit on a shoestring though 'cause our number is lower than others in my area doing the same thing.

Your mileage may vary.

Sgt. Sausage
Wednesday, January 07, 2004

To be an independent?  Or to use a body shop?

1.5 is a good guesstimate if you are talking about being independent.

Just don't make the mistake of dividing by the total number of hours worked in the year as if you had a full time job.  You will need to account for time spent being sick, learning, vacationing, & most importantly drumming up new business.  Figure only 20 or so hours per week as actual billing time.

So if you made $65K as an FTE, you would need:

65000 * 1.5 = 97500
48 weeks of 20 hr/wk = 960
hourly rate = 97.5K/960 = $101/hr.

robb
Wednesday, January 07, 2004

> $101/hr

A great rate if you can get it.

I'd look at the rates on realrates.com, or better yet, talk to some local recruiters. Then figure out if it works for you.

Portabella
Wednesday, January 07, 2004

robb,

$101 seems kind of high, especially given you're only dividing over 48 weeks (though, you're only assuming 20 hours/week). 

I'm kind of confused by the 48 weeks thing.  Aren't you already taking vacation/sickness/learning/etc into account by using 48 weeks rather than 52?  So why not assume 8 hours/day for that 48 weeks?

I'm not criticizing. I'm just a dumb schlub trying to learn from those who know how to do it. :)

Crimson
Wednesday, January 07, 2004

Sgt. Sausage,

I assume taxes and medical benefits dominate the extra cost (extra cost = everything but salary).  I'll assume ~ 30% taxes.

78K - 23.4K(taxes)= 54.6K.

So now we're left with 4.6K to cover medical insurance. 

Now I know ZILCH about covering my own medical benefits since I've always worked for an employer that has provided some coverage.  Is 4.6K a reasonable amount for this extra cost?  I'm a healthy male if that helps.

Thanks

Crimson
Wednesday, January 07, 2004

A formula is unnecessary, because you will never be able to charge more than $75 an hour unless you are IBM global services.

|
Wednesday, January 07, 2004

I don't have the reference anymore, but I use a guideline based on a simple formula: your hourly rate is about .1% of your annual salary as a typical full-time.

So, if you're salary is $70K/year with BigCo, Inc., you should shoot for $70/hr. This is for a true independent, though, it'll be less if you're going through a body shop.

As I say, not very scientific, but I find it a reasonable guide.

Mongo
Wednesday, January 07, 2004

health insurance for a reasonably healthy male will cost about $220 per month.

|
Wednesday, January 07, 2004

Yep, I was figuring 4 weeks off for the year, so 48 weeks.

Yep, that is a high rate, but it's absolutely necessary if you want to survive as a consultant and make any amount of decent money.  That figure will just get you to where you were as an FTE, and surely you would want more money by going out on your own, wouldn't you?

Too few charge by the hour without understanding what they are doing.  As a result, they tend to jump on an FTE position as soon as they find one.  All the while helping to drive down rates for everybody else.  :o

I work in a mid-sized city, and most of the dev shops charge about $125/hr.  I am NOT talking about going to a recruiter and doing hourly programming.  In that situation, you are practically a commodity and you have to charge what everybody else is charging.  That includes competing with people that don't understand how to price professional services.

Of course, there's a lot of variables here that aren't covered:  Fixed bids, what types of services are being provided, etc.  But as a "quick & dirty" method of translating from salary to hourly, I think it works good.

robb
Wednesday, January 07, 2004

for W2 (thru an agency):

rate * 1912 = equivalent salary if you were a "perm"

1912 assumes 2 weeks off and 11 holidays. If you have a family subtract $1,000 per month for insurance (high but not far off).

so 60 * 1912 =~ 115 - 12k insurance = ~102k roughly, say 100k -- not bad.

Steve
Wednesday, January 07, 2004


I think Robb's 20 hours a week is a little low if you are only counting 48 weeks. I think Steve's 1912 hours a year is a little high because there will always be gaps between contracts. It would be nice if gaps always fell on your vacation time...

I usually try to get in 30-45 hours per week when I have a contract. That 30 hours would be during things like a holiday week (such as Christmas with 2 days off, but I'd shoot for 10 hours the first 3 days of the week).  My average for the last 6 months was 39 hours per week.

So for me:
39 hours * 26 weeks = 1014 hours.

That being said, I did much worse for the previous 6 months.

Total for the year:
1429.

I think the number really depends on the type of jobs you can find. If you can get on a multi-year contract/project then you'll get more hours. If all your jobs are 1-2 months in duration then you need to spend more time finding the next gig.

NathanJ
Wednesday, January 07, 2004

Crimson, robb's figures are the most useful for you. Namely, that successful developers charge around $125 per hour.

If you work through a recruiter, the recruiter gets the $125 per hour or thereabouts, and passes on a much smaller piece to you, whether it be $40 per hour or $65 per hour. Figures like that result in you earning much less than your peers over the course of a five year period.

Inside Job
Wednesday, January 07, 2004

> the recruiter gets the $125 per hour or thereabouts, and passes on a much smaller piece to you

Again, if you're getting those numbers, more power to you.

