To go with the many unscientific formulas used in the article, here is one more:
consultant_cost = employee_cost + revenue_to_consultant_firm
employee_cost = consultant_cost - revenue_to_consultant_firm
In short: If you actually need a full time developer (and are able to find a qualified one), you are better off hiring him yourself, if you need him for a while.
The article is well-written but it's marketing mumbo jumbo for hiring consultants.
Disclaimer: I work as a consultant, but I'm hired because they don't need my position full time and they don't have other people in house who have the same knowledge.
The former has better marketing (and a commensurate increase in rates, naturally).
But seriously, given the breadth of roles that could reasonably be described as freelance, there's little meaningful or objective distinction between freelancers and consultants. I don't think the distinction between freelancing and contracting is particularly relevant today either, though some would strongly disagree.
For non UK folk IR35 is a rule brought in to penalize self employed IT people of course self employed lawyers and accountants don't have this problem.
At first glance, it's a bit scary.
Consultants are still very useful for "marginal areas" of your business. Meaning, consultants are useful for jobs that need to be done, but aren't significantly time-consuming to hire a full-time employee.
You want your company to be the expert in what makes your products and services great. If your differentiators are all created by consultants, once the consultants move on, you lose that expertise.
By all means, hire consultants to set up version control servers, build board support packages, improve the UX of your webapp, or even take care of HR paperwork. But the thing that makes you money (the search engine, the historical database, the business logic) needs to yours.
Anything less can work, but you'll be dangerously close to creating a commodity product. What's to stop someone else from hiring similar (or the same) consultants to clone your product?
Of course, all this assumes the value of your product is your differentiator, not inside knowledge of how to get contracts from a particular bureaucracy.
My opinion is that in-house employees should have "skin in the game" proportional to the equity they hold in the company and the authority/responsibility they wield as a result. Most of that time that's a one-digit, round number. And yet employers think employees should act as if it's a magnificent act of selflessness and beneficence to deign to acknowledge the employee's existence and stoop so low as to offer them work.
Word-of-mouth, though, they may have to deal with. But so does everybody.
> Tack on a few free lunches, and your employee costs about 10% more than you thought they did.
Only if you can't count. Over in parts of Europe direct employee cost (payroll tax) can be 20-30% on top of salary, and if you don't factor in that... well.
> rare for someone to show up every week across an entire year.
I would hope no one shows up every week. Again, if you don't factor in vacations/normal sick days...
> Your employees take an hour to sustain life through bathroom, water cooler, and other breaks
I would be surprised if a consultant manages to not charge for every unproductive break.
> Your employees spend an hour a day meeting with you or someone else, conducting pre-work planning
I would hope that consultants also plan their work (and charge for it). Otherwise -> mess. I know from first hand experience that consultants also do meetings.
> I can keep an employee busy indefinitely
Yeah. Where I'm working that's true. Or has been for the last several years.
But yes, when used correctly consultants can be a valuable asset. There's no need to try and make it look like they same hourly cost as an employee.
For world class rnd I have seen it go way over 5x but you are buying much much more expensive and Gucci kit for example a single piece of HP test gear cost us the same as a small house at BHRA say 1/4 million in today's money
Without these extra software engineers we could have never reached our deadline.
However: an external consultant costs us 10K a month. Thus 3 x 3 x 10 = 90K. And for the new project; 5 x 3 x 10 = 150K.
Nothing special but my point is the 1 person that still hangs around from the first project. That was (almost exactly) 3 years ago.
So 3 x 12 x 10 = 360K euro. (total hiring amount > 600K). My salary in these 3 years would be 120K.
I think it would have been cheaper to have had an extra employee. In fact you could have 3 until this moment.
So, based on that; hire consultants to have extra manpower in your project.
However, hire them 'too long' and it was smarter to have an extra employee.
It turns out that they exist because sometimes the cost of a transaction in the marketplace is higher than the cost of losses due to internal inefficiencies.
Employing someone and engaging a contractor lie on different points in that spectrum. It will simply vary from place to place, from situation to situation. There is no universal answer, true for all time, valid for all cases. Just as there is no one universal design for trousers (but many cuts and sizes), on single identical car used for everything from racing to commuting to shipping furniture.
Different cases demand different mixes. Each firm will have to decide for itself the mix of internal costs and external costs.
