10 ms·

Ask HN: If my company bills me out at $165/hr what should my salary be?

• onetimemanytime 8y ago
  50 an hour.
• jjcinaz 8y ago
  Such a correlation is difficult to draw from that single data point. You could look at the entire business model to get a better idea but in reality it’s not about that at all. Really it’s just what would the company have to pay to replace you? If it’s easy to find someone who can do the same job for the equal or lower salary then you have your answer. There will be a range of salaries for your job position in your market. You should evaluate your total compensation against these to help you decide if you are fairly compensated.
• tinktank 8y ago
  Without knowing anything about the particulars, I'd say $80/hour, so about $150K
  • cjbprime 8y ago
    Sounds about right to me too, and the particulars certainly matter -- like, are you assigned to the company paying for your hours full-time and without a specific end date? If not, then of course part of that hourly rate is compensating for downtime or uncertainty in the billed hours.
  • maxxxxx 8y ago
    Usually it's much lower. I know people who are billed at $300/hr making close to 200k or less.
    • DATACOMMANDER 8y ago
      I don’t have experience being billed out at astronomical rates, but I speculate that the consultants’s take-home is sublinear in the rate he’s billed at, and dramatically so. I’m very impressed by someone who makes $100/h or more writing code, but I think I’m even more impressed by a person/team/system that can consistently find quality clients willing to shell out $500/h or more. I have a feeling that someone could be well worth such a rate but struggle to get anywhere near it on their own. How do you even go about finding those clients? I can’t help but think that they’re almost all going to be companies going through an unexpected existential crisis...
      • maxxxxx 8y ago
        I know a guy who can talk to CEO types and keep them interested. That’s the skill you need.
• patio11 8y ago
  A fair salary is the one you shake hands on. It will largely be set by your value on the market and what you can successfully negotiate, not by your employer's unit economics. But let's talk unit economics of consultancies, since they're useful to know. Your employer will model you as being approximately 70% utilized for the year. Your gross revenue contribution is approximately $231,000. Your employer has approximately 20% overheads; that knocks it down to $185k. They'll want to keep somewhere in the 15~20% of gross range as their profit; that leaves about $140k. This makes the math convenient, since the TCO of a technical employee is about 140% of base pay, which is going to come in right about $100k. [0] "$100k is a very different number than $231k." Yep, it is. If you want to capture a substantial portion of the difference, put out your shingle and start getting gigs. [0] This isn't a guarantee, and if the company thinks that $80k gets you over the line, then they will probably offer $80k. If your other offers and irreplaceability to their ability to deliver gigs counsels $120k, they might accept being bid that high. But there are HNers who will suggest that you get e.g. $160k and that seems highly unlikely if the consultancy wants to stay in business long-term.
  • qualsiasi 8y ago
    This predicts perfectly my salary (3% error) in Europe (Italy).
  • harryh 8y ago
    How do you define the difference between the 40% premium on base pay to get to TCO and the "20% of overhead" for the business as a whole? What sorts of things fall into each of these two buckets? I feel like I know some of the answers but not all of them.
    • mark_element 8y ago
      Not OP but heath insurance, taxes and other costs that can be marked down exactly as being for Employee #X are in the 40%. Paying for an office having light, power, internet, management, and a mailroom is in the 20%.
    • schneidmaster 8y ago
• tedsanders 8y ago
  As a management consultant, I was billed out at about $875/hr. My salary was about $50/hr. That's a ratio of about 18:1. This felt fair to me. The billing had to cover a lot more than my salary.
  • josephjrobison 8y ago
    Now that is quite the markup. Can you provide details on what categories the billing would also cover? I'd imagine it would be flights, hotel rooms, equipment, transportation, meals, remote offices, etc.
