Billable hours

[brian matthew walker]

Hello all,

I am hoping to one day start my own business, I know i just entered into the profession, but the way I see it…Its never to early to start figuring things out.  Anyway,  I currently work for a 3 man firm. One is about to retire.  I was looking over one of our contracts and it goes as this…Landscape architecture principle rates 125, Landscape architect 95, and landscape designer 65. (talking about billable hour rates here).  It stunned me at first because Im pretty certain i do not make $65 an hour.  However I am no fool and I know that some of this rate must go to overhead and other expenses.  We also have a 12 percent CM fee.

My question is…Of those rates what percent actually goes to the person working toward those billable hours. 

How much will the hourly rate go up as I begin to make more, or does it stay the same, and the company just take a smaller cut?

Please be as detailed as possible with your answers.  Is there a general rule of thumb for salary when compared to billable rate? If that is the case is there some sort of graph that can show what that salary is as compared to billable rate?

Thanks!

[Anonymous]

Typically, an entry-level worker takes home 1/3 of the billable rate.  The other 2/3 covers company overhead, overall revenue (and company profits if its lucky).  Your billable rate goes up based on your years of experience, licensure, etc.  There are no set billable rates for job titles in the industry at-large, although the rates for the principal and other LA at your firm are not unreasonable.  There is no correlation between billable rates and salary either.  I have a friend and colleague who is in his 50s with a BLA, is licensed, AICP, and spends half his week doing expert witness depositions for land use cases.  He bills upwards of 200-300/ hour when he does the depositions, and a far lower 100-120/ hour when he does site design.  He is not an owner in the company nor does he have a vested interest.  He is a senior level worker, but I don’t know his compensation (and I’m not interested either).  

[Andrew Garulay, RLA]

Don’t forget that you get paid for every hour you work, not just the hours that can be billed to a client.

 

There is no correlation between what your boss can bill you out for and what he pays you. It might not seem fair to you, but you, me, or your boss are/were paid as little as reasonably (or comfortably, if the boss is a nice person) possible and are/were billed out for as much as reasonably possible. That is the way it is. The more that your boss worries that you’ll be more valuable to someone else, the more (s)he’ll pay you. The more that (s)he feels like it will be hard to replace you, the more (s)he’ll pay. The more easily your position can be filled, the less (s)he’ll worry about paying you more. The more that they can bill your time out, the more they’ll think of paying you more.

[Anonymous]

If you are salaried, you get paid for working a full week, which is usually 40 hours.  If you work more than that, that is up to the company and how it views compensation.  Some offer larger bonuses, some work like sweat shops. Some offer comp time.   Some pay hourly over a full week for salaried. Some companies frown upon the worker billing more than a full week to a client.  I usually work a 50-60 hour week, and since I joined the firm I only once billed more than 40 hours in August 2012.  The client was a fee developer who had very unreasonable deadlines and I really did it as a warning to my boss and the client.  Last but not least, not all employers will pay you more just because you have >100% utilization on a time sheet.  

Keep track of your extra hours during the year.  It’s not necessarily something you want to show a boss at your review because it could backfire and you could come across as an opportunist.  However, if you have worked X number of hours over ~2,000 hours for the year (which we all do) but your employer doesn’t reward you appropriately, maybe its time to look for a new job somewhere else.  

 

[Jason T. Radice]

All that money that does not go to the employee directly as wage goes to pay for their benefits (expensive), unemployment insurance (really expensive) and all of the other insurances and benefit packages like 401k administration fees, vacation days, and any other benefit an employee may receive. And it goes into CORPORATE taxes (really, really expensive, depending on state). The rest goes to into the company’s coffers to pay rent for an office, power to keep the lights on and computers running, keeping the space warm/cool, your $1200 Adobe Suite and your $4000 AutoCAD license, marketing and back office staff (accounting/HR/IT/lawyer) that don’t generate revenue, and a substantial sum into the bank as a buffer for gap-spending or loss-leader jobs. You need a buffer because you very often do not get paid on time by your clients, or sometimes, not at all. But you still need to meet payroll. If there is anything left, it goes to the owner’s and shareholder’s pockets for their salaries and bonuses/dividends.

Billable rates are set by the local economy and your employees salaries. Competition is a big factor, so if your advertised rates come in to high in your bid, you won’t get many jobs. Billable rates are not always put in proposals anyway, unless you are charging by the hour or hourly not to exceed. I’ve mostly done lump-sum and phased proposals for the whole job, not broken down by hourly. In fact, it isn’t the best practice to have your billable rates out there, as it is generally proprietary business information your competition can use against you when they put in their bids.

[Anonymous]

Going back to your OP, if you plan on starting your own business one day, and hopefully that’s AFTER you are an RLA, you may want to consider reducing significantly cutting back your hourly rate if you aren’t bringing clients into your start-up.  Your focus is drumming up business to keep the company operational and that might mean putting up your own long-term savings or loans to keep it humming along while you build up your client base.  

I worked as an independent contractor on select projects for a landscape architect who started up his own firm from scratch (mostly park design and planting plans).  He probably put in a good 75-80 hour week for a good few years and was EXTREMELY choosy about bringing on even temp workers.  Keep in mind, this is 75-80 hours a week during the housing boom middle of last decade.  Timing is everything.  Factor at least 1-3 years of building the company to start turning a profit.  Landscape architecture is directly/indirectly dependent on development booms.  Don’t wait until the market picks up to start your business because development cycles may slow down by the time you’ve established your name and then there is no work again.  Start building the company a years before things start kicking up then you will be riding the wave a lot easier. 

[brian matthew walker]

Another question…
If I currently do not receive benefits other than paid holiday time off. And apparently after first year paid vacation and paid time off does the other “2/3” serve as added profit for the company? Everyone at the firms has their own private insurance. Should there be some sort of compensation to cover the expenses that I will have to pay for medical/retirement and so on? I’m still unsure of a bonus package (or at least I have not heard of anything) if I were to bring this up would I be in the right to ask for added income to cover this?

[toby]

A few other things that you need to consider before they bite you…

Make sure to include all the TAXES in the billable rate!

• federal – paid quarterly and occasionally ahead of future income to avoid penalties
• state
• local
• social security – you get to pay both halves of this
• medicare
• health insurance – not a tax or is a tax as determined by what you do per the aca
• unemployment – self-employed typically do not pay this; you’ll be off the grid

Taxes should not simply be paid out of the part you pay yourself.

Figure out your LIABILITIES: consider the type of business you are going to be and the insurance you will have to carry.  DON”T allow risks to family assets to occur.

Now you can begin to figure out the billable rate.

[Author]

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