Steve Eichert’s recent blog entry about consulting (and DomXml’s article on consulting rates) got me thinking about my experience (or lack thereof) regarding consultants.  Working for a small company where the management team is very fiscally responsible represents some challenges.  It would be nigh impossible for management to bring on a consultant with a rate of $90/hour.

If you take the $90 figure at face value, you might think that it is equivalent to a salary of  $187,200 (at 2080 hours = 52 weeks @ 40 hours).  Quite a gap from the $77,000 average electronics engineer’s salary (a close enough comparison to software in my book).  However, here are some points to keep in mind:

  • Employer provide roughly 10 days of statutory holidays.
  • Employees have a minimum of 10 days vacation
  • Let’s throw in 5 sick days.

These are days that your employees have 0 productivity yet still draw a salary. That means the total annual hours of work from your employees are now 1880.   This still gives our consultant $169,200.

Your employee typically gets some benefits that the consultant does not get:  Health & Dental Insurance, retirement benefits, etc… Let’s round that to $10,000 (on average).  The gap narrows: $87K to $169K

On the number of hours worked per week:  A good consultant will only charge you for time spent on your project. To stay relevant to the industry, the consultant has to spend time looking at new technologies and experimenting.  Let’s give them 1 week for training (which your employees should also get!).  Let’s also give them 5 hours per week for them to keep their skills up to date.  Our consultant now can only work  1610 hours per year.  Their salary is reduced to $144,900.

If we were to leave it at that, this still looks like a huge compensation (although I hear in NYC, a new employee at FogCreek could make 6 figures with great benefits - but Joel goes for the Cream of the Crop).  The one factor implied in the 1610 hours per year is 100% employment.  Chances are, some of your time as a consultant will be spent “marketing” yourself and finding jobs.  If you’re good, and live in a metro area (or are willing to relocate to the job), this might be a fair assumption but then again, you’ll probably be charging more than $90/hour…  For most consultant, some time will be spent hunting for work.  Let’s call it 20%.  Our highly paid consultant is now only going to work 1288 hours in a given year.  At $90/hour he is now paid $115,920.

Not cheap, but lets face it, top notch employees can earn that much…And if you’re looking for a consultant, they have skills that you need and don’t possess.  That’s worth something.