    • tedsanders 8y ago
      (Wish I could add this as an edit, but the 1 hour mark just passed.) Here's what that billing had to cover: * My normal work hours [the thing we billed for] * My overtime hours * My annual bonus * My benefits & retirement savings & overhead & employer-side taxes * My time spent on business development & sales (most of which don't pan out) * My time spent in training & development (probably ~4 weeks in the first year) * The time of managers spent training & developing me * My support staff (industry analysts, Powerpoint designers, internal experts) * Multi-million-dollar IT investments to build tools and databases to support me in my work * A couple first-class flights a week * A few nights a week at expensive hotels * Lyfts & Ubers everywhere * All meals expensed * The firm's partners working the case * New employees for whom we don't bill * Fees for market reports * Fees for expert interviews with industry executives * Office overhead (rent, power, insurance, etc.) * Office support staff (HR, finance, janitors, etc.) * Profits for the firm's equity holders (Now a few of these expenses were billed separately I believe, but it shows the wide breadth of costs that a firm has to cover.) Lastly, none of this opportunity would have existed without the firm, the network, the brand, and the partners. It's amazing to think that all I had to do was show up and work, and in exchange, I would get paid a high salary, get experience working with senior executives, get a prestigious brand on my resume, and accelerate my career relative to most career tracks. I don't regret the job, nor do I think it's surprising that there are crowds knocking on the door trying to get in. Looking at other industries, I wouldn't be surprised if a cashier at a grocery store made less than 5% of what they put in the register each day. And I wouldn't be surprised if a oil drilling engineer got paid 5% of oil that they extracted each day. Even if we're the ones touching the revenue, we're still a small part of what it takes to run a big business.
• swanson 8y ago
  Roughly $100k (+/- 15% based on performance, tenure, location, company financial health, etc) Salaries usually cap out at $130k-$150k for the role of "writing the code" at general software consulting at small-medium (5-150 person) "agile" shops. Likely higher at speciality shops, but I can't speak to that.
• gist 8y ago
  If I had someone that was working per diem that I could bill at $165 per hour I'd be happy paying them $125 per hour.
  • maxk42 8y ago
    Well if you're paying a salary then you automatically have to tack on 15% employment taxes above the cost of salary plus costs of payroll and any benefits. For most employers this falls in the range of 20 - 30%. So that potentially increases your cost from $125 to $162.50. Good luck turning a profit if you ever have to pay them for an hour you're not billing a client for. (In most consultancies that would be about 30 - 40% of the employee's hours.)
• tptacek 8y ago
  As a W2 employee, your bill rate is not really your problem and only a secondary factor in how much your total comp will be. Given the same set of delivery staff, a strong consultancy might generate high bill rates, and a weaker one lower rates. The work is the same; as a full-time employee, your point of reference for your own comp isn't what the company earns, but rather what full-time people like you earn elsewhere. If people with your skillset and experience and capability generally earn $170/hr, it doesn't matter that the consultancy only makes $165/hr. Similarly, if they tend to make $90/hr, it doesn't matter that their firm makes almost 2x that in bill rate. I'd also caution that people have weird ideas of how bill rates correlate to salaries. If you strike out on your own to do a solo consultancy (strongly consider doing that sometime!), you should know that whatever your FT salary was in your previous job, your bill rate should be drastically higher. It should account for: * Your increased cost basis w/r/t taxes, facilities, vacation and "PTO", expenses, and benefits, which you'll now be on the hook for * Your ample downtime --- a well-managed consultancy running in steady state at reasonable scale might expect 70% utilization across its staff, and a fledgling consultancy might struggle to break 50% * The work you'll be putting in to source and close consulting engagements * The substantial extra risk you're taking on by being a technical delivery person that can be "fired" (you're never really fired, just released) on a whim with little notice, which risk is something you as a consultant are selling. People sometimes use a rule of thumb of 2x your full-time salary as a target consulting rate. I think that's lowballing it. Always, these specific questions are best answered by consulting the market directly, not by asking for an axiomatic derivation of what a skillset is currently worth.
