General Question

dalepetrie's avatar

What do you think would be an appropriate billing rate?

Asked by dalepetrie (18014points) June 1st, 2009

Here’s the situation. I have a former co-worker whom I also consider somewhat of a friend. We worked together for this company for about 2 1/2 years and the company went belly up. He had been working on starting his own companies and now that he’s out of work, he’s managed to really get the companies off the ground. He is an IS guy, I’m a numbers guy, and whereas he can develop websites and run the business, he doesn’t have the proper administrative grounding to get the thing going. Basically what he needs right now is to have me come help him set up some companies in Quickbooks, set up the charts of accounts and get his backlog of data entered in so that he can produce financial statements that his tax accountant can use to file his returns. Then of course to train him how to enter transactions on an ongoing basis and to potentially consult here and there as he has a question going forward.

I’d love to take him up on it, I’m unemployed, I’m capable of doing the job and I’d love to help him out as a friend. But he’s basically asked me to name my billing rate, and I have no idea what it should be. The rate should take into consideration that a) any hours I spend doing this I can’t spend looking for work, b) I will be responsible for all self employment taxes, and c) any income reported will have to be offset against my unemployment benefits. Primarily, I’d like to make as much as I can to the extent that it’s fair, my family can really use the money, so the more I make, the longer I can ride out this economic downturn. But, I want it to be fair to my friend as well. I’m not looking to say that because I know he’s motivated to pay me whatever I think I’m worth and what will motivate me to do the job so that he can get his taxes filed and keep up with the growth of his company, that I’ve got him over a barrel and should ask for top dollar. He trusts me and I don’t want to take advantage of that, and I’d sincerely like to help him out too and leave a good taste in his mouth over the whole thing, because in the future he could be a good reference for me, he can help me with computer issues, and maybe someday he’d be able to hire me full time, plus he’s a good guy and my wife and I get along with him and his wife, so I just want to do the right thing. So, I don’t want to ask for a number that is arbitrarily too high, but I don’t want to ask for far less than would be fair just because I don’t know what I’m doing.

Any thoughts on what would be an appropriate rate, or any sources I can use to develop one. Since I’m not a CPA or a professional services contractor, I’m not looking to charge what they would charge (sometimes upwards of a couple hundred bucks an hour), but I don’t want to end up working at something that doesn’t ultimately get me employed full time again, and have essentially no extra money (or less than I was making on unemployment) coming in after I take care of all my self-employment tax issues. Thoughts?

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15 Answers

jumpo7's avatar

Your friend is going to write off your cost as a business expense so you should not worry about how much it is going to cost him. In a way you are doing each other a favor so that cancels out any increase/decrease considerations. Charge him what you think you are worth. If a CPA charges a couple hundred an hour and you are not a CPA then obviously you should fall somewhere below that. There is a difference between what an agency would charge for a contractor to come in and what they actually get paid. Usually its around one third or less. So a good starting point could be around $50 to $66 an hour with an expected limit of how many hours to be worked. That way your friend knows the total spend (give or take 10%).

You should have a firm idea of how long it will take. On the other hand, if your friend may keep you on part time to continue to keep his books up to date (since he is likely to be too busy), it can be defined as so many hours per month. If under that arrangement $66 seems too high you can adjust, but really for any kind of accounting/IT (which is also part of what this is) work done like this, $66 is not that high at all.

If there is a possibility of the position turning into full-time work, then you can consider what you think the position should pay and charge something near to the hourly (plus benefits) that should be. However, if you have real solid experience (just no cert) then I would go higher, or if you are just good at numbers stuff but not have a lot of experience you may need to go lower to compensate that you will have to learn a few things your self and your friend knows that too.

galileogirl's avatar

Why not go into a partnership? If you really think this is going somewhere this business will need someone in production/sales and someone in admin/finance. By the time there are profits to split, your UI will have run out. Also look into incorporation so that the profits can be paid as salary.

dalepetrie's avatar

I think he’s already got partners, and isn’t looking to take that on, but if the business does REALLY take off and I do this, I think I’d be the first person he’d consider.

Jeruba's avatar

$66 per hour annualizes to a gross pay of $137, 280. Consider what you think would be a fair annual salary for the work you are anticipating, taking into account the going salaries in your area, what you were making before, what you think you could earn full time, and so on. If that comes out to, say, $90k, that equates to an hourly rate of $43.27 (using 40×52 = 2080 as the basic work hours per year). You have to make some adjustment for lack of benefits, etc., but it is one data point in your overall calculation.

filmfann's avatar

have him get a couple of estimates from other accounting firms, then have him pay you the average amount. You will be getting a fair salary, and he will be helping a friend.

YARNLADY's avatar

I believe that workers at Geek, Inc and similar firms get $70 per hour, so I would suggest that a similar rate for you would be about right.

PandoraBoxx's avatar

Your rate should also factor in the cost of health insurance, and overhead costs of maintaining a home office, plus any taxes you would have to pay as self-employed that an employer would normally have to pay.

funkdaddy's avatar

@dalepetrie – please don’t take this as an evaluation of your personal worth. From what I know of you, you’re intelligent, honest, and passionate so you’d be exactly someone I’d love to work with. I do the same sort of work as your friend and often hire folks I know to help out.

