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For those in business.. The "Big Client" Tax

edited January 2017 in Not Sports Related
I've been mulling a couple of questions over this weekend, and I've decided to shoot one of them off on here. I'll probably post the other one tomorrow.

Do you charge a larger client (dramatically?) more money?

I'm coming to the end of a 3 month stint at a pretty large company (Revenue of about €7.5 billion, owns several household brands) - and part of my tasking has been preparing internal stuff for an outsourced project. I was quite surprised to be told that my stint had saved the company about £100k, as per their agency's quotation... this made no sense at all.

I looked over a Statement of Work that was sent by the associated agency and was absolutely shocked at what I was seeing:

- junior (as per my own assessment of them via LinkedIn) developers being billed out at £110 an hour (£880 per day FFS.); I'd be surprised if their PAYE salaries were more than £25k

- quoted hours being roughly 2-3x the amount actually required; perhaps this is related to the aforementioned quality of their staff, but IMO this brings the true hourly rate more towards £220-330 (or £1,760-2,640 p/day)

- a dedicated QA agency quoted for £5k, then secondary/internal QA (done by project managers and development staff) at £7k.. higher than the amount by the 'specialists' they were bringing in.

They've now binned the agency and got the resources to do it internally. Now I've always had a bit of distrust for agencies - but this was a real eye-opener. Unfortunately no one in this office had ever battered an eyelid at the quotations before; and the lifespan of these projects is generally 2 years on average.. with upwards of 15 running at any one time. (So the holding company loses approx. (15 x £170k) / 2 - or £1,275,000 p/annum - and that's for only one of their offices.)

Now my 'back of a fag pack' estimates make me think I could manage this project at about... £24k, with a buffer of funds to cover any reasonable additional amendments. This would also be done with staff who are more qualified (and more expensive.) than the agency has put forward. One of the guys I'm working with has referred to this as a "big client tax", and just as I look up the financials of clients before taking on work for them, a lot of companies will do similar and increase their prices appropriately - and often this means more honest estimates are thrown out because they don't look serious enough!

As someone who's actually approaching the time where he feels comfortable stepping away from contracting and actually setting up business "proper", that kind of practice actually makes me feel a bit shitty - I'm not sure I could ever knowingly rinse someone quite so badly, even though it would get my company well and truly running.

Comments

  • edited January 2017
    Unfortunately, the likes of KPMG,EY,DeLoittes seem to have made a living out of fleecing their clients simply because of their name/aura - and , as you say, generally staffed by low paid PAYE employees working 50 hour weeks. It truly stinks, however, its well ingrained- as you would know.

    BTW, i'll be sending you my cv for your new venture !
  • On the other hand i work in an industry where sometimes agencies bid and win work, having no resources to do the work and then get a production company like the one i do work for to do it and having basically no budget to do what they want or see themselves as a spielberg and micromanage every frame. Something they don't have the budget to do.

    We've got a big client that we do maybe charge a little extra for (you've gotta make your hay) but we don't take the piss. £880 for a junior is taking the piss. I'd say about half of that would be reasonable - the agency is managing that junior, training them, giving them a desk and lighting and heating the offices as well as needing to make a profit.

    Some huge production houses like MPC do take the piss out of their employees and charge ridiculously low. Basically slave drivers.
  • £110 an hour!?! What sort of developers are they!?!
  • Unfortunately there are still companies that prefer to pay for a brand.

    We were told recently that we were unsuccessful in a tender for some work purely because we are not a global brand. That's fair enough to lose out on merit - but when we recently saved that client £400k on a job resolving cock-ups a different "global brand" caused them on a previous job it confuses me.

    We don't muck about with our rates too much however will sometimes apply a "ballache" factor if a client has previously knocked us or can't make decisions (thus causing us to have to redesign repeatedly)
  • edited January 2017
    Most of the companies I've worked at with revenue like that have been more concerned about liability than finance.

    They'd rather stick to the 'big' global players and pay a premium knowing they have the infrastructure in place if something goes awry.

    There's also a lot of execs in the Tech world looking after each other from what I've witnessed.
  • I sell withing the law and finance sector. I had quoted a smallish broker and had won the deal, I then had a meeting booked to go and collect the signed documents.

    I was then called by a very embarrassed IT manager who said that it was off, the CEO had decided to go direct to the manufacture. It was crazy, I could supply the same kit, better engineers and we were £70k cheaper.