• mortonpe 8y ago
  Depends on the industry. Services tend to use the rule of 1/3. 1/3 for the company, 1/3 for overhead, 1/3 for salary.
  • panzagl 8y ago
    Don't know why this was dead, it's a rule of thumb for a wide variety of industries.
• logfromblammo 8y ago
  Between $41.25/hr (0.25) and $55/hr (0.33). Lower means you might leave for somewhere that pays you better. Higher means the company won't be able to spend enough on business overhead, support staff, and benefits package.
  • hnick 8y ago
    This is in line with a place I worked at (more towards the lower side). It wasn't the sort of job you could just freelance for, it absolutely relied on a team doing "enterprise" work for large clients using very industry-specific tools and experience. Relatively easy work but basically impossible to get out there and do yourself.
• ddebernardy 8y ago
  Counter question for you: what can you charge when you're selling yourself? If you're unable to charge anything close to your expected salary as a consultant, then you're de facto answering your own question. For clarification, I'm not suggesting you're a cog or that you're providing no value. Just that, it's easy as a knowledge worker to fall into the trap of thinking you're delivering more value than you actually are. I've seen this happen in each of engineering, sales, and marketing departments. I can only imagine it's true in other corporate functions. (Part of me would have wanted to make an exception for HR, but I know more than a few HR folks who deluded themselves into getting in that field to make things better for the rest of us, and as a manger I'd put forward that HR actually does come in handy as a business function.) The truth is that, in reasonably well functioning companies, the various departments are pulling their weight (admittedly more or less well) more often than not. And a surefire way to sink a company is when a department decides they're a worth a lot more than some other guys over there. (You'll eventually get fired over this if that is your mindset. As your manager I'd give you a single strike before giving you the boot; it's that toxic.) Point is, your company is providing value by selling your skills -- by finding relevant clients and closing them, neither of which are easy. And they've spent money to recruit you, are continuing to spend money to manage you and invoice for you and pay you and pay taxes on your behalf if applicable and extend vacation time and what have you. If you believe the added value is not high enough and wish to get paid more, then it's fair game -- ask for one, if only because you never get anything without asking. But keep in mind that the surefire way to get a raise isn't to ask for one; it is to resign and sell yourself to the same types of companies. It's not easy, but quite doable; just think it through, thoroughly, before giving it a go.
• USNetizen 8y ago
  These two things are not related. There is a lot more than salary and benefits that go into an hourly billing number. There is no way anyone would know for sure what salary they set unless we somehow knew their overhead, G&A, fringe and other indirect allocations. They bill $X so I should get paid $X is not how the industry operates - there is so much more that needs to be considered here. Anyone who has owned a company that specializes in services or even worked long-term as a 1099 could confirm this.
• rebelde 8y ago
  $165k/year. When in that situation, I tried to earn 1/2 of that. At ~2000 hours per year, that comes to about $165k/year. Whenever making less than half, I knew that some other company would be willing to pay more for my services. This was government contracting, so your situation might be different.
• seem_2211 8y ago
  I run a small business, and the one thing I was not prepared for, vs being an individual contributor - there is SO much random stuff that pops up. Paperwork, compliance stuff, HR stuff, planning stuff, finance stuff, making sure that you've been doing enough sales. Oh and it's all urgent. And almost all of it is menial. But needs to be done in the next few days. There's a world of difference in being an IC and running a shop. Reminds me a comment I saw on HN a while ago - "Oh you like writing software and want to start a SaaS business? Great, now writing software is 10% of what you do"
  • tixocloud 8y ago
    Very much agreed ever since I decided to build a startup.
• effnorwood 8y ago
  As little as they can pay you and whatever you agreed to.
