Contractor percent of Bill Amount

[kxramse]

I'm a Business Intelligence Analyst using SSRS, SSAS and SSIS, SQL Server and Oracle databases. I am working for a contracting company and the other day, my boss at the client site let it be known what my billing rate is. He left the bill on his desk as I was talking to him about something else, but it was in REALLY PLAIN SITE.

I'm paid $43 per hour yet billed at $79. I get no benefits at all although I am a W2 employee. I'm essentially making 54% of what my client is being billed.

Would you renegotiate with your contracting company? Is this a fair rate? How would you take the news?

 

[traingamer]

Good luck with that. That's a pretty common thing - some pay a greater percentage than 54% - some less. You agreed to work for $43 / hour without benefits.

Is it fair? You tell us. Were you happy with your pay rate before you saw the invoice?

Greg
"Personally, I am always ready to learn, although I do not always like being taught." - Winston Churchill

 

[kxramse]

I see your point. I was moderately happy; but was thinking a raise was potentially in the plans.

I think I simply want to know what's a prevailing or fair rate distribution. Is it a fair percentage? Is it gouging? What do people think of this kind of spread?

 

[kmcferrin]

Hang on...you're looking it the wrong way. You're trying to find whether there is a prevailing percentage division between contracting company and employee/contractor, and the answer is no (but also irrelevant). Your concern should be whether you are being paid the prevailing or market wage for you work (including in the equation the lack of benefits).

Why? Well, there's a couple of reasons.

Firstly, the company is taking on a certain risk by having you as an employee, and incurs additional obligations. If you want a larger cut of the pie, then you'll have to take on more risk yourself, usually by going independent. That's part of being an employee. You know that you're going to get paid a set wage as long as you're employed, with the possibility of raises or other compensation.

Secondly, the bill rates can vary widely between customers. Sure, they're billing $79/hour for you now. But the next customer may only pay $65/hour for you because they're a major client that gets a volume discount (or uses their size to negotiate lower contract rates). In that case, would you rather be getting a set percentage of the bill rate, and potentially have your paycheck change depending on who they have you working for? Or would you rather you get paid the set wage of $43/hour?

Thirdly, what do you think would happen if you DID renegotiate for a higher rate (say a flat 65% of the bill rate)? Well, if I were the employer I would probably move you to the lower-billing customers so that I could continue to keep more money to myself. If you're getting 65% of $79/hour, they're paying you $51.35/hour. If they could move you to a $65/hour client then you're getting paid $42.25/hour, less than you make now. Of course, this wouldn't affect their margin percentages, but it would affect total dollar revenue.

But in answer to your question about the spread, it varies widely. I've worked some contracts where I'm getting paid close to 70%, others where it's closer to 50%. And of course the prevailing bill rate for a given position will also change with geography as well. It also varies with other market conditions. During the Y2K crunch, it was not uncommon to see some companies up their billing rates to the point where they were paying their employees 40-45% and both the employees and employers were making better than average money. After Y2K margins shrunk quite a bit because of the bloated supply and low demand for tech contractors.

 

[chiph]

Think of it in terms of a store at the mall. They sell jeans for about twice what they pay for them (I know of one chain whose practice is 100% markup plus a dollar, so they can have a 50% off sale and still not lose money).

The reason they do this is to ensure a decent profit for themselves, plus pay their costs (power, rent, insurance, salaries, etc.)

In the case of a tech staffing/contracting firm, they have to pay the salary of the admin assistant, the customer relationship managers, plus the sales people. They may also have rent, power, phone costs, and depreciation to pay on office furniture & equipment.

So, don't concentrate on what they bill -- concentrate on your rate. Like kmcferrin says, is your rate at or above average in your area for someone with your skills? If not, time to ask for a raise.

If it is, then to put it plainly, don't worry about what the customer pays. Just try and ensure that the customer feels that they are getting their money's worth. Happy customers mean repeat business.

Chip H.


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