    The reason being. "He does not want to be at lunch and have the embarrassment of them not knowing your company, if asked the question"

    So they paid £70k over the odds for that lol.
  • To answer your question - no I don't charge them a higher rate, I do however have a rate range which I use depending upon 3 main factors.
    The first is the size of the contract. I'm an independent consultant and when/if I need to, I'll bring in associate consultants to fulfill particular specialisms or to provide engine room power. I earn a margin from each of the associates in addition to my daily rate, I therefore look at the overall size of the piece of work and essentially lower the overall margin/price for higher projected revenue........sometimes to what just "feels" right.
    The second and third relate to the actual work for the client:-
    If I'm asked to fulfill a "senior" role I will charge a higher daily rate. As a supply chain Program Lead for a major retailer my daily rate was 50% higher than my "ordinary" daily rate, despite the program work being long term (2 years).
    If there are 2 pieces of work, let's say at the "ordinary" level, I will usually quote a lower rate if one of them is long term. My context for long term is > 4 months.......ish.

    Another factor may well be how well the potential client knows your rates. If they've paid you a certain rate at a previous company and that rate is on the lower end, it will very likely influence how much they want to pay you now.
  • We don't do contract work and sell packages for a fixed rate regardless. I'm no purist so will drop my pants to get a deal in.
  • Just do the same work and say it's focussed at "enterprise level" and charge 10X

    Used to do it all the time - but to be fair, the larger customers would be the difference between breaking even and making a profit.
  • Thanks for all the replies chaps, ironically I've been a bit busy for the past week with that company - before I jet off for a well earned week away.

    Unfortunately, the likes of KPMG,EY,DeLoittes seem to have made a living out of fleecing their clients simply because of their name/aura - and , as you say, generally staffed by low paid PAYE employees working 50 hour weeks. It truly stinks, however, its well ingrained- as you would know.

    BTW, i'll be sending you my cv for your new venture !

    I completely agree with your assessment of the big 4. I had the misfortune of working in a company where Deloitte were getting involved with getting our product in to the NHS. Within a week of Deloitte's involvement being publicised, 4 members of staff left due to previous experiences with them, and ultimately Deloitte's advice was "Add a zero to your price and we may be able to help you gain some ground". Charmers!

    Hah, the way I feel at the moment - I'll be sending my CV out to Asda myself; the last few weeks have completely turned me off the only thing I can do. ;)

    On the other hand i work in an industry where sometimes agencies bid and win work, having no resources to do the work and then get a production company like the one i do work for to do it and having basically no budget to do what they want or see themselves as a spielberg and micromanage every frame. Something they don't have the budget to do.

    We've got a big client that we do maybe charge a little extra for (you've gotta make your hay) but we don't take the piss. £880 for a junior is taking the piss. I'd say about half of that would be reasonable - the agency is managing that junior, training them, giving them a desk and lighting and heating the offices as well as needing to make a profit.

    Some huge production houses like MPC do take the piss out of their employees and charge ridiculously low. Basically slave drivers.

    I think I'm in utter agreement with what you're saying there. So the average contractor - with decent experience and credentials - will be looking at £350-400 for what they were billing out juniors for £860 a day. Truth be told though, I reckon that their actually daily salary will be closer to the £140 mark as PAYE, with their specific skillset and industry. On the other hand, I've seen freelancers go as low as £250 when they've not been too great - so as a market price, I'd put their chaps at £250 p/day - with agency overheads at £100 or so. Still a bang tidy profit of £200 p/day p/developer!

    Production companies seem to be pretty brutal in some ways, I was co-located in a building owned by a production company - and the way they treated their interns was absolutely horrific. Their actual junior members of staff weren't much more fortunate either.
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  • Swisdom said:

    Unfortunately there are still companies that prefer to pay for a brand.

    We were told recently that we were unsuccessful in a tender for some work purely because we are not a global brand. That's fair enough to lose out on merit - but when we recently saved that client £400k on a job resolving cock-ups a different "global brand" caused them on a previous job it confuses me.

    We don't muck about with our rates too much however will sometimes apply a "ballache" factor if a client has previously knocked us or can't make decisions (thus causing us to have to redesign repeatedly)

    Ouch, that sounds like a horrible situation; I can only imagine that that's an absolutely horrible pill to swallow.

    I understand the idea of a higher price for difficult clients, and I think that's actually completely acceptable - it's just quoting for a truer reflection of the work required, and covering the element of risk.

    Most of the companies I've worked at with revenue like that have been more concerned about liability than finance.

    They'd rather stick to the 'big' global players and pay a premium knowing they have the infrastructure in place if something goes awry.

    There's also a lot of execs in the Tech world looking after each other from what I've witnessed.

    To be entirely fair, I hadn't looked at the situation this way. That does make some sense - that the higher price should go towards some form of insurance should things mess up. I guess I still take a bit of exception with regards to the way that everything else is billed at a horribly inflated price so as to cover it; seems a tad dishonest!

