Engineering Fee vs. Hourly Rate 2

[bumbler]

Hi all,
I'm just curious about what the typical ratio of engineering hourly rate charged to clients vs hourly rate that an employee receives is. My previous employer charged about 4x my hourly rate to clients, and my current employer charges just under 3x my hourly rate. The previous employer had over 100 employees and the current one has under 10. I work as a structural engineer designing almost exclusively buildings. Is this typical? Where does the money go?

 

[geotechguy1]

In Canada I experienced between 2.5 and 3.5, with 2.5 being a small market firm that didn't make much money on engineering but made lots of money on testing services (this was also post-oil crash in Alberta when ~50% of engineers in my discipline lost their jobs so it was a tight market). In NZ where I now work the norm seems to be 4 to 5, however in NZ engineering businesses typically overall utilization for the business is much lower than in Canada and also there is more time off (4 weeks standard vacation + 10 days / unlimited sick leave is the norm). During the boom in Alberta 3 was the norm at big companies but they also expected 90-100% (or higher...) utilisation.

 

[Enhineyero]

During the boom in Alberta 3 was the norm at big companies but they also expected 90-100% (or higher...) utilisation.

I have seen this too, but I'm not in Canada. 90-100% sounds insane (even machines need to re-start and cool off), guessing this contributes greatly to the burnout and discontent in engineering. I would say a more healthy utilisation is around 50-75% (even less if you do business development/admin) - unless you don't take a break or don't socialise, but most just do unpaid overtime to bridge the gap and make timesheets look good to management.

Lots of costs to run a business that people don't even realize that can eat up a ton of $.

I'm actually advocating transparency of staff hourly rates and charge out rates, as it gives staff a better appreciation of it and the business overall. I could only guess that businesses arent sharing this information as they would lose the upper hand in negotiations. Once employees know how much they are making for the company, it gives them an idea if they being paid fairly or unfairly. Obviously, most businesses (but not all) want to keep as money as they can for themselves.

 

[IRstuff]

We have no support staff and pay no office rent because the principal owns the building

If he owns it outright, then he likely pays rent to his holding company, or he pays on the loan, if there is one, and/or depreciation on the building. There's depreciation on everything physical within the building as well, unless they're expensed directly, in which case the multiplier, which is often called the "wrap rate" will fluctuate from year to year. Aerospace wrap rate is often in the 3.5x to 4x range. In aerospace, the wrap rates used to be audited routinely and pretty much always stand up; moreover, it's something that can't get completely out of bed relative to your competitors, as you'd lose bids because your costs are too high.

Note also, any underutilization, i.e., unbillable hours, including training, filling out your timecards, doing your weekly reports, etc., are also included in the wrap rate.

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[MTNClimber]

Don’t forget about the owner’s original risk and investment while starting the business. They probably worked without paying themselves (or paying themselves very little) for some portion of time while waiting for work to start flowing in and the clients to pay their invoices consistently. They also had to invest their personal money to start the business.

Sometimes it takes a couple of years until they can start paying themselves what they are worth on a regular basis. This is obviously done with the hopes they can recoup the lost wages over time and then profit more in the long run as the firm grows versus if they worked for someone else. But usually it comes with that first initial risk, investment, and paying themselves less than they are worth.

The OP’s question is one that I’m sure we all had at some point. But in the end, I wouldn’t worry how much they are making “off your time” but more of are you happy professionally and financially.

 

[NorthCivil]

My previous job, my charge out rate was a 4.5x multiple of my equivalent hourly salary.

I went out on my own hanging my own shingle. charge the same rates. working from a home office. doing things as lean as possible. Thought i would get rich.

I'm working about the same hours per week, though less chargeable hours, as there is a lot of "business work". And a lot of expenses, even running out of a home office.

My gross income (personal, not business revenue) is almost double what it used to be. Taxes take about half of the extra take home, so i'm making about 50% more total on take home, compared to my old job. about 2.5 years into business now.

The first 2 years were so anxiety filled, it was awful. & things actually went pretty well.

I reckon if I got an office it might not be worth it anymore.

 

[moltenmetal]

Owning your own building can be smart, but doesn't affect the multiplier. The owner of the building has capital tied up in it and must expect a return on that investment beyond the future real estate sale value. The building itself depreciates etc. These are real costs, which have to be paid.

Whenever possible, it's good to know not just your salary, but your payroll burden. This is the total cost to your employer for your continued employment. The bill-out rate has to cover your entire payroll burden, plus pay all the overheads (including a lease or equivalent to a lease for the building), and only THEN when all those costs are covered, is there any profit to be had.



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