Here’s what you need to know: It’s Not So Simple Accordingly, tried-and-true methods do exist for more accurately calculating the real costs of your labor, enabling you to perform a sound financial analysis and make a more educated decision when faced with the “employee versus consultant” dilemma. And in a services business, these errors can even result in spending more to provide a service than you’re charging for it.īut of course, this is not a new problem. ![]() In a product company, these errors can eat away at your bottom line. It’s truly astounding how few business owners properly account for the real cost of their labor. Andre doesn’t realize it, but there’s a good chance he actually would have saved money by hiring the consultant. The reality is that the costs per employee calculations when hiring are vastly different (and often greater) than those involved in bringing on a consultant, and the differences go way beyond annual salaries and hourly rates. Unfortunately, like all too many hiring managers, Andre’s financial analysis was overly simplistic and highly flawed as a result. So Andre decides to look for an employee to hire instead and save money. ![]() In contrast, Andre is sure he can hire a great developer as an employee for $100K or less. After all, Andre reasoned, that’s equivalent to an annual salary of over $145K, based on a typical 2,080 work hours per year. Andre was ready to bring on Roger, a freelance consultant who came highly recommended but backed off upon learning that Roger’s rate was $70/hour. He needs top software engineering talent and he needs it fast. Consultant Costs A Typical Flawed AnalysisĪndre’s gotten funding for his company and is looking to staff his development team. Don’t Be Fooled: How to Calculate Employee Costs vs.
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