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Hourly Rate Calculator
I woke up this morning with an idea: Why not cobble together an hourly rate calculator? One to go a long with that "What To Charge" article?

So here it is: If you would ever like someone else to do the math for you, then just use this consultant's CalcYouLater.

Enjoy!

R.A. Nagy

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What To Charge?
After I wrote this article, I felt inspired to cobble together a utility to do these calculations for us. So after reading the following, you can click here to try it out.

Note that if you use the tool, then a donation of \$1 or so would be a nice way to say 'thanks'.

# "What Is Your Rate?"

If you are entering the contract employment market for the first time, the most difficult thing to do is to set an hourly price for your services. Indeed, while we all know what it takes to keep our houses up and running when we work as full-timers, the farther we have to travel from home, the more important it is to understand how to set that all-important "all inclusive rate."

## Step 1: Know Thyself

While it might sound more religious than real, the first thing to understand is how well you will fit into the situation at-hand. Indeed, while many inexperienced head-hunters ever press us for that bottom-line rate beforehand, unless we know how long we are likely to be working on a project, the less sense it makes to commit ourselves. If you do not feel comfortable with the work you are going to be paid to do, then even a rate of \$1,000 per hour is pretty much meaningless. So even after you have won the work, listen to that "inner voice." It knows that the better our skills have been adequately represented, the longer we will likely be earing those wages.

## Step 2: Know Thy Gig

I cannot tell you how odd it feels - when the rate, opportunity, ability, and client-interest is all there - to turn down work. Indeed, from bailing out companies who have paid peanuts and gotten monkeys, to clients who are merely looking for a scapegoat, from time to time we might also need to adjust our rate UP so as to steer far clear of an evil opportunity. -Certainly one that might be taking our efforts away from landing a more enjoyable and therefore typically a more lucrative opportunity.

In short, burn-out gigs require time-off to recoup your sanity. Make sure someone is paying you accordingly!

## Step 3: Know Thine Market

Like it or not, no mater if we are tenured full time employees, new graduates, or interns, the Internet is working overtime to turn us all into commodities. But no matter if they call us fish eggs or caviar, we need to appreciate that some skills are are easier to find a profitable home for, than others.

While at the moment the tabloids "love to hate" the executive who describes their earnings in terms of millions rather than tens-of-thousands, know too that over the course of a 45 year employable lifetime, each and all of our households will earn inflation-adjusted millions. This means that the same million dollar executive often needs to wait years if not decades for his or her type of opportunity to come around again. Such is not the case for a Java Programmer.

Indeed, when I was working for the CTG Telecommunications Product Group, over two decades ago we documented that our top producers were not the group of PHD's who we billed out at \$350 an hour, but surprisingly, it was the same number of those \$55 / hour consultants that never changed jobs.

## Step 4: Know That Habitat!

There is nothing more sad to see a consultant in an industrialized, advanced country living like he or she is in Burma. By way of an example, I remember how, when I was consulting for IBM in Texas, that a coder was dismissed when the company found him sleeping on the grounds. (A mere week earlier they had banned him from sleeping in his office.) Ironically, not only was IBM paying for that person's expenses, but the company to whom they were paying them was not even passing the reimbursement on to their employee.

Digression: It remains a sad fact in America that while the middle-men are making thousands per-head per-week, many of their subcontract employees are loosing their life savings. IMO, Congress really needs to find a way to stop this type of wholesale exploitation of the American Worker. Even now, it is outrageous!

## All Together Now!

In general, I have discovered that the more serious you are about staying in the genuine consulting game (yea, I know that your head hunter could not care less... but still!), the more money you need to have saved-up. In short, the more you need to consult, the more cash you should to be saving.

So what is the best way to satisfy that 20-something head-hunter who is pushing you for that "best rate"? For openerers, begin by using what you know about your habitat, market, gig, and yourself to calculate your expected utilization. After having done this myself over the decades, I can tell you that the less you know about each of the above Steps, the more likely you are to get that "rate thing" disastrously and embarrassingly w-r-o-n-g!

# The Magic Calculator

So there are 52 * 40 working hours in a year. That means that (vacation included), any annual salary at-hand is easily divided by 2. This means that if your base salary is 80,000.oo per year, then at first blush, the initial hourly figure we are looking at is \$40 an hour. -A nice start but - as every manager knows - there are far, far more costs to consider: From medical insurance to retirement, disability, and workers-compensation, add-on expenses can run from around \$1,000 to well over \$1,500.oo per month. -A fact that, even if you do not have a family, should add another \$12,000 to 15,000 or so to the top of your annual salary. (Indeed, if you are newly self-employed in the US of A, don't forget that 15% flat tax - not just on your initial "social security wages", but on your income for the entire year. Ooooof!)

Sound fair?

## Adding-up Steps 1-4

For illustrative purpose, suppose that you feel that your match is "iffy." Or suppose farther still that you feel that you will need time to recover from a churn-and burn-out "save my company" gig. What then? --Then you might well conclude that you will only be 'billable' for about 6 months this year. For those type of realizations, rather than 2080 hours, you may well be looking at a mere 1000 billable hours. Therefore, rather than a base of \$40 / hour, in order to keep going you now need \$80.

Make sense? (Yes, I know. -It is scary how those numbers can add up!)

