Contract engineering firms: What is a fair price of business. 6

[EngineerDave]

I am not sure if there are alot of contract engineering firms out there nowadays. By that I mean firms that hire engineers and then supply them to a company that might need someone for a few years, but aren't sure if they are in a position to hire fulltime direct.

In the 90's I worked for such a company, the pay was low, the benefits not so great, the envy to become a "real" employee of the company I worked at was pretty big. There were several of us who were working at this big company and as time went by various people would get hired on by the client company. It was a natural progression.

I finally got hired on as well, by much the same method as one of my colleagues who basically lined up another job and the company decided rather than let him go, they hired him on direct.

Now in a totally different industry, I work as a consultant. It is different in that I don't work at any of them full time, but I do work 5 days a week. Two days at one, two at another, one at another.

There are problems with my company now, we are losing work because we are too expensive relative to the competition. Already one of my clients contract is over and replaced with another. I will have to drive much further to the new client, which bothers me as the company doesn't pay for gas etc.

Yesterday I learned that another one of my clients is unhappy with the contract pricing. They like my work and want to hire me directly, or contract with me. I signed a noncompete clause, and can't really live on just two days a week work anyways. If I were to do this, I'd need more work as well. Either way though I am definitely tired of my companies pricing on contracts as it jeapordizes my work.

I don't know what a fair markup on employee costs is or should be, but renting myself and others out for the prices they do, doesn't seem to be working well.

Let's say X is my salary (Not including benefits), They seem to be billing out about 2X. The worst case scenario with high priced benefits would mean that they company is billing out 1.5 X I am not sure what is reasonable for contract engineering firms.

 

[MintJulep]

The things in X include:

Your insurance
Social Security and unemployment taxes paid by your employer.
Possibly a contribution to a 401k.
Your employer's profit.

Which are you willing to give up?

 

[TheTick]

In my field, typical billing multiplier is about 1.75x hourly wage.

I explored freelance work. One prospective client advised me that my rates were too low and potentially damaging to my credibility!

 

[EngineerDave]

Thanks for the replies, the insurance and social security and unemployment taxes are wildcards. I might also have to carry some liability insurance related to the nature of my work. They dont contribute to the 401k.

The only reason I'm considering this at the moment is that my company is losing work due to the rates they charge. They arent staying competitive. Although some of our competitors are using much less experienced people and giving them oversight.

 

[lacajun]

One prospective client advised me that my rates were too low and potentially damaging to my credibility!

Interestingly, people have choked on my rates and declined to work with me. My rates are nowhere near some others and I know what they bill. My qualifications are equal to theirs and sometimes a little bit better. Wonder what's up?

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[EngineerDave]

Lacajun,

Could it be that there is alot of competition out there, and the people choose someone they are familiar with already? In my case, I am not from the area I work in originally, and while I"ve been making contacts, one of my fears is that I am just not well connected enough to win some of the work out there. Sometimes it takes years to build up a name in an area. Never underestimate the possiblity of cronyism as well.

 

[lacajun]

EngineerDave, there is competition. I've teamed up with other engineering firms who lack my experience. Same thing happens though. I'm making contacts they're just not interested. I can't even donate my skills to charitable organizations. Makes me wonder if my days as a useful citizen are over. Never underestimate cronyism or nepotism. I've lowered my rates considerably and still don't get work. At that rate, I should return to a job because it's a lot less work and much better benefits.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[EngineerDave]

Lacajun, I'd be interested how long you've been consulting. Was it something you did after leaving a corporate job?

There is still alot of security in being with a big company in my case, but the likelihood of my need to move geographically for them increases greatly with each contract we lose. Already I'm going to have a very nasty commute starting next month.

 

[lacajun]

I have been at it about 15 months. I've been doing sales for manufacturers, too. Not much going on anywhere for me and I've contacted a lot of people.

After 18 years in industry, PPG and Marathon Petroleum, I went to work for Micro Motion in marketing. They came after me or that never would have been on my radar. Nineteen months later, I was laid off, when the economy crashed. They were afraid of lawsuits from around the world. I was last in thus first out in 2009.

I filed paper on my company early 2010 as the job market was dead. Shortly after hanging my shingle, a firm approached about a job. I got it.

Several months later, I resigned over ethical issues. That was hard after 54 weeks being out of work. A month later, I had another job. Several months later, I resigned over ethical issues. I decided if that's what I was going to face, going solo might be a better alternative.

It's been a rough go. It seems like it would work but it hasn't thus far. Eventually I'll be broke.

In the meantime, I feel like I am rotting as an engineer. I've made a series of poor decisions to get here. I hope your decision making process is much better than mine.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[EngineerDave]

I wish I could help you lacajun. It sounds like you've had a rough go of it lately. I've had a few ups and downs, certainly wishing you the best. Maybe you can take another job at a company and work with your consulting group on the side. That is always tough to do but I hate to see anyone give up their dreams of owning a company.

