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How many dollars an hour are you worth?As a newbie to consulting it was common to try and find
out what your billing rates were, how you compare to your comrades, and the
most important question: Can one’s salary be derived or extrapolated from one’s billing rate? Yes, there were other questions such as: Am I worth what I’m being charged out at? Shouldn’t I be charged out at more given what I know more? And … It isn’t just consultants that wonder, but also the clients. So what is the formula? Well here is one formula. A public company has market and shareholder provisions to satisfy revenue and margin requirements. As example, an increase in revenue of 5%, to $10 billion, with margins at 10%. From here everything cascades down to each division, business unit and geography (or whatever logical breakdown that may exist that year!) Now the revenue amount is the easiest as it is merely a breakdown of dollars into equitable parts, as example, each of 10 divisions need to equally make $1billion. But the margins are another story. Margins are based on costs. At each layer, there exists overhead that must be taken into account, Sales, General and Administrative to mention the obvious. These costs inevitably contain in them some buffers for the mis-calculations or misfortunes of the layers below and above. In most of the large public acronym consulting firms, the lowest level business unit margins are at a minimum of 30% and can go as high as 50% or more. So for every hour you are paying for not only the person’s time but a good chunk of change for office rentals, art work, furniture, secretaries, coffee rooms and the like for people in an entirely different city, whom you will never meet nor that add any value to you or your client. Contributed to Boroumand by A.R.., San Rafael, California, 2004
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