## Reality Check

Finally there are those e-x-p-e-n-s-e-s: In fact, what most head-hunters never tell you is that while \$15 / hour works out well if you live here in Florida, that the same hourly amount will either put you out-on-the street in NYC, or in harms-way in LA. So while - before the "Indian Invasion" - companies more often than not were prone to pick up your reasonable COL (Cost Of Living) expenses for living in their fair city, much of that changed as offshore agencies began piling 5 and 6 people into two person apartments. In very deed, unless you are taking 3 or 4 OTHER workers with you, then check out what the IRS recommends as a reasonable allowance for each U.S. city. Divide that day-rate by 8, and plop it on top of your hourly rate.

## The Bottom Line

So here we are back at that hypothetical annual salary of 80K. After adding a mere \$10K to it (who needs to retire?), it is now looking a lot more like 90K. After factoring in a utilization of say 75% (hey, we are good - they are bound to renew that 3 month contract a few times!), the hours fall to about 1,500 for the year (rounded down: 36 hours sick time is reasonable - they want us to work up North!) -Will you need to deduct another \$1k a month for social security taxes?

Your rate in now \$60 / hour.

Lastly, lets not forget those expenses! According to our friendly-neighborhood IRS agents (Publication 1542 2008 example), the per diem for the location we are going to stay (Manhattan) turns out to be \$280 per day. Dividing that by an 8-hour day equals \$35 per hour.

You are now looking at \$95 per hour. (Even in Florida, it would still be \$75!)

Then there is the airfare: While not important if you do not have to travel back-home to see you wife and kids, most feel that two weekends home per month is not too much to ask. Since today's headhunters are likely to remove and stare at their Plantronics headset in disbelief if you ask him or her to help you see you family once in awhile, you might also want to toss in another 3 or 4 dollars an hour. --Certainly if you want to come home to a hearth as eager to greet you as when you left it.

So lets just round it up to \$100 / hour.

# Conclusion

If you are amazed at how, given our location, utilization, and expenses, your rate went from \$40 - \$100 an hour, it is nothing to how your body-shop will feel when they learn that they have to give up their 50 - 100% markup. --But be assured that, in their defense, that these calculations also work in reverse: Specifically, if someone wants to pay you \$50 an hour to go work in NYC that - unless you have a friend you can live with (or 4 ;) - if you accept the job, then you have just proven that P.T Barnum was right.

Good luck!

R.A. Nagy

(Here is the link to the PHP utility that will do these calculations for us.)

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Who-Do -v- Who-Design?

# Phobos

The software world is far too often torn between the 'fear of design' versus the 'fear of implementation' camps. Unfortunately, in tough times, quality - or deliberate, maintainable architecture and design - far too often takes a back-seat to the 'just do it' camp. But if there is always time to do it over, why is there no time to do it right?

## Wonder

We had similar issues at Borland. The classic misconception over 'whodo' -v- 'whodesign' is what eventually split the company into the 'architecture' products, and the 'cool tools' company. While the company was struggling, they called it "role based" software development.

UML had a similar split for awhile... but notice today the trend toward creating tools that generate code from models. Very nice... and very inevitable.

## Rifts

Today it seems that the classic rift between those who 'see' (or design), and those who 'do' (implement) is closing up pretty quickly: Indeed, and IMO, the best architectures come from those who know no such limitations. -Why should one who designs a car not appreciate how it is driven, as well as built? -Should software things not be designed so as to be a joy to build / maintain, as well? Even the designs of the best architects have been hacked to bits by code monkeys. -Thus many software architects have found that software development can be a massively frustrating spectator sport. From the other direction (bottom up), designing for full life cycle support is not something that we should be trusting things like an ESB to do for us. Caveat CEO.

## Cognos

The funny thing about those who fail to realize that architecture is just part of a good, personal, hands-on skill set (or vice versa) is that - when times get tough - those who can do more than one thing have far fewer problems in the market. Indeed, just this very day I witnessed how a great friend of mine, who is an extremely competent VP and a Director, is now very happy at the prospect of doing 9-5 software development work once again. The pay is less, but the life is more.

## Comp

Indeed, while there will always be those who can just barely hold their own by cutting-and-pasting someone else's code into our designs, there will be those who have to live with the inevitable architectural mess. Thus witness the need for a "hands-on" Architect who rises from below, or descends from above, that can jump in and make it all work / keep on working. An understandably priceless skill set, it is a niche few can fill.

## Directions

So over time, either from the top-down or the bottom-up, it often pays to eliminate the artificial boundaries that we place between architecture, design, management, and implementation... certainly more so in those small and mid-size companies. Those who treat software development as a mindless commodity usually get the brining morass of unsupportable code they deserve. Few in America understand this " but it is why so many American companies are a burning madhouses of broken, leaking, threadbare architecture. Again, SOA can help, but it is just as prone to misuse on the large scale as any other technology.

## Mastery

So a master tradesman who can both talk the talk, as well as walk the walk, is more priceless in our industry than ever before. While there seems to be fewer and fewer of us that who can span the management / architect / developer gap, those who have mastered that trick all seem to have one thing in common: Be the need instilled in them be put there by nurture or nature, we tend to truly love what we do! After all, isn't that larger part of being a 'professional' mean that we 'live', or 'profess', what we say wedo?

BlogBlock[Techniques-General-Technique]

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