Day rate charged by IT Consultancies to end clients

[m0n1k3r]

Curious as I've just started working with a small-sized London based consultancy. I'm being paid circa £500 a day, curious as to what they (and those like them) charge end clients. Anyone with insider experience/knowledge on this? Does it vary widely based on sector/seniority? This is development work mainly, not management type work.

Consultancy rates are usually calculated as gross salary x 2 / 75% (utilisation ratio) / (1 - X) / 2000 (work hours in a year) x 8

where X is the gross margin the consultancy requires to cover its overheads. X is usually 35% to 50% - higher for shorter-term gigs and can be as low as 25% for longer-term team augmentation. At the end of the day, the net margin is commonly in the neighbourhood of 10%.

UK agencies on the other hand usually offer a rate of client charge rate x (1 - 20%) to the contractor

where 25% of those 20% is the agent's personal commission (which is how they make a living). For public sector contract and large private sector clients those 20% can often be lower - for CL1 contracts it is 12% for example.

For this reason, when a consultancy uses an agency to find contractors, don't be surprised if the charge rate to the client is close to twice what the contractor is paid.

[m0n1k3r]

Always remember there is a rate card figure, possibly a special reduced figure, and there is what the client actually pays after big client level discounts. It's unlikely you will know what you cost because you won't see the overall account discounts.

True, clients usually only pay standard rate card rates for short-term critical work, up to 4-8 weeks. More than that and discounts begin kicking in, whose structure vary between consultancies.

[TheFaQQer]

Consultancy rates are usually calculated as gross salary x 2 / 75% (utilisation ratio) / (1 - X) / 2000 (work hours in a year) x 8

When I was a consultant, that formula doesn't come too close (I'm sure it does for some people, though).

Taking my final salary as a consultant, it comes out as about 1/4 of the rate that I was charged out as, and about 18% more than my cheapest ever consultancy rate. That could be could be because I was underpaid and in demand, though.

[northernladuk]

When I was a consultant, that formula doesn't come too close

I'm sure it doesn't because it is designed for modern money, not pounds, shillings and pence.

[TheFaQQer]

I'm sure it doesn't because it is designed for modern money, not pounds, shillings and pence.

Hate to break it to you, old chap, but I'm 5 years younger than you

[northernladyuk]

Hate to break it to you, old chap, but I'm 5 years younger than you

And still working? YACNCOTBAC.

[SueEllen]

Hate to break it to you, old chap, but I'm 5 years younger than you

He's that old!?!

[theroyale]

The smaller consultancies will generally top out at contractor rates so if you are direct with them and not via agency then take your rate and add 45%. That is probably your charge out rate.

If via agency then add 2,500%.

Just kidding, add 10% more so £500pd + 55%.

Realistically your charge out rate is approx £800pd.

Rate cards for the big boys start at 800 and go all the way up to 3,000-4,000pd for a partner. £1,400-£1,600 per day is the average I see for a mid-level consultant.

It is far rarer than you think to see a mid-level consultant on a £1,600 day rate billing for 5 days per week at the same client for very long periods.

re: £500pd. Be wary of that number. The amount of jokers that call me up offering £500 per day, I think large parts of the industry just default to that rate no matter what you do. You will be surprised over a 5 year period how many will pay you far more as they can't get anyone at that exact time to work for that figure, you just need to be willing to take a chance. I think in part its a hang-over from the recession.

Interesting comment.

Re: £500pd being a low or 'lazy' rate, question is how to negotiate upwards to a rate that is not initially on the table ("We're paying between £450 and £550". "Actually I want £650"). And how much time does a contractor have at a consultancy, it seems to me that the consultancies' model is to hire/convert-to as many perms as possible.

[fullyautomatix]

Accenture used to offer consultants at about £1200 pd and architects at about £2000 pd. But that was mostly to clients like Barclays, BP, Shell etc who would shell out any rate for Accenture but would always offer low rates to independent consultants.

[Bluenose]

Interesting comment.

Re: £500pd being a low or 'lazy' rate, question is how to negotiate upwards to a rate that is not initially on the table ("We're paying between £450 and £550". "Actually I want £650"). And how much time does a contractor have at a consultancy, it seems to me that the consultancies' model is to hire/convert-to as many perms as possible.

Apols. going to waffle now.

Re: consultancies. for transformational programmes the big boys don't keep a bench going anymore, it is not efficient enough to keep profits growing so more than likely, that 200-300 man team you just sold to a big client will have a permie spine and the bulk will be brought in. transformations can take up to 4 years with the only thing that needs to be worked around is expenses. Hence, consultancies now have special conditions for their virtual contractor pool, they can't afford to take you on as a perm.

Re: rates. From 2015 onwards rate re-negotiation was simple. it can be accomplished by simply applying or being called for gigs on jobsites or linkedin with no rate advertised. When the agent calls you/inmails you, it means that experience is a match and is interested but probably has no idea what you are worth. This is important distinction.

These agents, I can pretty much guarantee the first number they will blart out will be £500pd.

This is because the vast majority of agents that will call me are no longer specialists with big client vacancy lists to fill, this is a myth. It used to be the case prior to 2008 but there are now too many micro-agencies out there now chasing too few roles. I simply cannot remember the last time a big agency called me about a role whereas the likes of McGregor Boyall et al. back in the day used to be so flooded with contractor work it was ridiculous.

My position is that because of this, this new generation of agents are far less knowledgable about specific IT roles and will pick a number based on absolutely no prior knowledge or experience. They will open jobserve and set a filter and - voila - most roles are in the £450-500 range.

In 2011-2013 the 'default' rate response to this Q&A between clients and the agents was £450-500pd and somehow that number got stuck in a feedback loop and for good reason tbh as contracting work was scarce at that time, not much money being spent vs. lots of people being made redundant.

RBS, Lloyd's, Barclays, HSBC Resourcing teams, Lorien and the likes of them thought they were cute by trying to rig the market in their favour during the depression but it has damaged them permanently in the long run IMHO.

So yes, contractors got used to simply accepting this as the norm as better to be working that not working. The end game for this is as of 2017 there are Senior Programme Managers that I know who work for £500pd who used to be paid £800-£1.4k per day simply because they still think its 2012 and not take risks.

When I started to push back in 2014 I found that my hit rate for push-back on rate was 50/50. The only downside to this approach is that it can take time for the decision to be made to raise the rate.

i.e. I accepted an offer once for £650pd due to working with people I know well, unbeatable working conditions, great for my career, possible 2-year gig etc. however once I signed for that role I had two other firm U.K gigs for £750 and £800pd at other places that were an unknown quantity who initially said £500-550pd but they took 2-3 weeks to get back to me e.g. they realised that they could get someone for £500pd but it would just be a bum on seat.

The other chancers who are offering £450pd to UK based senior contractors (20 years+ exp.) to go and work in Amsterdam, UAE, Dublin and the like obviously find people to fill these roles but the mind really boggles as to who is taking them.