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People don’t like to talk about how much they make. Fair enough, I’m not going to be a trend breaker. On the other hand, engineers new to contracting often have questions about what they should charge. It really all depends. But I can give a slightly more useful answer than that.
You could take the salary you currently make, divide by 40 hours/week (or however many you work), then divide that by 52 weeks/year. This is what companies want to pay you and what some companies expect you to take. Unless you are hurting for work this is a really, really bad deal.
See, you don’t work 52 weeks a year in a full time job, with 10 paid holidays, 5 days off sick and 10 days off for vacation, you’d only work 47 weeks a year. A full time job pays part of your social security which you will now pay as self employment tax, 13.3% for 2012. If you’d found you were making $1/hour in the initial calculation ($2080/year), you probably find you are closer to $1.25.
And a full time job has perks, health care is the big one that can be expensive to manage as a solo contractor. But don’t forget the dental and vision coverage, retirement savings programs, lunches, stock options, and assorted other benefits. Even if they aren’t contributing to your 401k, they may have the benefit in place so you don’t have to deal with it yourself. It can be a hassle.
Oh, and as a contractor, you are supposed to provide (and maintain) your own gear. This can be good (tax deductible gadgets!) but can get expensive. And billing hours and dealing with clients who haven’t paid you is part of being a contractor so you need a little buffer in your month for that.
You could keep adding things up but for a back of the envelope calculation, I go about it all differently.
How much would you want to make in a full time salary? Use salary.com or whatever is good for your industry to figure out a range for what you should make. If that research shows you should make $1,000 per year, then you should be charging $1/hour. Where the divide by weeks and hours method gave you a lower bound, this one usually gives a higher bound.
From this higher bound, I often give discounts (and occasionally adders) based on how much I like the product, how much I’ll learn about technology I’m interested, if they’ll be engaging a little time (more expensive) or lots of time over months (less expensive). If I know I like the people, I’ll charge less. If the client tends to need high-priority emergency time, I’ll charge them more (because it is harder to fit in other projects without good planning). And if the client wants short term loans from me, they get charged more (about 5% per 15 days after the initial 30, I do not appreciate net-90).
So do I charge different clients, different rates? Yes. And usually if multiple clients want things at the same time, I work on whichever one is paying the most (with exceptions whenever I’ve promised a completion date, promises before cash). And I’m upfront with my clients that they aren’t only ones I’m working for so they understand this.
I don’t usually carry more than two clients, heck I don’t always carry more than one since I like to work on my own projects but I try to treat my project time like client time (I even clock in and out of my own lab books sometimes).
It is easy to think about every hour of your day being billable (e.g., “I should have pizza delivered instead of spending an hour making dinner”). That can be dangerous to your mental health. Sleeping is just money being thrown away.
Finally, a bonus suggestion for new contractors: figure out what you can live on and make goals for yourself. Put upper bounds on your goals as well as lower. Getting burnt out or physically hurt (or not hired because you aren’t doing good work because you haven’t slept in six months) is more expensive than reasonable goals.
As a consultant, I tend to bill 30 hours a week when I’m working full-time. Billing 35 hours in a week is an indication that I’m pushing it and feeling time pressure. More that that isn’t sustainable. But a client recently asked why I wasn’t working more when a project was falling behind.
The behind-ness wasn’t something more hours from me could fix, it was the dependencies that were failing. But there is something sincerely broken about the question.
Well, I get dumb when I’m tired. The more exhausted I am, the worse my code is. That isn’t true for the first week of too many hours, sometimes there is the lovely zone of intense concentration. But after that, well, I can write code but it won’t be good code. I much prefer to write good code. I just makes me happier.
I tried to explain to the client that they get things they don’t bill for, that they don’t see, that would be part of my “full time” if I worked for them. But it was on the phone and spur of the moment; I didn’t do a great job of it so, in good blog tradition, these are the things I should have said.
- The 97 times a day I check my email when I’m not billing (e.g., shooting off a quick response at 7pm so the folks in Asia aren’t halted by a minor issue).
- Conferences I attend and the reading I do to keep myself current in my field.
- The gadgetry I buy (or, ahem, acquire) to evaluate new technology. These give me better understanding of users, new user interface design options, processor options, and sensor technology.
- Chatting with coworkers around the water cooler (my watercooler is walking around the block with dogs and husband, clients only get charged for that if we spend the walk talking about problems that we need to work out, which is to say, occasionally).
- Life chores such as those I often hear when in the office (e.g., two weeks behind deadline and now is when you conduct an intensive Craigslist search for a car?).
- Not to work: 10 holidays, 2 weeks of vacation, 1 week of sick time = 25 paid days off. So if there are 52 weeks per year and 5 work days/week, that is almost one work day in ten that the company pays a full time worker not to work.
- Surf the internet because I’m tired, bored, or sick.
- Maintain my computer. If I drop or lose it, it is my problem to rebuild it. This includes my phone, assorted tools, email service and domain, and, of course, my laptop.
- Eat cake because it is someone’s birthday. This is kind of sad for me. I miss the days that I got paid to eat cake, even crummy grocery story birthday cake.
So, there are a lot of things that are part of a job that aren’t part of my billing. I’m sure I missed some. 30hours really is a full week. Actually, I’d rather work 25, feel like a bit of a slacker, and have enough mental energy to work on my own projects.
Sadly, I don’t think these particular clients are savvy enough to understand that a well-rested and engaged engineer is more effective than an exhausted, burnt-out one.