you're probably in the right ballpark, depending on your level of fixed overhead. a bit high if you're working out of your garage with no overhead staff; a bit low if you in a large firm with tons of administrative and support staff.

Yep, BlueGoose is right on. 2.5-3 is typical.

I'm in NYC. 3.0 is competitive. I usually do 3.3

aw fuck it, what is a billing multiple?

beta-

It's the difference between your take home pay and the billable rate you charge. It's a quick and dirty way of generating the billable rate versus calculating all your overhead.

Say your take home hourly pay from a firm is $25/hour and they bill your time to the client at $75 - then the multiple is 3.

I've been seeing 3.5 as the new standard. You gotta include a minimum of 10% profit and all your non-billable hours, software licenses, marketing expenses, rent/utilities, benefits/health coverage/401k matching, administrative costs, et cetera. I'll leave it to an accountant to run through the math.

ah, thought it was that simple, thanks for the answer tree.

Well, I'm afraid it's not quite that simple. Not to quibble excessively, but accurate definitions are important when talking about this stuff.

A billing multliplier actually is a factor applied to your regular hourly pay rate - not your "take home pay" rate, which has had taxes, insurance, 401(k), and other withholdings removed. If you were hired at $15 per hour, your 'take home' paycheck probably includes something like $10 per hour - that's quite a difference.

That multipier is designed to cover the cost of your employee benefits (insurance, paid vacation, etc.) plus the firm's non-project overhead plus profit.

I don't know of any firms in the industry that calculate billing rates on take home pay (but, I do confess, there are some strange things that go on out there.) Any multiplier tied to "take home pay" would be considerably higher than 2.5-3.0.

Blue Goose: Chief Architect of Non-Excessive Quibbling

;-)

Thanks for the clarification, BlueGoose, and to everyone else: yes, I'm planning to make this joke all day.

ah ... but LB, I'm actually a licensed Architect and have been for many years!

:o)

I know, and I am too, but we can all enjoy a silly title in addition to our legal ones, right? It's like having a porn name or an Elven name.

And I think Non-Excessive Quibbling is an excellent phrase. It's fun to say!

Signed, liberty bell, Chief Architect of Keeping the Forums Light-hearted (Sometimes)

BG- thanks, you nailed what I meant, not 'take home pay' per se, but the amount they 'pay' you before sucking 1/3rd out for taxes and other things.

I do like CA of NEQ as a title!

i'm not licensed, my multiple is 3.2, i believe. unless it was upped on my latest project - oh wait. i'm still working on the same projects i started on over two years ago. so i'm still @ 3.2

want to thank everyone for responses....which raises the next more difficult question.
multiples are based on hourly wages + overhead
so...for the following three levels of staff what are reasonable rates
junior...3 years experience
senior (well versed)- 13 years experience.
principal --25 years.

the reason for this question is the quilt trip everytime we submit an invoice.
explanation after the answer
:)
thanks.

In NYC

Junior - $120
Senior - $165
Principal - $225

This varies from firm to firm...but I'd say this is pretty close to average. You may want to add:

Dafttsperson - $95
Clerical/Admin - $75

never explain your billing rate ... explain your value.

if the client continues to complain, tell him/her you're not interested in working for less. he'll either cave or take his sorry ass somewhere else -- either way, you win.

I can assure you, any competent lawyer in town is billing at a higher rate than you do.

"daftsperson" ... LOL

mislabeled -

we don't do the multiplier quite like blue goose describes, but maybe this will help give another way to look at it:

we went through all our monthly expenses - rent, insurance, etc. everything except direct salaries (for our purposes, salaries are the amount the employee gets before taxes but does not include bonuses, 401k, etc.)

we then divided the overhead proportionally among the number of staff (and yes, i realize this doesn't work beyond 6-8 people because the principals are weighted higher, but that's the size we are) to figure out how much the raw costs were, our direct expenses as it were. that came out to the following for each employee:

d.s. (direct salary) x 1.5

so, someone making $25/hr in direct salary had a 'real' cost of $37.50/hr (just to make this simpler).