If I offered an unemployed friend a light accounting gig and he came back with a rate of $50—$70/hr I would feel they were taking advantage of the offer. I wouldn’t be offended but I would explain I hadn’t expected the rate to be so high and I would go ahead and hire someone to get me started and then do the data entry myself. If they wanted to set things up and leave the rest to me at that rate, then I’d try to get a total cost and make a decision from there.

That’s just my honest reaction. For the description of the work, I’d expect a rate of about half that for the job you’ve described overall, with an understanding that the initial setup and your expertise there is really where the value is and you’d be doing that at a discount for the promise of a higher than market rate for the entry of the backlog at however many hours a week you’d like to work.

Good luck with the work and I hope it pans out.

PandoraBoxx's avatar

This could lead to working for yourself. Lots of small and start-up businesses need this type of help, under the same circumstances.

YARNLADY's avatar

@funkdaddy I wonder if you are not aware of prices for itinerate workers these days? I pay $25 an hour for my lawn to get mowed, and would easily expect to pay double that for the technical work. Sonny gets between $70 and $100 for his web design work.

dalepetrie's avatar

Thanks to everyone for the input. I have settled on a # based on what I’d be doing, the ideas were really helpful in coming up with something I think is fair to everyone, and I’m going to run it by him tomorrow, but I don’t expect it to be problematic. Thanks again!

funkdaddy's avatar

@YARNLADY – I provide services to small business owners, mostly web design and IT support, with general design work as needed. It’s my full time gig and has been for the past 15 months. I love it.

The difference between my client hourly rate (and probably Sonny’s) and the hourly rate someone gets at a job is that I’m working 60–80 hours a week to hopefully bill 30. The extra time is staying in contact, proposals, research, keeping skills up to date, and internal processes like accounting and other things that have a way of eating your day. Clients are charged for the actual time it takes to turn out the product they are paying for, but it’s at a higher hourly rate because of all the other things I have to do to stay in business.

When I do work for friends, they get a significantly cheaper rate because I’m not figuring in the time I spend doing the business maintenance. They’re my friends, they’re my network, and I’ll probably use them for whatever services they provide as well. In exchange when they know someone who needs services I can provide, they drop my name and I hope to get a reduced rate from them as well. The “friends and family” rate is closer to what I would expect to get if I went to work for someone full time.

If dale considers this his first client and not a friend who is helping him out, then by all means he should charge the going rate. The going rate for this sort of work seems to average out about $60—$80 from an accounting firm (source).

If this is a mutual helpful setup where he’s getting paid for actual time in the seat, then charging going billable rates seems unreasonable to me as a business owner. Again, that’s just my personal opinion and what I would think in this situation. It’s not a reflection on dale, his work, or suggestions before mine.

I was just trying to give an alternate perspective that I did not see represented yet.

Jeruba's avatar

@YARNLADY, and highly trained, skilled professionals in technical writing and editing are looking at $35. At least, that’s what I hear I could get as a contractor where I am. For now I am still on salary at a rate that was set (much higher) when things were better, but the market is unkind to freelancers in my field just now. I’m not surprised if itinerant workers are doing nearly as well. People need yard work even when they don’t need software manuals.

YARNLADY's avatar

@Jeruba Techincal writers get about half of what technicians get. The work described here seems more in the technician skill area, and my younger son gets $70.00 for it.

@funkdaddy My older son does half price (and less) work for friends, because of the word of mouth that comes in. He does very little advertising because of always having enough referrals to keep him busy.

dalepetrie's avatar

Being actively engaged in a job search, I have a target salary in mind, but I’m cognizant of overall comp as well, so I kind of have a good feel for what my target comp number would be expressed in dollars if it was all cash, and I take that and extrapolate the excess cost of self employment taxes, and round up a bit for the time I don’t plan to bill, and as it happens I come up right around that $60 figure which is the lower end that @funkdaddy mentions. Since this guy is someone who himself bills for his time as professional services, I’m pretty sure he’s aware what professional services cost and will probably feel like that rate is more than fair. I also know in my conversation with him, he said that he felt I should definitely bring him a rate that would a) motivate me to get the work done as quickly as possible and b) that would be better than what our previous boss paid.

Basically I don’t really want to go into business for myself, I’m just not that entrepreneurial, but I’d like to make sure that whatever I do for this guy leaves me situated in such a way that not only do I have his confidence in my abilities (I know I have that because he called me out of the blue and said that he wanted to hire me rather than search around for candidates because he knows me and knows my work and trusts me), but also that he feels I’m treating him fairly. When I say friends of course, it’s not like we’re close friends, but he was always someone when we worked together who I could chat with, with whom I had a lot in common…someone I had a good time hanging out with at say the office Xmas party and so on. He’s a good guy and I want to do right by him, but by the same token, I want to be compensated fairly, if for no other reason than he’s not always assuming my time can be had dirt cheap….I want it to be fair to both of us, and I think the $60 figure is. So again, I think a lot of you really helped me get to that #, which is close to what I was thinking in the first place, I just wanted to see, because you all could have said way more or way less and then I would have had to have re-evaluated what I was thinking, but as it is, I feel my instincts on how to approach this were validated to the point where I don’t feel like I’m making a mistake by running this # by him. So thanks again.

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