I said: "Consultants, on average, spend 1/3rd of their time looking for
work, so they need to charge 3 times more than if they were employed
full-time doing the same thing. ($80 an hour as a consultant equates to
$27 as a wage worker.)"
I stand by the 1/3rd number, but I meant to say that looking for work is
only one component of the difference. Health coverage, insurance and
social security (paying 16% of your wages yourself instead of 8% from
you and 8% from your employer) are other parts.
I have seen this 1/3rd number widely quoted, though perhaps mostly by
self-serving consultants.
- dan
> -----Original Message-----
> From: Dr. Ernest N. Prabhakar [SMTP:ernest@pundit]
> Sent: Sunday, September 07, 1997 9:40 AM
> To: Dan Kohn
> Cc: adam@cs.caltech.edu; FoRK@pest.w3.org; Alex Blakley; Bernie
> Saffran
> Subject: Re: Consulting for Dollars... or Chump Change?
>
> Umm, which number doesn't add up here:
>
> You wrote:
> > 1) $80 an hour at a full-time job equates to $160K a year annual
> > salary. (This is based on 40 hour week times 50 week year, but is
> > still a good rule of thumb.)
>
> So far, so good.
>
> > 2) Consultants, on average, spend 1/3rd of their time looking for
> > work, so they need to charge 3 times more than if they were employed
> > full-time doing the same thing. ($80 an hour as a consultant equates
> > to $27 as a wage worker.)
>
> Okay, which of these numbers is a mistake? Either:
> a) Consultants only spend one-third of their time working (seems low)
> b) They only work two-thirds (since they're looking one-third),
> so $80 is only worth $53 (i.e., then need to charge 50% above
> full-time wages)
>
> > So, it may be helpful to think of whether you'd take a job with a
> > $53K annual salary.
>
> Or rather, $106K annually. Perhaps it would be helpful to get an
> accountant to check the numbers in your contract, first....
>
> There is also overhead, for taxes and insurance and so forth. I think
> the rough estimate is 50% of annual wages. Is that where you're
> getting the missing factor above?
>
> > But, don't forget the externalities:
>
> True. Assuming the work itself is identical, the relevant
> externalities would be changing jobs every few months, and whether
> looking for work is fun or a pain.
>
> Note that this is predicated on comparing consulting work to a
> full-time job. If you're just doing it as a sidelight, then it is
> more like how you value your leisure time, which could be higher or
> lower.
>
> For comparison, I got $75/hour for marketing consulting from Apple.
> BCG associate consultants bill out at something like $60/hour, which
> jumps to $120 for MBAs (we get paid one-third of that). If you're
> doing "soft" stuff, like we did for Canon, $80 per hour is not
> unreasonable. I believe highly skilled programmers easily get over
> $100 per hour, so it is low if you're doing 'serious' stuff.
>
> Despite what Rohit says, we are not world-famous highly experienced
> thought leaders, so we can't expect the big bucks right away.
> However, we should be soon, so you can think about where you'd like to
> establish a price point, and try to grow up to it.
>
> Of course, whether an offer is reasonable is somewhat independent of
> whether you should accept it. Unless they are a close personal
> friend, you should charge what you think the market could bear.
> Alternatively, if you just want the money, figure out if it is worth
> the opportunity cost, in other projects and leisure. $80 isn't
> shameful, in general, and you can always raise your rates later.
>
> -- Ernie P.