• crikli 8y ago
  I'm going to do the math below, but your employer very likely isn't billing highly enough. Most employees top out billing 80% of time, so 32 hours. Assuming that, you're generating $5280 / week or $21,120 / month. Agencies need to be shooting to bill 3x of _actual_ hourly employee cost (this is target and I can elucidate if people are curious). Therefore your cost needs to be $7040 a month. 20% of your cost is wrapped up in health benefits, vacation time, and other perqs, so your hourly wage will be determined by that figure. Less the cost of perqs your hourly cost will need to be $5632 / month, or $35.20 per hour. That's a salary of about $70,400 per year assuming a 2000 hour year.
• zackmorris 8y ago
  As a rule of thumb, I've observed that most businesses charge between 2-4 times as much as the employee is paid for hourly work. So without more information on overhead etc, $41.25 to $82.5 per hour seems fair in your case. However, it can be a lot worse than that in non-tech locations. Where I live, you often see $60-100 hourly rates in shops where employees are only paid $15/hr. Each business you see on the street supports roughly 1 family, so they might use turnover or other techniques to stay in business for the long term while paying wages that are below the going rate. I'm wary of jobs now that convey a feeling of owing something to the employer, as this correlates with subpar pay. The best jobs that I've had have felt very mutually beneficial to employer and employee.
• kxyvr 8y ago
  It's hard to tell without more information, but here are some general rules of thumb. Most companies have a multiplier based on salary on how much an employee really costs. Small, efficient companies have a multiplier a little over 2. Large organizations and the government tend to have a multiplier at a little over 3. The overhead covers everything from benefits such as health and 401k to keeping the lights on to paying for secretarial staff and management. Running a business is a team. That said, these numbers don't really include true profit, so it's important to factor that in as well. Now, say we assume a multiplier of 2.1, that puts the upper bound at $78/hr. You're never going to make that because it means the owner is not making their profit and not that many companies are that efficient. If their multiplier was 3.1, it puts the bound at $53/hr, but again that still doesn't take into account profit. As such, my off the cuff guess would be somewhere between $30-60/hr. And, to be sure, this shouldn't imply anything about the morality of that decision of salary. However, it has been helpful for me to think about salaries and multipliers when bidding on contracts because it tells me how much a company is willing to pay.
• wilkskyes 8y ago
  $80/hr, no more, but possibly less. The number they bill you out at matters, but not for reasons you think. You do not want to work somewhere that cannot make at least twice as much money as what they pay you. Growth will be anemic, and long term job stability will be a problem. You may eventually be fired and replaced with someone cheaper. Most of your skills are commodities. Ideally, you want to work somewhere that can make even 3 or 4 times as much money as your salary. This will ensure a healthy cash flow and gives enough headroom to hire more people, and ultimately win big contracts with big clients (millions). If they cannot make at least 2x of your salary, they are either a new company with little to no reputation or a bad sales process. And do not even think about striking out on your own trying to get a full $165/hr salary. For one, you will have more expenses and taxes to deal with, and two if you do not have a strong sales skillset you will struggle to bill at those rates and ultimately get starved out.
• kator 8y ago
  I consulted for many years of my career and my general rule of thumb is bill at a rate of what you want your annual comp to be divided by 1,000 ($165k/yr / 1000 = $165/hr). This is based on the basic concept of 50% billable or a bit higher with overhead. If you're doing independent you will need to bake in insurance (health and liability), taxes and other costs of running your business. If you beat the 50% billable you're in the money, if you don't then it might be time to find a job. In your situation if your company bills you out at $165/hr I would push for total comp of $165k (base + bonus + insurance + other benefits). Remember to also factor in risk/reward, if you don’t mind all the risk you can go independent and reap more of what you bill, but if you’re worried about not landing customers then you should consider a job with a company that has a pipeline and can get you billed out quickly. That said don’t overestimate the “safety” of working for a company, if you don’t bill well or they have issues they’ll fire you in an instant. As a side note when talking to people about setting up their own consulting gig I always remind them that customers pay for what the perceived value is of a resource. If you ask for $75/hr billing you may not get the gig but ask for $250/hr and shockingly they might sign you tomorrow morning. There is an interesting balance between perceived value, asking price and what people will pay vs what they expect to pay. Your asking price actually communicates your confidence you can deliver, and customers have a built in bias on this front and will make pre-conceived judgements based on this simple part of the overall negotiation.
