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Comparing Hourly Rates Between Software Consultancies

Written by 
David Jackson
Comparing Hourly Rates Between Software Consultancies
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After choosing a software vendor, you’ll typically walk away with an estimate of how long the project will take and what the vendor charges per hour. You’ll sign the contract, the vendor will get to work, and then you’ll start getting the bill for the time they’ve sunk into development.

Table of contents

But sometimes, an hour isn’t an hour isn’t an hour.

I regularly see proposals from competitors that quote low hourly rates billed on a weekly or monthly basis. A consultancy quoting you a $125/hour rate, but who bills weekly, will send you a flat $5,000/week invoice.

But they don’t account for all the time their developers are technically on the clock but not working on your project. You might end up getting billed for the developers’ vacation days, sick days, company retreats, short workdays, and any number of occasions that have nothing to do with your project.

What else did their developers do during that week? They could have:

  • Taken a day off for a federal holiday
  • Convalesced after getting sick
  • Worked a couple six-hour days (instead of 8) 
  • Taken PTO
  • Worked on internal company projects

All can add up to significant differences in what you’re ultimately charged. What started off as an appealingly low sticker price per hour is, as it turns out, not.

In the United States, for example, our developers at FullStack receive about 4 weeks of PTO per year. If we were to bill clients on a weekly or monthly basis they would end up paying for this time, which would equate to an 8 percent higher hourly rate. In Colombia, where our developers get about 8 weeks of PTO, that’s a 16 percent difference. Add in short days and sick days, and the difference can be 25 percent or more. 

When looking for a vendor, it’s important to look beyond the appeal of low hourly rates and go deeper.

Watching the seconds go by, literally

Ultimately, without a reliable system for tracking the time developers actually spent on your project, their quoted rate is meaningless. 

When it comes to tracking development hours and not wasting client money, we at FullStack are vigilant.

We use the time-tracking software Toggl, which we integrate with Jira, our project management software. This allows every person on our team to track their time down to the second. We don’t block-bill or round time up to the nearest 15 or 30-minute increment. And we don’t bill by the day, week, or month.

That means we only bill clients for the time we actually work on their projects.

Each time a developer starts a new story in Jira, they start the timer and log how long each story took them to complete. This allows us to run reports for clients to determine the time actually required to build a feature and how much it cost. We can also compare the amount of time billed to the amount of time estimated for a feature, sprint, or the entire app. 

Every day at noon, we send a report to clients showing all hours billed during the previous day, broken down by the Jira story (you can read more about how we report hours to clients in our Playbook). The report includes:

  • Totals for the previous day
  • Totals for the month to date
  • Totals for the year to date

This lets clients see who worked the previous day and for how long, what they worked on, what got done, how much it cost, and where the bill stands for the month and the year.  

This high level of transparency results in unsurprising invoices, happy clients, and successful projects. 

A tale of two consultancies

Now consider the difference by comparing the following scenarios of hiring a developer for one month through 1) Another consultancy and 2) FullStack Labs: 

Consultancy 1 Consultancy 2
Hourly rate $125 $125
Developer level Senior Senior
Time worked per day 6 hours 8 hours
Vacation days taken 2 2
Number of days worked 20 20
Vacation days factored in bill Yes No
Time tracked No Yes
Billing increment Monthly By the second
Monthly bill $20,000 (flat fee) $18,000 ($125 x 144)
Hours billed 160 144
Hours worked 108 144
Effective hourly rate $185 $125

Not only does the first consultancy end up charging a $65 more expensive effective hourly rate, but by not granularly tracking time, they are unable to provide their client with a detailed report showing how time was spent and what was completed. You’ve ended up paying more and not actually knowing the true cost behind the work performed. 

Be careful when comparing hourly rates. They can mean vastly different things depending on how the consultancy tracks its time and bills its clients. Our level of transparency and how we manage our projects leads to happy clients.

David Jackson
Written by
David Jackson
David Jackson

As the CEO of FullStack Labs, my primary responsibility is for the management of the company. I manage and directly contribute to many different departments within the company, including recruiting and hiring, marketing and sales, bookkeeping and accounting, tax and legal, and general operations. I take a hands on approach to management, meaning I prefer to roll up my sleeves and work directly on projects, instead of managing through meetings, policy, and bureaucracy. Prior to FullStack Labs, I was Vice President of Sales and Partner at CAE, where we built an industry-leading marketplace for buying and selling used capital equipment. I graduated Summa Cum Laude from the California State University Sacramento with a degree in Business Administration.

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