this didn't include profits. a rainy day fund, play money, etc. it's just the raw amount we need each month to keep the lights on and everyone fully employed.

so, to put it another way, our monthly expenses could be roughly expressed as follows:

direct salaries - 30,000
all other expenses - 15,000

if you're looking at billable rates then, we could cheat a 2.0 multiplier and get by. with some profit built in. $25/hr direct salary bills at $50/hr. right now, though, for the junior staff, we can use a 3.5 to 4.0 multiplier on certain job types, which keeps us in line (even at the lowerish end) with our peers for the types of work we do. our principals bill out at a bit less, maybe at 2.5 to 3.0. again, it depends on the project type. it also depends on how big the project is, how long it will last, etc. some jobs can't make money because of the work we need to do and the fee available. some make more than we expected.

now, this has it's flaws - we have two principals in that mix of six people, so our (the principals) rates are going to be higher all the way around. the problem is, because we're so small, it's hard to justify to clients why you're billing them at a principal level to do essentially the same work (drafting for example) you could have someone with a much lower hourly rate do. most savvy clients won't go for that no matter what your rates say. also, 90% of our jobs are fixed fees - the hourly rates don't matter so much except in our internal planning/staffing or for add services.

but, that's the basic gist. hopefully it helps some.

and blue goose is absolutely right: explain your value first. we've never had to justify our rates (maybe, as mentioned, why we were billing more expensive people to do more menial tasks), but we always defend our value.

oh, we're not in nyc - i'm sure our hourly rates are lower than what i hear is the going rate is up there these days.

i should add: a way to check your numbers as your planning is to do the following: assume each person (including non-billable staff) bills 'x' amount per month. for us, we've set a target of 10k. this is comparable to the slightly above average mark for most firms up to 20 people. add that up for everyone in the firm and see how much that brings in. compare it to your overall expenses and see where the gap is (for better or worse). if you hit that target and you're putting 10K in the bank each month, then you've got a workable system. if you only hit 9K and you're putting 1K in the bank each month, not quite as good. if you hit 8K and you're losing 7K each month, then you're going to be dead shortly. it's not a sole planning tool, but it helps check what your billing rates are and if you're productive enough.

For Small Firms I recommend -
Staying Small Successfully, by Frank a. Stasiowski, FAIA.

I have found it really helpful across a lot of areas in managing our practice.

... and no i don't get a cut on the book.

great information
it appears we are in line at the lower end of the spectrum
time to carefully adjust.
thanks all

I've been following this discussion and thought I should look into my paid hourly rate vs. my billable rate and I'm finding two different scenarios...

My billable rate is 3.6 times my paid hourly rate BUT if I look at any project plans or schedules, it lists my rate at 3 times my paid hourly rate... I'm told this is my "burn rate", which includes OH&P.  So where does that 0.6 extra go? 

If the multiplier accounts for OH&P, does the 12% profit that we're taking off the top on all fees constitute double-dipping?  I already think that 3 is a high multiplier, so 3.6 seems ridiculous to me...

Like everyone else, I'm thankful to have been employed through the downturn, but it seems like we're getting busy again and it's been three years since I've seen a raise and/or bonus.  I'd like to negotiate a raise, but am looking for some hard numbers to justify it...

Any thoughts?

drawson, you're not bursting my bubble; just confirming my thoughts.  We typically work fixed fee (as a percentage of estimated construction cost).  We've had major layoffs in the last couple years combined with some significant attrition.  New work has steadily come into the office in the past year, yet no salary increases, bonuses, or reinstatement of other benefits.  My thoughts were that management was keeping salaries low and multiples high in order to re-fill the coffers.

@eyewash: "management was keeping salaries low and multiples high in order to re-fill the coffers"

Possible - but it's more likely in this economy that your firm's principals are competing aggressively on price in order to keep revenue flowing and to keep people employed. You should not assume that "some fees" is the same thing as "good fees" or "normal fees".