  • deleted 8y ago
    [deleted]
• chrishynes 8y ago
  Quick rule of thumb for consulting is that your yearly salary in thousands is the same as the hourly rate. i.e. if they're billing $165/hr, you should expect 165k/yr. That doesn't hold for low or high extremes but is pretty reasonable for most cases.
• lquist 8y ago
  Based on financials I've seen of consultancies, staff are ~33% of revenue. Given a 70% utilization, that gives a salary of $80k fwiw
• bdcravens 8y ago
  You're a product, being sold at a markup. What's typical? Typically 3x, so I'm guessing about $110k would be a fair salary.
• brycehamrick 8y ago
  I'm a business owner, and I've had disputes with employees based on our gross collections vs. the employees pay MANY times, the reality is this: Your value in what you do is based on what the market is willing to pay you. It's not based on what the market is paying ME for work you're contributing to. Your pay isn't based on my gross collections minus costs. No part of what I collect from customers are you entitled to. I hired you for a job, at a rate we agreed to, and if you believe you are owed more I welcome you to see what the market offers you.
  • socalnate1 8y ago
    While everything you said here is correct; I hope you've found a way to communicate a bit more gently than what you wrote above.
    • brycehamrick 8y ago
      Yeah definitely not how I would talk to the employee, but it's extremely frustrating that they don't get it. As a business owner you can literally be losing money on a deal and have the employee assigned to it tell you they want more because they're only getting X% of the total contract amount. Only way I've found to protect against this is to keep the operations team from having visibility into finances.
      • sridca 8y ago
        > Yeah definitely not how I would talk to the employee, I actually prefer that my superior talked to me like that.
• deleted 8y ago
  [deleted]
• chrisgoman 8y ago
  Normally, your salary is 1/3 your billable rate (for most industries). So approx $55/hr 1/3 goes to salary, 1/3 goes to overhead and 1/3 goes to profit. Overhead includes the hours you are not getting billed out (paperwork, internal work, etc.) and also fixed costs for the company (office, vacation, sick, PTO). Profit normally goes to the owner and retained earnings (savings for a rainy day for the company)
• apohn 8y ago
  I can give you some rough numbers for a company I used to work with a few years ago in the USA. Billed Customers at $225 an hour. Consultants were typically paid Between $45 - $65 when you include bonuses for billable hours beyond X%. 3 weeks vacation was standard and healthcare was great with very low employee premiums and low copays. There was a "Principal Consultant" level where the salary was disconnected from the bailable rate because they were heavily involved in selling services.
• tracker1 8y ago
  As many have said, it will depend highly on other benefits offered, generally should see 25-40% of the billing rate. $80-130k/year roughly speaking.
• pcurve 8y ago
  Maybe the landscape has changed a lot, but when I was a consultant working at client site way back when, I was getting paid $40/hour, while client was billing $65. There was no 401k matching, health benefit, or vacation though. It was W2 in name only. The only thing the consulting company did was to find my resume online and send me to client site for interview.
• bhouston 8y ago
  When I started in business, I learned that you should charge out employees 3x salary or better is a good rate if you wanted to grow and be viewed as a viable service business. If you charge out at 2x salary you are going to roughly breaking even at the business level. If you charge out less than 2x salary it is a going out of business rate. I think this is still reasonable advice. The reason is there is significant overhead. In benefits, support services, equipment, employer matching taxes, HR, building, hiring, write-offs, and even getting the contracts and maintaining them. It is hard to charge out the time of someone negotiating the contract, or dealing with customer complaints, sending out billing, following up on unpaid bills (collections), not to mention the cost of sales, etc.
