Re: Consulting for Dollars... or Chump Change?

Dr. Ernest N. Prabhakar (ernest@pundit)
Sun, 7 Sep 97 09:39:39 -0700

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 =
> full-time doing the same thing. ($80 an hour as a consultant =
> 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 =
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. =20

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 =

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.