    As for execs in Tech; I agree. I'm also noticing a bit of a trend whereby people of CxO level are parachuted in (often at the request of investors.) and bring with them their own senior people, and their own contact book too.
  • One thing I've learnt through experience is that when dealing with larger entities that make a lot of money, you should be charging based on the responsibility that goes with the job and not just the time it will take to complete it. At the bottom end of the market, you charge based on time and cost. At the top end of the market, you take the time and cost and multiply it by the responsibility that comes with working for a client at the top end of the market. If there is a lot on the line, the price goes up.
  • In 2001 I started out in the wonderful world of self-employment with my own training and development consultancy after many, many years in the safe corporate world with Ladbrokes. The weird thing was that within 6 months I was quoting for and getting work with Laddies. I also picked up a very small start-up operation based out of a portakabin who were just about to move into an office that was a whopping 1000 square feet! I charged Laddies my full rate and I charged the start-up about half that - mainly because they couldn't really afford any more and also because I liked the owner and the product. I wanted to take a punt!

    I suppose the moral of that story is set your price (my Ladbrokes price) and charge no more than that, irrespective of the client. That's what you think you are worth, so charge it - but no more. Charge less if you really want (not need) a particular piece of work.

    It worked out ok though as six years later I was made an offer I couldn't refuse to join that start-up as HR Director and I'm now Group HR Director for a company bigger than Ladbrokes/Coral and Paddy/Betfair combined - and I'm still there 10 years on.

  • robroy said:

    I sell withing the law and finance sector. I had quoted a smallish broker and had won the deal, I then had a meeting booked to go and collect the signed documents.

    I was then called by a very embarrassed IT manager who said that it was off, the CEO had decided to go direct to the manufacture. It was crazy, I could supply the same kit, better engineers and we were £70k cheaper.

    The reason being. "He does not want to be at lunch and have the embarrassment of them not knowing your company, if asked the question"

    So they paid £70k over the odds for that lol.

    Holy shit, that's awful.

    I can imagine that law and finance can be a very pretentious sector, but I'm not sure quite how I'd deal with that after getting so far along the process.

    From what you've described that's a literal £70k pretentiousness tax; but have you ever thought "Well screw it, I can afford to increase my margins a bit with that attitude"?

    As far as I can see, in the coming months I've finally got the capital, experience of running teams, and experience of different environments to actually try and get out there and win work; this has meant I've been looking at the finances of the deals I'm involved with a (albeit in an advisory capacity mainly.) bit closer.. and some of them have been way off what I would consider profitable and with a healthy margin. This is why I'm a bit perplexed, and I've actually taken it as a bit of a confidence blow!

    To answer your question - no I don't charge them a higher rate, I do however have a rate range which I use depending upon 3 main factors.
    The first is the size of the contract. I'm an independent consultant and when/if I need to, I'll bring in associate consultants to fulfill particular specialisms or to provide engine room power. I earn a margin from each of the associates in addition to my daily rate, I therefore look at the overall size of the piece of work and essentially lower the overall margin/price for higher projected revenue........sometimes to what just "feels" right.
    The second and third relate to the actual work for the client:-
    If I'm asked to fulfill a "senior" role I will charge a higher daily rate. As a supply chain Program Lead for a major retailer my daily rate was 50% higher than my "ordinary" daily rate, despite the program work being long term (2 years).
    If there are 2 pieces of work, let's say at the "ordinary" level, I will usually quote a lower rate if one of them is long term. My context for long term is > 4 months.......ish.

    Another factor may well be how well the potential client knows your rates. If they've paid you a certain rate at a previous company and that rate is on the lower end, it will very likely influence how much they want to pay you now.

    Now this is interesting! So I'm bordering on burning myself out at my current contract - I was brought on to do a relatively mid-level role, with not a great deal of responsibility - this suited my needs as it meant I could still invest time in to my own stuff. Unfortunately I've just been asked to renew, but it's become apparent that my role is actually requiring a lot more than they've asked for. (Essentially designing the process for a new team, consulting on staffing issues, and being a bit of a liaison between offices.) This blindsided me a bit, so I know that I'm well and truly selling myself short at the moment.

    Realistically, I know I could add a good 33% on to what I'm currently billing - but I'm curious as to just how well they'd take that considering I've managed to do that role already on a lower rate. (Truth be told, I'm sure I could ask - as they've been impressed and I'm still in their good books for saving them the cash mentioned above; I just feel like I've made my bed and I've got to sleep in it for a few more weeks now!)
  • Same way that Waitrose charges more for Heinz beans that Lidl do.
  • If I've got hold of the right end of the stick here, you're currently on a direct contract with a company who have asked you to renew for a period of time?
    It sounds like they've grown to like & trust you and they've added a number of responsibilities to your original role?