• oliwarner 8y ago
  Whatever they're willing to pay and you're willing to accept. Likely less than they're billing your time for. Just remember that the company has costs on that time. Both through direct tax on the income but employers also tend to pay out for things like your space, hardware, liability insurance, and other intangible benefits you get while employed. The expectation of work from an agency is also significantly different than a freelancer. When you're talking to a lone wolf, you expect a level of flakiness, perhaps you'll need to be more hands on to manage them through your requirements. With a digital agency, I would expect that money to cover the local management of you. And if you screw up, I expect the work to be put right for no additional fee. I also expect their liability insurance to be a lot sturdier than a freelancers. All this stuff is essentially what would be covered by introductory sales contracts. I don't think I've done work with an agency that hasn't tried to —on day one or two— laid out a vast document of everything that isn't going to be their responsibility. These cause endless fun in negotiations. And as part of this, I also understand that part of the $165 is going into the pocket of the jobsworth sales team who just happened to take my call. I've worked with and for agencies. The bad ones are horrible places places for developers. Very rarely will an agency developer have enough freedom to do something good enough that it makes a sale. Not in the way that Art and Sales teams can. It's an unfortunate truth that managers are more than willing —IME— to exploit. That is not to say you're not worth more than you're being paid. As I lead, pay is entirely negotiable. Understanding your actual value to the employer is critical to extracting the best salary though.
• corbett3000 8y ago
  Easy math = divide by 3 and multiply by 1800. You’ve got a $99,000 job including the value of benefits and bonuses.
• raincom 8y ago
  It all depends on what kind of medium-sized firm it is. Is it some kind of semi-staffing company (like taos.com)? If it is, you need to get paid 80% (1099 rates), as such companies let you go once they can't get you projects. If you look at big 4 consulting firms, the partners get huge contracts like SAP implementations, here that 70-80% formula won't work. The partner takes home more money, when he gets fat contracts and executes them. You can expect some kind of job security in these companies, compared to the above type.
• Bucephalus355 8y ago
  I’m billed at $105/hr + expenses I accrue traveling to whatever company hires my firm. I make $70/hr. I live in Texas.
• sdroadie 8y ago
  I've read through most of the threads, and the responses here are interesting. While some people have made cogent points about the role of prestige in consulting (this being the reason firms like McKinsey can charge what they do), I really don't think that the pay differential is as reasonable as people tend to think. In general, I think it's unreasonable and extractive. Most businesses aren't McKinsey. From what I've seen and lived, there is, at best, a weak correlation between someone's pay rate and what they're billed at. One company I worked at charged 5x my rate for projects. It was usually explained away as "a blended group rate." More often than not, I was the only developer on those contracts. I wouldn't claim to be an expert on the economics involved, but I'd wager that the pay rate/bill rate ratio is, in most cases, due to layers of management, and a lack of transparency and automation. I'm trying my hand at combatting this at the startup/coop I founded. If anyone is interested in chatting about this, screaming at me about how I'm wrong, or learning more about the business, send me an email at jeremy@tribestaffing.co.
• gesman 8y ago
  In business, you don't get what you deserve. You get what you negotiate.
• halis 8y ago
  Don’t agree to a salary. Get them to give you a 1099 and pay you an hourly rate. Pay your own quarterly and payroll taxes and write off your expenses. Get your own health insurance. You’ll come out like a bandit. Since they aren’t paying payroll taxes or giving you any benefits, the spread they keep is pure profit. So why wouldn’t they agree to $140 an hour? Why indeed..
• jgimenez 8y ago
  At some stage my company charged exactly that for me and I was getting paid $17. It's up to you to accept or not this price, but bear in mind the company might have other expenses like office space, sales people, administrative staff, etc. So the company needs to factor in some of these into your hourly rate. I'd say the real rates though depend much more on market: how much employees are being paid and how much is it possible to charge customers