 

[EngineerDave]

Lacajun, have you considered taking your work international? I have a friend that is gaining alot of customers in Brazil and elsewhere. I am sure it is tough to navigate the system, but it seems like more and more that is the way to go. Diversifying the customer base.

 

[zdas04]

Pam,
I can't believe the amount of work I've gotten through people following the link to my web page in my eng-tips.com signature. Up until 2008-2009 almost all of my work came to me from contacts I had before I retired. That work is currently zero. I'm working nearly full time (265 billable hours last month) for people who found me through my eng-tips.com signature.

I Googled your company and went to your web page. Looks like it was designed by a professional web designer who wouldn't know a •1, 2 Dichloroethylene if he drank it (it is a liquid right, it is listed as an "industry served" on your web page?). I didn't see anything on the page that would cause me to ever go back. I've had people come back to mine to download content a dozen times before they finally called and offered me work. There isn't a dozen bits of value on your page.

On your "Products" page it looks like you are rep-ing a list of product lines? If I click on the mfg logos it takes me to their web page in a new window (i.e., a user can't hit the back button to get back to you) and all the mfg web pages have their own "contact us" that never provides a reference to Qullian Engineering, LLC.

Also, your "contact us" form is standard web design, but I find that just throwing people into Outlook with my e-mail address gets the contact into their own sent-items folder and they can find me next time they think of Facilities Engineering.

It looks like you wasted a bunch of money on a pretty, but quite worthless web site. My web site has been a business asset because of CONTENT, not SEO. Engineering Toolbox (not one of my favorite sites) has got to be making more money from advertising than they do from consulting because they have useful stuff, you get to that point through CONTENT. Your site is kind of a business card without an e-mail address and we all get way too many of those. It is very common for people to look at my "Samples" page and say "If he is giving this away for free, what might I get if I pay him" and they call (phone number is on 4 different pages) or e-mail (that address is prominent on a bunch of pages as well). Those calls and e-mails come from all over the world, and most of them don't come to anything, but enough do that I'm having my best year ever.

This feels like I've hijacked EngineerDave's thread, but everything I'm saying to lacajan needs to factored into EngineerDave's thinking as well. I raised my rates at the beginning of 2011 and my work load increased. When I started I set my rates 20% higher than I'd ever paid when I was hiring contract Engineers. I found in 2010 that 8 year guys were demanding more than I was getting paid and I was getting lost in the crowd--never a good thing so I raised my rates. The one rule that I've never violated is that I do not ever negotiate hourly rates. I have a rate sheet that includes a discount for pre-pay (i.e., give me $125k up front without any of the "aging invoices" crap that is common in Oil & Gas then I'll give you 10% off the hourly rate, they get a discount and I don't have to worry about getting paid, a couple of companies have gone for it). Whenever I have to do a hard dollar bid, I carefully calculate the number of hours that I think the job will take, double it, multiply the new number times my hourly rate, then add 30% contingency to the inflated number. I have nearly zero overhead and the worker is the owner so no supervision costs--I've never failed to get a job I bid on and usually find that my outrageous hourly rate doubled and inflated is 10-25% of the other bids. Adding three layers of management and an administrative staff that bills to projects is EXPENSIVE.

I'm working on a job right now through a talent broker. Not a bad way to go. I get paid my full rate and within 7 days of submitting my hours and the broker tacks on a nominal amount (I think 8% but I'm not certain and its none of my business in any case) for their overhead and profit and they wait the 60-90 days to get paid. The broker does not find you work, they just facilitate payment. Both of the brokers I've worked through specialize in Oil & Gas. I'm not sure if these guys are common in other industries, but it is way better than working for one of the big Engineering firms that bill you out at an integer multiplier.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[lacajun]

EngineerDave, thanks but it will all work out somehow. I hope you get your work lined out the way you would like. All the best with your commute.

David, I appreciate your feedback. It's most helpful. I think some gal named Pam Quillin did the website. If I can get her to understand things better, she'll do what I want. A friend, who works for a large company, gave me guidance. She does their website so she knows what she's doing. The problem, as you so aptly highlighted, is that I lack content. You, on the other hand, have content and a nice website design that works for you.

Back to the thread...

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[EngineerDave]

I dont mind the thread being hijacked. I hope lacajun doesn't take zdas04 criticiscm to harshly, I think it was very constructive. I too looked at your website and I think it is nice but just needs more content. It would be interesting to see you write an article about your experiences, and also have some client feedback on there as well if you could.