In my experience, management doesn't need convincing when it comes to replacing employees with consultants, despite higher hourly rates. In management's quest to shrink SG&A costs, good full time jobs have been being replaced by long-term consultants who would be placed at the client's location for years.
And if you're talking about short-term specialist consultants, then you need even less convincing, because management is already under the impression that it's often more cost effective to hire a specialist at $200/hour for 3-6 month gig, rather than to hire someone full time or train existing staff.
Consultant <embezzles $3M/Murders all office workers/Disappears without a trace> leaving MoronCorp in bankruptcy with no one to continue developing their software.
A balance is necessary. You need (at least a few) motivated employees with skin in the game.
You need, at a minimum, a relationship with 1 consulting firm so you have somewhere to get overflow work done.
You need a competent manager to oversee all this crap. <--- Most important part.
Just 10 minutes to think about this shit shoots down the original article...
PS: The business owners also have to understand the meaning of competent. Your brother's uncle-in-law's grandson is not necessarily your perfect developer because you can get him for $13 an hour.
No shit you don't need real talent on the payroll--I don't think you're ever going to hit any really hard technical problems that would benefit from that.
It's not a bad model, but it also doesn't apply to everyone--especially folks bootstrapping without funding.
I think there's a percentage of employees to contractors that depends on the project that is the perfect ratio of employees to contractors.
* consultants come and go, you can't guarantee that the guy who wrote the code will be back for the next feature. This has a non-irrelevant cost of transitioning.
* consultants are not necessarily honest about estimates and the status of your code base, nor they have any economic incentive to be. Employees have no incentive to cheat you on this - they would have no advantage in doing useless work. How can you make sure that you are not being cheated?
* productivity of employees and consultants is similar, in coding basically no one can get more than 4-6hrs of actual work done on a regular basis. The number of hours actually worked is irrelevant.
* In London an average senior developer makes maybe 55k£ (http://www.totaljobs.com/salary-checker/average-senior-devel...) for an average of 220 work days (44 weeks). An average consultant of similar skill will make around 475£/day (http://www.itjobswatch.co.uk/contracts/london/senior%20devel...). Quick calculation: 55k$ of consultant time are 115 days (23 weeks). How can anyone say that a consultant is cheaper? Even considering perks, etc, it's still basically twice as expensive.
Those numbers are incredibly overly ambitious.
Very few non-governmental jobs have all 9 bank holidays off.
Not many Americans have 20 days of vacation. Just because "you do" does not make it the norm.
Many companies nowadays have PTO, which mean sick days simply come out of your vacation day allocation.
For example, for a full-time employee in Europe, dropping below those levels wouldn't just be unambitious, it would probably be illegal. In many European countries, the counts for both bank holidays and vacation days are usually somewhat higher. Also, if you're sick then for many salaried positions you would still get paid as normal, though would you probably have to get an official statement from your doctor for anything non-trivial and different rules might apply if you needed to take long-term sick leave.
A typical reckoning in Europe is that there are 365 days in the year, but only a little over 200 working days. Put another way, the fully loaded cost of a "full-time" employee here is probably 150-200% of their salary, and a significant chunk of the overhead is paying them for Monday-Friday days when they won't actually be at work for one reason or another.
America, fuck yeah?
ps: he didn't say it is the norm, he said it's a good idea to do it.
1) Unless I'm a government employee I would work 8 hours + lunch.
2) Companies usually provide equipment to consultants (unless it's a small company) because you need to be on their network.
3) I still need leads and project managers for consultants.
Also, if my employees are only doing 4 hours of work a day I would fire them.
If I worked for local, then those sick days would be whatever my doctor would say is needed and I couldn't be fired for having too many.
Then again, I frequently hear that the US falls far, far behind in these matters compared to other countries.
At my current (UK) employer, I get 30 days vacation, 13 days Scottish public holidays which get added to my vacation (so all paid), and paid sick leave of no more than 3 "instances" in a year. An "instance" could be 1 day, or it could be a month... but if it's longer than 5 working days I need to back it up with a letter from my GP.
The downside is that if I don't use up all that vacation, I lose it - it's not converted to salary (although some companies do this). This is something I'm acutely aware of this year, as I'm struggling to find opportunity to take the remaining 15 days leave I still have to use by Dec 31st.
Well, startups & early employees typically work much more than 40 hours a week.