How much should I be paying my programmers? We are a custom programming company and need some help.?

Question

What should the average total cost of our programmers be as a percentage of the total billable for them. I have heard all the way from 30% to 50%. We are at about 60% and are not making enough money to make it worthwhile.

We have 3 fulltime programmers and they are employees.

Todd, thanks for your really thoughtful answers. The only good news for us is that they are paid for only the hours they work. The happen to get about 50 hours a week each so it is working out for us. I am definitely getting ready however to saying "No" to any more raises.

Answer 1

40% to 50% is a good measure. Depends on the demand of work and the demand of the programmer. You may want to have a fulltime all around programmer instead of having to contract out every programming job you require. Contractors will cost you more money of course especially if you use an agency. Remember the agency takes up to 50% of the contractors pay. For example, if you are paying your contractor's agency $50 per hour for your programmer, your programmer only gets $25 of that. So in the long run, if you hire him/her fulltime, you will probably offer him/her $25 per hour and the extra $25 is your overhead. Hope that helps.
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I returned in case you had more info. If they are employees...what other forms of compensation do you give them besides "pay per work"? It sounds like that is how you are paying them at the moment. If they are getting paid on a "by-project" basis, it is costing you more to keep them. If you feel you need all three programers then you painted yourself in the corner. You can't reduce what you are already paying them unless that is in the contract that you all agreed to in the beginning. "By project" pay basis can get really tricky. You will have a smaller overhead. The best is to look at what can really be cost effective. Take a look and see if you can run your company with only two instead of three programers. But if your workload requires that you keep all three of them, you will need to start increasing your quotes. Its a gamble but it can be worthwhile in the end. You got to remember that sometimes it is not always about the money. Youmay have to eat a smaller overhead for a while but it could turn into something bigger alter on. I work for a company much like the size of yours. There was only 4 of us to begin with. The owner, a programmer, and 2 consultants. Now we are 29 with employees overseas. its all in the time and investment you want to put in your business. Good Luck.