In my case, I am working for a consulting company with the overhead that zdas04 mentions is difficult. That's why the smaller companies can offer a better deal, they aren't paying for support staff, etc.

I want businesses to succeed, I don't know about you but I actually feel very depressed when I see a store close. There has to be a way to get talented people like Pamela networked to people she can help out.

 

[lacajun]

EngineerDave, David's criticism was taken as constructive. The website doesn't have more content because I'm trying to be honest. People have said to put every project I've done on it. To me, that's dishonest. I could do that but that's not reflective of what my company has done. It would only reflect what I've done with PPG and Marathon Petroleum and their resources.

I've had a lot of bad experiences in the workplace as an engineer. My projects have been successful but interpersonal conflicts have been an issue. Some men have not cottoned to my personality. Oddly enough, I've tried to strip a lot of my personality as well as most emotion out. That was an issue for me at Micro Motion doing industry marketing. They loved my "natural style" (whatever that is) but it couldn't come through because I was so ingrained with stripping out every bit of emotion and personality to deal strictly with facts on each project. As soon as I began a presentation, I became very unemotional, stiff, and robotic and conveyed the facts. Facts sell projects. Emotions and personality kill projects.

One complaint about my company is that it's "just you." A lot of companies think they need partners with more resources, greater depth, etc. and that have demonstrated staying power. I can't argue with that. However, when you've been partnering with companies that have not solved your problems, it might be time for a change.

I've been accused of being a front for a male owned company that is "really" going to be doing the work. I hate to put this in print but it shows their ignorance of how things work. I am no guru on the topic of business and how it works but I'm learning. It's interesting and nonlinear in some cases.

I've gotten into some companies once. They have problems. I know I can help them. They must think otherwise. A lot of people think they've seen and done it all. In their minds, they don't need help to solve their problems. That may be true. However, my former colleagues saw things I didn't. I saw things they didn't with all their years of experience. I have no explanation for that phenomena other than God's got a plan, which includes blind squirrels. ;-)

It's sad to me, too, when companies shutter their doors. Commerce is a good thing. Profit is a good thing. Competition is a good thing. It doesn't pay to shrink from any of them. So, if a business cannot compete, it's better that they fold or determine a way to compete. That should be applied to my company, too.

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[zdas04]

When I started my business most of my friends said it wouldn't last a year because I was SO opinionated. I have opinions, and some are quite bizarre. Very early on I figured out that every company in the world has a list of things that they do as well as anyone. They have a list of things that they do as well as management will allow them to do them. And they have a list of things they need help with. I've been able to point out the items on the first list (no one likes to hear nothing but sad news), ignore the second list altogether, and focus on the third list. This has worked really well for nine years next month.

It is really easy to say "I don't have any content" or "its too hard". If that is the end of the discussion then yeah, you'll be out of business as soon as your savings runs out. Some ideas of how to get content:
[ul]
[li]Start a blog. You have a lot to say about a lot of things, pick a subject a week and write a paper in blog format and post it on your web site. I did that and didn't feel the need to keep it up and the two posts are (1) lame and (2) kinda pointless, but I get comments on both entries about once a week. You don't seem terribly busy, you could do a lot better than I did[/li]
[li]Put in useful links. Things like eng-tips.com are useful and not as many people know about it as they should. If you can stomach the adds, connect to Engineering Toolbox. Stuff like that can be useful[/li]
[li]Finally, get active. The international School of Hydrocarbon Measurement is always looking for papers. The Artificial Lift Research Development Council (ALRDC) contacts me once a week looking for papers (they do an annual Gas Well Deliquification conference in Denver in February and I got a solicitation for papers yesterday, there are hundreds of instrumentation ideas that would be welcomed there). SPE has a couple of conferences a day that need presenters. I don't know about ASEE, but I'd be surprised if they aren't begging for papers. Journals are always looking for good content. I've found that "As I said in my Oil & Gas Journal Article ..." or "in the chapter I wrote for Dr. ..." gets people's attention[/li]
[/ul]

When the economy tanked in 2008, the work that I'd been doing for 5 years dried up so I re-invented my business. I developed a gadget that looked to be patentable so I applied and I'm getting royalties on it even in a Patent Pending status. I developed a course and started teaching it. I had about 6 months of very slow time while I created these new business lines, but both have paid dividends (the gadget has returned the billable hours spent on it 3 times over, and the class has almost doubled the return that I had to "forego" while developing it).

My grandpa told me from a very early age that I am in complete control of my attitude. That if I want to be angry or mopey or otherwise unpleasant I would be. If I wanted to be happy I would be. That was the best advice I ever got. When things out of my control (like the global economic crises) threatened my livelihood, I decided not to be a victim and tweak my business model. It worked for me and it can work for you. You just have to stop feeling like a victim (of the good old boy's network, of bad advice you've gotten, or of unpleasant relationships) and find the niche that is made for you.