    If this is the case and it were me, I'd initiate a discussion and illustrate the material additions to your original role, throw in an estimate of what they might be "worth" and be prepared for a bit of bartering......where you may or may not be successful at ratcheting up your original rate :smile:

    Prepare thoroughly for the discussion and make your case convincingly and professionally and you never know.

    However it goes it will be good practice/experience for the future.
  • Three words. OLD BOY NETWORK.

    Lots of mutual back scratching going on from people using other peoples money.
  • Three words. OLD BOY NETWORK.

    Lots of mutual back scratching going on from people using other peoples money.

    Bit off subject, but it's got worse since 2008 as those in 'positions' are probably getting that money from pay rises that would have normally been given.
  • Interesting this thread should pop up again.

    Just been shafted by a client on a major contract. We started work on a 3 month contract and after 2 weeks hadn't been paid the 50% up front payment (as they were contracted to do). We downed tools and now it sounds like they've sacked us off the job, after just asking to be paid (50% deposit is now a month late). They signed a contract for us to do the work, so we could sue them for the rest all of the money? Not my company but looking for advice as we are a small team!
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  • Interesting this thread should pop up again.

    Just been shafted by a client on a major contract. We started work on a 3 month contract and after 2 weeks hadn't been paid the 50% up front payment (as they were contracted to do). We downed tools and now it sounds like they've sacked us off the job, after just asking to be paid (50% deposit is now a month late). They signed a contract for us to do the work, so we could sue them for the rest all of the money? Not my company but looking for advice as we are a small team!

    It may be worth checking any insurance policies that you guys have. I know my policy with Hiscox has come in incredibly useful on one occasion whereby there was a dispute over the final few weeks work.

    I posted quite in depth about the situation on here at the time, but ultimately the threat of instructing Hiscox to take legal action seemed to have quite a big effect. I also wrote a brief (well, 4 page) summary of everything that had happened so far - including dates, emails, prices and so on; I wrote it as neutral as possible with a breakdown of costs incurred at the end (as evidence by the proceeding document).

    A combination of seeing the facts of the situation in black-and-white, emotion and ego aside, and having the very real threat of legal action hanging over their head seemed to give them a change of heart.

    As for the costs you could recover - seeing as no work was actually carried out, I doubt you could claim full costs. Perhaps one of the legal types on here could clarify, but I would hazard a guess that as they broke the contract 1 month after the initial down-payment was due, you would legally be entitled to the money owed until that point in time?
  • Three words. OLD BOY NETWORK.

    Lots of mutual back scratching going on from people using other peoples money.

    Hah, my first job was for a lad who set up an agency fresh out of university. Being Cambridge, he seemed to have a very good network without any of the requisite skill-set. (A degree in Zoology didn't really prepare him for either tech OR business. Funny that.) I must say, it was one of the most depressing realisations I've ever had; a decent network trumps hard work and skill at times.

    Obviously if you have both then you're pretty much made, and as the chap above demonstrates - even with one you can do pretty well for yourself. Unfortunately, if you only have the other one then you're a bit fecked.

    I've recently posted in the "General things that annoy you" thread about my recent spat with someone from that background.. Oops.
  • LuckyReds said:

    Interesting this thread should pop up again.

    Just been shafted by a client on a major contract. We started work on a 3 month contract and after 2 weeks hadn't been paid the 50% up front payment (as they were contracted to do). We downed tools and now it sounds like they've sacked us off the job, after just asking to be paid (50% deposit is now a month late). They signed a contract for us to do the work, so we could sue them for the rest all of the money? Not my company but looking for advice as we are a small team!

    It may be worth checking any insurance policies that you guys have. I know my policy with Hiscox has come in incredibly useful on one occasion whereby there was a dispute over the final few weeks work.

    I posted quite in depth about the situation on here at the time, but ultimately the threat of instructing Hiscox to take legal action seemed to have quite a big effect. I also wrote a brief (well, 4 page) summary of everything that had happened so far - including dates, emails, prices and so on; I wrote it as neutral as possible with a breakdown of costs incurred at the end (as evidence by the proceeding document).

    A combination of seeing the facts of the situation in black-and-white, emotion and ego aside, and having the very real threat of legal action hanging over their head seemed to give them a change of heart.

    As for the costs you could recover - seeing as no work was actually carried out, I doubt you could claim full costs. Perhaps one of the legal types on here could clarify, but I would hazard a guess that as they broke the contract 1 month after the initial down-payment was due, you would legally be entitled to the money owed until that point in time?
    we spent two weeks working on it, and a couple of weeks before christmas as well (but for the pitch job). Just think it's completely out of order to book us out for 3 months and something that was worth quite a bit of money, us to start work on it and them to just say "nah" and think that to be that.
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