As a management consultant, I was billed out at about $875/hr. My salary was about $50/hr. That's a ratio of about 18:1. This felt fair to me. The billing had to cover a lot more than my salary.
Management consulting is a very different industry than (most) coding for hire.
Can you provide details on what categories the billing would also cover? I'd imagine it would be flights, hotel rooms, equipment, transportation, meals, remote offices, etc.
Here's what that billing had to cover:
* My normal work hours [the thing we billed for]
* My overtime hours
* My annual bonus
* My benefits & retirement savings & overhead & employer-side taxes
* My time spent on business development & sales (most of which don't pan out)
* My time spent in training & development (probably ~4 weeks in the first year)
* The time of managers spent training & developing me
* My support staff (industry analysts, Powerpoint designers, internal experts)
* Multi-million-dollar IT investments to build tools and databases to support me in my work
* A couple first-class flights a week
* A few nights a week at expensive hotels
* Lyfts & Ubers everywhere
* All meals expensed
* The firm's partners working the case
* New employees for whom we don't bill
* Fees for market reports
* Fees for expert interviews with industry executives
* Office overhead (rent, power, insurance, etc.)
* Office support staff (HR, finance, janitors, etc.)
* Profits for the firm's equity holders
(Now a few of these expenses were billed separately I believe, but it shows the wide breadth of costs that a firm has to cover.)
Lastly, none of this opportunity would have existed without the firm, the network, the brand, and the partners. It's amazing to think that all I had to do was show up and work, and in exchange, I would get paid a high salary, get experience working with senior executives, get a prestigious brand on my resume, and accelerate my career relative to most career tracks. I don't regret the job, nor do I think it's surprising that there are crowds knocking on the door trying to get in.
Looking at other industries, I wouldn't be surprised if a cashier at a grocery store made less than 5% of what they put in the register each day. And I wouldn't be surprised if a oil drilling engineer got paid 5% of oil that they extracted each day. Even if we're the ones touching the revenue, we're still a small part of what it takes to run a big business.
The company has the expectations for you to perform as an $800+/hr consultant, and your return for that effort is $50/hr?
Also, there are overheads of running a company (assuming OP isn't the only employee).
If they can't do that, whatever the reason they can't is the answer to your question.
I can't speak to the exact numbers but that's basically how the math works. (And the reason you hopefully perform as an $800/hr consultant is that there is theoretically methodology and experience being provided by the firm behind you.)
But if the employee is getting less than 1/4, they have a good reason to look for employment elsewhere. At least in software dev.
At 1/18th, the employee should probably be interviewing with competitors as often as they are billing hours. If that does not work out, it should be possible to go independent and undercut your former employer and their colluding competitors by charging only 9 times your former salary, giving yourself 1/3 of that, and investing the rest into growing the new business, such as by poaching former colleagues and business development personnel, and offering them 1/4 to 1/3 of what they bring in.
It seems very dishonest to me to bill at near-partner rate for junior associate work. If the latter aren't that useful, making the client pay a rate as though they were doing vastly more or better work than they really are getting done is very unethical.
I personally don't think it would be fair if 1/3 of a supermarket's revenues went to the cashiers. Just because you're bringing the revenue in for a business doesn't mean your labor is irreplaceable.
In a grocery store, the direct-value employees are the procurement employees--the people who purchase the goods that go on the shelves. If they can negotiate a good wholesale buying price, the store can make a profit on reselling individual units. If they buy at a bad price, the store takes a loss when reselling.
You can measure the direct value that employee provided by adding up the final sale prices from the items in their buy, and subtracting the initial purchase, optionally adjusting one or the other with a TVM calculation. If you bought a ton of pineapples for $X, and they were all sold or discarded by the next month, bringing in a total of $Y, that's $(Y-X) in direct value. It is very reasonable for 1/3 of that number to go to the individual employee responsible.
The cashier might be able to boost $Y by ensuring that no one who would have bought pineapple walks out without one, because the check-out lines are too long, but that effect is not measurable. The produce manager and stockers might boost $Y by arranging the pineapples in an attractive way, and by pricing them to encourage them to sell before they rot, but that effect is not (easily) measurable (without testing and statistical analysis).