I don't know you, but I get the feeling that you are at a "lead, follow, or get the hell out of the way" point in your life, and you need to decide which it is to be and then get on with it.

David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.

 

[McLJ]

EngineerDave,

My former company billed employees out at 2.2 x their hourly wage.

As a self employed structural engineer, I currently charge $80/hr, which is less than most of my competitors who are in the $90/hr range. I had been planning to raise my rates in 2009, but held off because of the economy.

My former company hired me back on a short term contract when they needed some extra help and I ended up negotiating a much lower rate ($50/hr) because I was going to get paid for doing work that I normally don't get to bill for and I factored that in.

Hope that helped.



LJ

 

[lacajun]

David, I'm glad your business has been successful for 9 years. That's an accomplishment to be proud of. Thank you for sharing what works for you and has worked for you. I appreciate your concern, observations, and efforts by posting your ideas.

Indeed, we're virtually strangers so hopefully one day we can share life experiences over a libation. In the interim, I assure you I am no pantywaist. Lots of work, risky work, and hard work haven't deterred me. After all, not everyone will do it and it has to be done. I am not a victim. I've overcome way too many obstacles in life to think of myself as a victim. I am involved. I am not idle.

Most of my work has been with other companies and they have all the files. They do not want their business plastered all over my website.

On topic: Perhaps this report, although it's from 2004, will help define why I think we shouldn't charge $50-60/hr. A/C techs and plumbers charge more than that.

IEEE Consultant Fee Report

Pamela K. Quillin, P.E.
Quillin Engineering, LLC

 

[ScottyUK]

Pamela,

I noticed you had made the following observation: "Facts sell projects. Emotions and personality kill projects."

I must say I disagree with that, unless I've taken it completely out of context in which case I apologise.

Emotion and personality are the things that make projects real, give them credibility, make them achievable, give them form and direction, and drive them to completion. Anyone who is going to make a project work, or more likely get a team to work as a unit in order to make a project work, absolutely needs emotion and personality. Look at the difference between, say, John Major and JFK. One full of personality and emotion, and the other characterised as "the grey man" by the popular press. Which would you rather have running your project?

Of course the personality has to be right for the project and the emotions have to be positive ones. There is no universal 'right' personality for a project or for an organisation, because they are all different. The wrong personality for a project can indeed kill it, but not in the way that a personality-free PM can kill it.

A PM who doesn't get a kick out of his team's successes and who doesn't get frustrated by its failures won't ever make a project leader. I take my team's failures personally when they happen, and I know I allow my frustration to show when we fall short. I do try to adopt a positive "How the heck did we screw this up? How do we make sure we don't screw this up again?" attitude rather than taking the negative "You two are fired; the rest of you either improve or you're next." attitude which I have seen from time to time. The latter doesn't really work for me, and wouldn't work in my project or in my organisation. In others maybe it does. Equally I make sure I publicly praise the guys who have done something well, and I thoroughly enjoy taking the lads out for a beer to celebrate a big milestone. Emotion and personality at work in both the good times and the bad ones.

In short I think taking personality and emotion out of your work can't be a good thing. You seem generally to be a positive person in your posts on Eng-Tips, and allowing some of that positivity to show can only help.

 

[zdas04]

Scotty,
Well said, and I have a feeling that you get a lot of loyalty from your people. The attitude you described is the only one that I've seen always work. The "stick" approach rarely works and never works for long (but it works often enough for too many of those jerks to have gotten into management).

Pam,
I am very sorry if I overstepped. You are right we don't know each other. I can only react to your words. I brought up the discussion of attitude and not being a victim because of statements like:

I've had a lot of bad experiences in the workplace as an engineer. My projects have been successful but interpersonal conflicts have been an issue

Some men have not cottoned to my personality

I've been accused of being a front ...

EngineerDave, there is competition. I've teamed up with other engineering firms who lack my experience. Same thing happens though. I'm making contacts they're just not interested. I can't even donate my skills to charitable organizations. Makes me wonder if my days as a useful citizen are over. Never underestimate cronyism or nepotism. I've lowered my rates considerably and still don't get work. At that rate, I should return to a job because it's a lot less work and much better benefits.

Interestingly, people have choked on my rates and declined to work with me. My rates are nowhere near some others and I know what they bill. My qualifications are equal to theirs and sometimes a little bit better. Wonder what's up?

I took these statements as giving yourself permission to fail. Sorry if I overstepped.



David Simpson, PE
MuleShoe Engineering

"Belief" is the acceptance of an hypotheses in the absence of data.
"Prejudice" is having an opinion not supported by the preponderance of the data.
"Knowledge" is only found through the accumulation and analysis of data.