Where I work, recruiters are being seriously squeezed, just like everyone else, and the numbers are much lower.  I've seen the invoices, I know. :)

I'd say you have to Do Your Homework. The magic number is What the Client Will Pay. What recruiters are charging the client should be a close approximation of this.

It's a bit dangerous to just pick a number from a message board and ask to be paid that.

Portabella
Wednesday, January 07, 2004

"A formula is unnecessary, because you will never be able to charge more than $75 an hour unless you are IBM global services. "

Shhh..Don't tell anyone. I don't work for IBM Global Services and all of my clients pay more than $75.00 an hour....

Mark Hoffman
Wednesday, January 07, 2004

My company bills my time to our clients at $150 per hour.

Of course, I don't make anywhere near that amount of money, but I know that that's what our clients (large companies & federal gov't agencies) are willing to pay for the types of skills that I offer.

If I went freelance, doing this same type of work, I'd know approximately where to set my hourly rate.

Of course, I'd also starve to death, because I'm *lousy* at drumming up business on my own.

Benji Smith
Wednesday, January 07, 2004

Good post on replacing your income with consulting:
http://radio.weblogs.com/0103807/stories/2002/05/11/consulting101ReplacingYourPreviousIncomeOrHowManyProposalsDoINeedToWrite.html


Good book (The Software Developer's Guide):
http://www.amazon.com/exec/obidos/tg/detail/-/193091900X/

robb
Wednesday, January 07, 2004

Crimson, it sounds to me that you'll probably want to go thru a recruiter at first (W2), in which case you just need to worry about your insurance.

Some recruiters provide it, some don't, but you can buy it on your own, and at a group rate.

Bottom line, IMO, is that you should be making a decent paycheck even after you deduct insurance costs. What's decent? I hope it would at least be a bit more than what you can get for a "perm" job.

But it really depends on *big* variables: your skill set, who's hiring at the time you're looking, and your financial situation (how desperate you are).

Steve
Wednesday, January 07, 2004

Inside job, robb:

That $100 - $125+ figure seems *really* high, especially since I'm essentially getting started (contracting that is).  Assuming 8 hours /day and 52 weeks of work, that's equivalent to a $260,000 salary ($125/hr)!!  Given my industry and expertise, I have no doubt that I could reach that eventually, but starting there just seems very unlikely.

Crimson
Thursday, January 08, 2004

Steve,

I think that's probably what's going to happen.  The body shop provides some sort of aid, I believe.  There are a couple of questions I should have asked that I didn't think to ask because I was sort of blindsided.  The W2 thing is one that I'll be sure to bring up when we next talk.

Crimson
Thursday, January 08, 2004

Crimson,

They'll usually ask if you're W2 or 1099, just say W2 which means they take out the taxes for you.

So essentially it's really just as a regular "perm" job but you get paid hourly.

I still think my rate*1912 is decent which compares it to a "perm" job. It provides a baseline comparison so you don't accept some ridiculous rate.

check out www.realrates.com for rates in your area. In New England it can range from $50 - $75. I think $60 is decent right now. But like I said before, it depends.

Steve
Thursday, January 08, 2004

Oh, and by the way, when negotiating with a recruiter they'll always say something like "the *client* wants a lower rate...". It's never the client, it's *them*, the client's rate has likely already been set.

Steve
Thursday, January 08, 2004

"Assuming 8 hours /day and 52 weeks of work"

I don't know how much work a recruiter can find for you, but I'd be surprised if they could find enough to keep you busy 8 hours /day and 52 weeks.


If you become truly independent, i.e. you get your own work, then you're going to be lucky to bill 4 hours/day for 48 weeks.  You're going to spend about 1/2 of your time with sales, marketing, and administration, and you can't bill for that. 

robb
Thursday, January 08, 2004

Steve,

The job is advertised as being for 10 months, so I'm assuming that's basically 8 hours/day...though again, I'm not sure if that's a valid assumption or not since I'm new to this.

Crimson
Thursday, January 08, 2004

Previous message was to robb, not steve.  Woops.

OK, I see a general trend here and things are becoming clearer. There are two consultant camps.

(1) independent consultants
(2) consultants through some sort of agency.

All the independent guys are suggesting charging $100+ to take into account administrative functions, business development etc.

And of course, time won't be used on these issues with agency consultants, so they suggest a lower price point.  I'm assuming the agency is pocketing the difference.

Again, that's just a general trend I think I see.  Is this true or  have been sipping the kool-aid?

Crimson
Thursday, January 08, 2004

Yes, that's how it is. That's why guys accepting jobs through agencies never get more than about $75 per hour, no matter how good they are.

If they're really good and the employer pays more, the agency keeps it as higher profit. (In the boom, really good guys working through agencies might have got up to $90 per hour, while the agency was getting $250 per hour.)

Inside Job
Friday, January 09, 2004

If someone is offering me $50,000 salary for contract work, what can I expect to take home after taxes and insurance?  I'm trying to follow the above convo, but am having a hard time.

Thanks.

Beth
Wednesday, February 11, 2004

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