The procurers are responsible for $X. Many other employees are responsible for $Y, along with other unpredictable factors, such as whether or not the customers actually want any pineapple this week. Maybe some cooking show featured it in their latest episode, or maybe Dole decided to run a coupon in the latest Sunday newspaper. Maybe some scientific study reached a conclusion about bromelain, and it trickled out past the scientist-journalist barrier. It's hard to say why $Y was that number, but the purchasers can use it to inform their bargaining to get the next $X, a number more predictably under their control.
The oil-driller is not responsible for the price of the oil that was pumped that day. They are responsible for the cost of the holes and pipes between the reservoir and the surface, and the cost of the workplace injury insurance, and the cost of environmental damage. Those numbers can be measured. A great safety record is worth a measurable amount of money. Drill bits and mud have a measurable cost, and using less than the predicted numbers translates to an amount of money. Government fines for spills and groundwater contamination are known quantities. The geologist is the one that finds the oil, and the explorer is the one that proves it's actually there, and the refiner distills and cracks it into usable goods. Dividing up the responsibility for each barrel is hard, but counting the cash that comes in when the barrel goes out is easy.
It's not possession of the cash. It's the responsibility for delivering the value, and the measurability of that value.
An employee that brings in a contracted rate for each billable hour is responsible for delivering exactly that much value to the customer. Other people involved in the business may provide value, such as by increasing the rate beyond what the direct-value employee could otherwise negotiate on their own, or by procuring more customers, to increase the utilization rate of the direct-value employee, or in increasing productivity so that it's possible to deliver that much value per billable hour. But that's not as easily measured. The support employees deliver value to the worker that delivers value to the customer.
And that's why the direct employee doesn't ever get all that they bring in, minus the business expenses to support only them as an employee. That number isn't all them. It might not even be mostly them. But they're the ones closest to the number that can be measured. They're the ones that could most easily shed all the dead weight at the company, and strike out on their own, if they had the moxie, sacrificing some of their billable hours to do their own support and development work, to make sure that there is a contracted rate to bill the hours to.
The 1/4 to 1/3 rule is a concession to the fact that indirect-value employees are still responsible for delivering a lot of value, that indirectly increases the revenues of the company. And that represents a good balance in a medium-sized company. Smaller companies have fewer support employees. Larger companies have more dead weight.
Cashiers and oil-drillers are not relevant, unless they are on contract from another company.
I remind you that we can't all write 15-word posts that state that there may be a problem with the conversation, but without offering any specifics, or any hints on how to fix it.
Should my response have been in reply to the linked post instead of to yours? Should I have written fewer words or more words? Why is the word count relevant? Was your response in support of the linked poster, against, or neutral? Do you believe that your post added enough to the conversation that my reply should have addressed it specifically, rather than the content of the post it referenced? I understand that there is a complaint, but I don't know why.
I could have been more brief, but I didn't have enough of my own time to waste less of yours. Sorry for that.
Bingo.
Also, the scale of impact that mgmt consultant provides is 'usually' greater than developers, at least on per-hour of service rendered basis. Hence, companies are willing to pay more.
1. management reads about idea/tech in mag or internet article
2. gets report from expensive research firm showing its the next big thing
3. hires big named consultation firm to prove its the right direction(which usually is just repackaging the existing employees work)
4. gets board approval
5. big checks fall from the sky
Also, if your hired to do "Analysis" understand what your role is and the real goal. Or a lot of people will get pissed when your report comes back saying how much money could be saved using open source software and the other features aren't really that important for what they're trying to do. People at big orgs don't think like small businesses and/or consumers.
I thought I was doing what they wanted. How was I supposed to know they wanted to justify a big purchase. It wasn't until I saw it happen for a 20M purchase at a much larger company that I realized the game.
18:1 does seem like a pretty high markup, but if you're working at McKinsey/Boston/Bain, you're also being paid in prestige - just like if you're working at Goldman Sachs or Skadden Arps. Because you have had a prestigious job in the past, it's much easier to be in 'the club' for other prestigious jobs in the future. It's also a big part of the carrot of eventually being a Partner/MD where you make $1m + for the last 30 years of your career.
It's hard to fathom, but as a recruiter, there's a massive inequality in the employment experience. Some people are battling to get into entry level roles, whereas others are recruited straight from college into highly paid opportunities that lead onto more of the same.