I should be a personal-finance carnie

Ramit Sethi

I was at a July 4th BBQ on Wednesday and my friend mentioned how she’s 100% billable right now. That means that every hour she works is billed to a client.

So, in the spirit of being overly competitive with small amounts of information, I decided to try to guess the difference between her income and the amount her firm bills her out at. For example, if her salary comes out to $25/hour and her firm bills her out at $100/hour, the answer would be 4x. (How to calculate your hourly wage from your annual salary.)

I guessed “10x” by assuming that she made $40/hour and her company billed out at $400/hour. Turns out I was off for a couple pieces of data, but I was almost exactly right about the other one. I did this while sitting barefoot and eating a huge piece of meat. I know, I know. How do I do it?

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Can anyone guess the right answer?

Here’s a hint: The correct answer was 7x
Hint 2: She’s 25 years old and a senior consultant at a litigation-consulting firm

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  1. ben

    i’m going to guess $400 –> $57.14/hr. ~$120k is a king’s ransom for a 25-year-old, but she’s a *senior* consultant, and if the answer were less surprising you wouldn’t have made us guess 😉

  2. James


  3. dan the echo boomer

    I have no clue. You’re just that good?

  4. Jonathan Atkins

    Depends on the state… my guess for AZ would be $50 and $350.

  5. Tammy

    Well it looks like her profits are offf the charts at 75%. Unless both figures are wrong, for 25 dollars an hour, you would have to figure how many hrs a week divided by how much she pays herself right? Thanks!

  6. Grodge

    Whoa! back the truck, here! We must be in an alternative universe. Let me get this straight:

    1. A 25 y/o is a “senior consultant”?

    2. Somebody is paying a 25 y/o $40/hr to do something besides throw a wicked slider or parade around naked?

    Frankly, I don’t care which number is correct… tell me what field she is in! Although I’m middle-aged, I’m sure I could put in a few years training and get to her point pretty quickly.

    Tell me.

  7. ALO

    Grodge, not to burst your bubble but the IT industry is one of, the many places people at age 25 or younger are making way beyond $40/per hour.

    If you interested in IT and truly have the desire to learn, there is a $50+/hour job waiting for you in most major metropolitan cities.

  8. Presh

    Just to clarify: does 100% billable really mean “that every hour she works is billed to a client”? From my litigation consulting experience, I would imagine it means that (hours she billed) / (8 x num workdays) = 100%.

    Weekend, overtime, and holiday work count toward the numerator but not the denominator. In this formulation, I’ve had stretches where I was “130% billable.”

  9. James - RE agent & landlord & LO & insurance & rehabber

    “senior consultant” = means boss can charge more by calling her “senior” instead of junior or just consultant

    it’s just a marketing term, doesn’t mean anything. Banks and mortgage brokers do this all the time. One place I worked at put “senior” on everyone’s business cards even if they were hired yesterday and had no experience.

  10. klughing

    Hi ALO, can you give us examples of positions in IT that makes $40-$50 an hour?

  11. Grodge

    Seriously, is this a Bachelor’s level job?

    I don’t mean to be-labor this point, and I’ll be the first to admit that I’m a dinosaur (I don’t want to tell you what I was making at 25y/o!).

    What type of IT consultant is this? Hardware, software? Does the salary rise with more experience?

    Can this be offshored? Maybe her boss can pay some Asian $6, bill $400, and keep the difference?

  12. Ramit Sethi

    Guys, how much clearer can I be? I wrote that she’s a consultant at a litigation-consulting firm. You can search that out to see what it’s all about.

  13. ALO

    Jobs in IT that can make $50+/hour.

    Project Manager
    Security Engineers
    Managers or Directors
    Network (Network Security) Engineer
    SAP Engineer
    Forensics Expert dealing with litigation and accounting

    In most cases you can interchange the title engineer with consultant, architect, manager, director, etc. Which ones can be outsourced? Security is tough to outsource, along with forensics, auditing and management. Most people will top out as independent consultants in the $80-$120 range but exception are made for experts in high profile/demand areas like financial and accounting litigation, which can fetch as much as a lawyer per hour.

  14. Luke

    I would love to become a financial consultant…Of course I need to know what they do first 🙂

    I would say she is around $60/hour for her lofty, well titled job…

  15. Grodge

    I did this while sitting barefoot and eating a huge piece of meat. I know, I know. How do I do it?

    You’re just that smart.

    7 X $40 = $280 billed per hour.

    $80K is a nice piece of change for a 20-something.

    Alternatively, the calculation could be:

    7 X $57 = $400

    But I think that is less likely.

  16. cackle

    the difference is $240/hr or approx 340/hr was it really that simple or did i miss something

  17. Bradford

    Ramit: I think we’re more shocked that a 25 y/o is earning 100-120k a year. Granted, I’m 23 and making about 94k, but I work as a IT/PM consultant in Seattle…so it isn’t *that* much 😛

  18. Carl Eisler

    Who cares?

  19. klughing

    Bradford: I still think 94K is a lot at 23. I wish i can do that :-(. Care to teach me how? 🙂

  20. gophersker

    Maybe its just me, but I’m confused about what the question is….but anyways,

    I work for a consulting firm as well and often times speak in these terms. What I think is being left out here that would reduce her “multiplier” is the amount of benefits (time off, holidays, medical) that she would also receive.

    Either way, if her multiplier is 7 that is unbelievable. In my company, our corporate goal is for production employees to have a multiplier of 3. Obviously, high performing employees will have a higher multiplier, which for us has to come via overtime since we are competitive within our industry by generally having lower hourly rates than the competition.

  21. Imtos

    She makes 40/h and works 2,000 hours a year = $80,000 in salary for her

    Her firm bills her at 280/h (7×40/h) for 2,000 hours a year = 560,000

    Now, the firm also pays her a bunch of extra stuff like medical, dental, 401k match, insurance, vacation time, social security, other FICA, etc… so her cost for the firm would be aprox. 80,000 x 1.5 = 120,000

    So for the firm: 560,000 – 120,000 = 440,000 in profit from her work but they also give her a nice office, computer, blah, blah and blah so she generates probably around 300k for her employer per year. Of which, most goes to the partners pockets and Uncle Sam!

  22. Shreenath

    I work at a consulting firm myself and yeah I think the calculations of Imtos is probably right on~
    we bill lower for litigation than strategy (think Mckinsey/bain/bcg) but bill every hour while in strategy we bill fixed 8 hr days irrespective of time worked.
    To all those going on about overtime, this is a salaried job and most of us do not get overtime!
    Also, making 60-100 k out of college is fairly easy if you did engineering. I had an offer for 80 in some god-forsaken town in texas which i obviously turned down!
    Anyhow, another great blog ramit~

  23. Imtos

    So, what is the “right” answer? did I get it right? Did I win a prize? a pat in the back?

  24. Mrs. Micah

    I guess I’m less than 2x? I’m paid $15 per hour and I’m hired out at $27.50 per hour.

  25. R

    I am also a consultant (not senior) at a litigation consulting firm. To be 100% billable you would have had to put in more than 8 hours a day. When I used to be a management consultant they billed me out at $300 an hour as an analyst and I was making 60K a year as a 22 year old. In my litigation consulting firm, I am billed out at $150 an hour as a consultant and I make only slightly more than I used to at a mgmt consulting firm. There’s also a lot of costs the company shells out for each employee- medical expenses, life insurance, disability insurance, 401K matching, profit sharing, parking, FICA, Unemployment tax…