Re: RDi vs SEU

I understand what you are saying. The empirical evidence says that if your business model depends on a cost curve where labor approaches half your expenses you are most likely going to fail. It is hard to accept the idea that a hands-on worker making $50,000/year actually costs the company closer to $150,000 than $75,000. I know. It sounds crazy. Normally I wouldn't try to defend this position. I believe it. I have lived it. But it looks to silly to defend.

In any event, my original point was that when we talk these kinds of costs, what the devil is another $350/year for the amortized costs of RDi? What ever it is, it is not a deal breaker.

On 4/5/2015 9:17 PM, John Yeung wrote:

On Sat, Apr 4, 2015 at 3:51 AM, Booth Martin <booth@xxxxxxxxxxxx> wrote:

In most service industries, from appliances to electronics to car repairs to
barber shops and everything in between, any billing rate below 3 times the
labor cost will end in going out of business. Most ratios are 5 to 1. The
idea that the cost of a programmer is less than 2 times his wages has no
basis in realty.

Booth, it sounds to me like the "billing rate" you're talking about
isn't the same thing as "an employee's cost to his employer". Let's
say programmer Bob works for Consolidated Consulting. Bob's salary is
what CC is paying Bob. The billing rate is what CC is charging
*outside customers* for the use of Bob's services. Let's say the
billing rate is triple Bob's salary, and let's say Bob's salary is
$100K per year. Now, if my company wants to hire Bob, my company
would have to pay CC the equivalent of triple Bob's salary (probably
not for a whole year, but for a specific project; $100K per year is
roughly $50 per hour; so CC might charge me $150 per hour to hire
Bob). What Jon is saying is that CC's own cost to keep Bob on their
staff could be anywhere between $100K and $250K. It could potentially
be much higher than his salary because CC may provide good employee
health benefits, pay for him to fly out to customer sites, etc. But
it's also less than the billing rate, because otherwise CC wouldn't be
making money on Bob. At no point is my company Bob's employer, even
if he's working on a project for my company, at my site. CC is still
Bob's employer, and they are the ones billing me at least triple Bob's
salary.

At least that's my understanding.

John Y.