{"id":877,"date":"2010-05-26T09:08:46","date_gmt":"2010-05-26T16:08:46","guid":{"rendered":"https:\/\/simpleprogrammer.com\/?p=877"},"modified":"2020-12-30T22:59:22","modified_gmt":"2020-12-31T03:59:22","slug":"consultants-know-your-markup","status":"publish","type":"post","link":"https:\/\/simpleprogrammer.com\/consultants-know-your-markup\/","title":{"rendered":"Consultants: Know Your Markup"},"content":{"rendered":"

Now that I am not a consultant anymore, I can finally write about this topic.<\/p>\n

This is one of those likely to piss people off topics, but this is something I feel every consultant should know.<\/p>\n

So, what am I talking about?<\/p>\n

Basically, I am saying if you are working as a contractor, or other type of consultant, and there is a middle-man between you and the direct client, you need to know what you are being billed out at.<\/strong><\/p>\n

Why does it matter?<\/h2>\n

The main reason is that you need to be able to know how to negotiate your rate.\u00a0 Over the course of your career in software development, negotiating your rate can be worth hundreds of thousands of dollars.<\/p>\n

That is kind of a big deal!<\/p>\n

It just makes good business sense.\u00a0 If you are working as a consultant, you are, to some degree, running your own business.<\/strong> A good businessperson knows what everyone is making on the deal.\u00a0 It isn\u2019t an unreasonable thing.<\/p>\n

Let\u2019s consider an example.\u00a0 Have you ever bought a car?\u00a0 If you have, did you walk into the dealership and pay the sticker price?<\/p>\n

When I go to buy a car, I ask for one thing.\u00a0 The dealer\u2019s invoice.\u00a0 Then after he gives me the fake one, I ask for the real one.\u00a0 I want to know what their cut on the deal is.\u00a0 The dealer deserves a fair markup for the service he is providing, but as a customer and businessperson, I also deserve to get a decent price.<\/p>\n

Taking that example a little further, what if you went in to buy a car and the sticker price was $25,000.\u00a0 Then the dealer and you negotiated and he came down to $23,000.\u00a0 Now, let’s suppose you found out that he got the car from the factory at $20,000.\u00a0 The seems fairly reasonable.\u00a0 3k is a decent amount to make on a car, but the dealer is going to have some overhead and other costs associated with being in business.<\/p>\n

Now, imagine in that same scenario the dealer bought the car for $10,000. If you found out that piece of information, you might be pretty outraged.\u00a0 You might consider why you need the dealer.\u00a0 Is he providing 13k of value to the transaction?\u00a0 Should you get your own dealer\u2019s license?<\/p>\n

In any kind of business deal, everyone should have a good idea of who is adding value and at what cost.<\/h2>\n

I\u2019ve been in the real estate business, the software development business, and a few other industries, and one thing I have learned is that the best business deals have the most transparency.\u00a0 Nothing will ruin a deal or make a sour relationship more than missing disclosures.<\/p>\n

In business everyone has to make money, but everyone wants to feel like they are getting a fair shake.\u00a0 When I am selling something, I will gladly state my cost.\u00a0 When I am buying something I expect someone to be able to tell me what their cost is.<\/p>\n

If you are a consultant you need to be making sure you are in a good deal, otherwise you are in risk of under pricing yourself.\u00a0 You need to push for transparency.\u00a0 If it is a good deal, it should be a good deal for everyone.<\/strong><\/p>\n

They won\u2019t tell me my bill rate<\/h2>\n

Did you ask?\u00a0 How did you approach negotiations?<\/p>\n

One important thing I have found is not to talk about hourly rates.\u00a0 Instead, you should be talking about margins and markups.\u00a0 As a consultant doing 1099 work through my corporation, I always state that I allow for a 15% markup on my services.<\/p>\n

In my opinion, this is more than reasonable.\u00a0 And yes, I am flexible to a degree, but the point is: from the beginning I am talking about markups and margins, not about hourly rates.\u00a0 Make sure you start the conversation there.\u00a0 You are a professional and a business person, act like one.\u00a0 If you don\u2019t want to be treated like a commodity don\u2019t act like a commodity.<\/strong><\/p>\n

You may not be able to get the exact numbers, but you should be able to get a general idea of what the bill rate is.\u00a0 There is no reason why any professional should be billed at 2-3 times what they are being paid.\u00a0 The middle-man does not provide the value that deserves that kind of markup, yet it happens all the time.\u00a0 Don\u2019t be a victim.<\/p>\n

Don\u2019t be afraid to do some research yourself.\u00a0 It is fine to say \u201cI know that you are probably billing the client around $100\/hr\u2026 \u201c Don\u2019t be afraid to fish a little.<\/p>\n

One word of caution here.\u00a0 A middle-man does deserve to make some money.\u00a0 If they found the job and found you, and they are handling the payroll, that service has value.\u00a0 You cannot expect them to make nothing, just make sure it is a fair amount in regards to the service they are providing.<\/p>\n","protected":false},"excerpt":{"rendered":"

Now that I am not a consultant anymore, I can finally write about this topic. This is one of those likely to piss people off topics, but this is something I feel every consultant should know. So, what am I talking about? Basically, I am saying if you are working as a contractor, or other…<\/p>\n","protected":false},"author":2,"featured_media":24785,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[14560,2253,5895],"tags":[],"class_list":["post-877","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-career","category-consulting","category-self-improvement"],"yoast_head":"\nConsultants: Know Your Markup | Simple Programmer<\/title>\n<meta name=\"description\" content=\"A recommendation to all software consultants that they need to know the mark-up their middle-man is making. 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