Yesterday I talked a little about market rates and thinking about it overnight, I’m even more confused about the Ruby market rates.

I mentioned yesterday that the ‘sticker price’ for Vagueware is £300/day - normally discounted, mind - at which point most people do a quick mental calculation and assume I must be making £70k/year. Nothing could be further from the truth. Consider the following:

• A client is unlikely to end up paying that rate in the first place. It’s where negotiations start, and they normally end some 20-30% lower than that unless they’re in a hurry
• If the project over-runs and I get delayed, my time comes out of my pocket: I normally quote for ‘a job’ reckoned at ‘x days’ rather than as an actual day rate
• I’m not employed 100% of the time. Right now, I’m actually working 2 ‘work days’ per day by working 16 hours/day, but that’s rare. I’d say 70% utilisation is the norm.
• I pay my own NI and tax obviously
• They both require an accountant, plus I don’t want to deal with Companies’ House so that all costs money
• I have insurance, liability cover and legal costs to pay
• I pay my own sick and holiday pay. Actually, I can’t afford to take time off this year, so there won’t be any of that.
• If I want or need to do some training, I pay for that.
• I have to cover other costs - phone, post, fax, broadband etc.

When you consider all that, a ‘normal’ rate of £300/day actually works out to about £30k-£35k/year, and to get that requires more than a few 12-14/hour days. Given that I could get £5k/year more for working a 35-hour week for somebody else, you might think I’m mad. Truth is, I probably am.

In fact, I just looked at the books and this year due to a dry patch in the Spring, one project that over-ran by two months (I know how to pick awkward customers), and some high anticipated costs coming up (equipment upgrades) I’ll struggle to walk away with £18,000 after all is taken into account. I don’t do this for huge piles of cash though - I do it because I can be my own boss and work on my own projects when I’m not working for clients.

That said, this brings me back to the guys who are hiring themselves out at £150/day - how can they afford to do that? By my maths, that would mean living not on the £30k/year a quick mental calculation would suggest, but less than £8k/year! Unless:

• They somehow dramatically reduce their training, which I don’t think you can afford to do in something this fast moving
• Don’t allow any negotiation of rates, which doesn’t work with most clients - everybody likes a deal
• Are employed 100% of the time at that rate, difficult to do right now with Ruby
• Outsource all their work off-shore and so ‘double-load’ heavily: i.e. take on 100 hours work/week but only actually work 10 of them because other people are actually doing the heavy lifting.

I don’t think any of these are practical, so I’m quite confused by it. I just can’t see how the maths add up. In addition, I don’t understand how an IT recruitment consultant can think that is a ‘fair price’ for skills that cost a great deal to learn and keep up-to-date. How can they honestly justify offering a rate that when all is said and done works out to paying a skilled programmer less than an average forklift truck operator could take home?

Something smells about this…