My company is marking up way too much. I know it, but I can't change it

[gondrin]

Hm, I feel like I have to straighten that misconception a bit too often now.

We did not raise the prices as you just suggested.

In your example, the painter would finish his job in 1 hour, and then continue to dick around for 9 more hours. Then charge you 10.

The thing is, if the painter is up front stating that they charge X amount regardless of how long it takes and I accept that, that is on me. If they are charging by the hour and decide to dick around, then I would be unhappy and it is on them. That is how car mechanics usually work. They bill you for X amount of hours regardless of how long it takes as they go by the average on how long it usually takes and are upfront about it. If it takes them longer because unforeseen things, they don't make anymore because of it. If it takes less, then so be it.

If your company decides to do away with hourly statements(not pay but how long a job takes) for clients and the clients don't really care, then I don't see what the issue is.

Biggest thing is if you are unhappy with it, either bring it up to those who can do something about it stating why you are unhappy or find a new job.

[Katchii]

I am starting to have a huge moral dilemma with my employer.

Basically, my job isn't really something you can put a hard number behind it, and then sell it to a client. Instead, my work is calculated on top of what the rest of the team estimates that any particular task will take.

Normally, my performance is efficient enough that I can manage my job with 5% to a max of ~15% of time on top of the total estimation of the work. It depends on the complexity of the task and the team size.

This is also what I communicate to our account managers and how we've historically formulated our offers.

We have had a recent change in how we calculate and sell projects. My job isn't mentioned anymore, instead we started selling at a fixed price instead of time and material. The base calculation for my task, internally, is now 30%. That's DOUBLE the time I would at most need to perform my job.

[SNIP]

Since I am not stupid, I know that the primary reason was of course the fact that our bottom line was struggling for a couple of years now already.

I am honestly considering switching my employer. What is your take on this?

Sounds like you were undercharging before. How is the quality of work from your company? Is it good/high? Is it better than competitors? How much do your competitors charge?

All of these things need to be taken into consideration when discussing cost, because....capitalism, but also remember customers aren't JUST paying for time here, it's also about the expertise and quality.

To use your car example, it's like them charging you 4 hours for a job that SHOULD take 4 hours (that's also what "the book" requires them to charge for) but because they're so good at their job and have the specialized equipment it only takes them 3.

I'd try to understand a bit more about what's going on before leaving them. This doesn't sound like an integrity issue to me.

[Endus]

No, we have kept the prices but inflated our estimations.

If it was as you described, I would have absolutely no problems at all.

I just read the first page, so maybe you mentioned what business you're in, but to use a comparison, we had reno work done last year on our house. We got an estimate from the contractor, and some things came in under, some over. That's to be expected.

However, the bill is itemized. And that's where the problem with what you're describing comes in.

If you tell the client that your worker's time is $50/hour for labor, but then you double the hours he actually works so you can make more money, that's fraud. Like, actual crime. If they'd said the worker's time was $100 and charged the same final tally, it wouldn't be fraudulent.

Like, consider if we were talking material costs. You give the client a price for flooring, and then double how much square footage they actually need, and then you take all the extra material so you can use the "extra" the client paid for to redo your own house. Theft, obviously, right? Yeah. Same difference, really.

In your case, you say you need 5-15% of time on top of the original estimation. And your boss is putting 30% in. So, it comes down to this; is this just what he's putting in the estimate? Or is he charging 30% regardless of your actual time investment? Being generous on the estimate to avoid any chance of price shock with overruns is kinda fine. The latter is charging the client for work that wasn't actually done, which is fraud.

This is assuming the quote prices it out as a labor price, though, and not a surcharge for the labor output. If he's pricing the value of your product at 30% of the price charged to the client, but only valuing your time and effort at 5-15%, you're the one being hosed by your boss, not the client.

[Krastyn]

Hm, I feel like I have to straighten that misconception a bit too often now.

From what it seems reading your posts, your old estimation system was time & materials. You would quote your clients what you thought it would cost, then you would invoice them based on actual expenses, and then they would have access to your books to verify the charges. Your new system seems to be fixed price / lump sum, where you provide a quote to a client, and if they accept, that's the final price (barring any scope changes). Is this correct?

[Cubeman777]

I just read the first page, so maybe you mentioned what business you're in, but to use a comparison, we had reno work done last year on our house. We got an estimate from the contractor, and some things came in under, some over. That's to be expected.

However, the bill is itemized. And that's where the problem with what you're describing comes in.

If you tell the client that your worker's time is $50/hour for labor, but then you double the hours he actually works so you can make more money, that's fraud. Like, actual crime. If they'd said the worker's time was $100 and charged the same final tally, it wouldn't be fraudulent.

Like, consider if we were talking material costs. You give the client a price for flooring, and then double how much square footage they actually need, and then you take all the extra material so you can use the "extra" the client paid for to redo your own house. Theft, obviously, right? Yeah. Same difference, really.

In your case, you say you need 5-15% of time on top of the original estimation. And your boss is putting 30% in. So, it comes down to this; is this just what he's putting in the estimate? Or is he charging 30% regardless of your actual time investment? Being generous on the estimate to avoid any chance of price shock with overruns is kinda fine. The latter is charging the client for work that wasn't actually done, which is fraud.

This is assuming the quote prices it out as a labor price, though, and not a surcharge for the labor output. If he's pricing the value of your product at 30% of the price charged to the client, but only valuing your time and effort at 5-15%, you're the one being hosed by your boss, not the client.

What if the IT company provides software that takes the employee 10 hours to work through.

But the employee writes a script to automate the process in 2 hours?

Would it still be fraud if the client was charged for 10 hours of work?

[Endus]

What if the IT company provides software that takes the employee 10 hours to work through.

But the employee writes a script to automate the process in 2 hours?

Would it still be fraud if the client was charged for 10 hours of work?

It depends on how it's itemized.

If it's itemized as "10 hours of labor by X specialist", and said employee only needs 2 hours, then yes; that's fraud. If you estimated 10 hours and it only took them 2, you're obliged to only charge the client for the 2 hours it actually took.

If it's itemized as "Set fee to accomplish task Y", then no. No fraud. But if they're charging for 10 hours of the employee's time, effectively, and it only actually takes that staffer 2 hours, then that staffer's the one being (technically legally) screwed over, rather than the client. What he should've done is figure out the algorithm, and then sell it to the company for some exorbitant retire-early-off-this price. And if they won't buy, sell it to their competitors while refusing to actually use it themselves.

[GreenJesus]

very interesting that you guys have such a different take on it.

As long as they can financially handle it, milk them? Wouldn't that also be possible with transparently increasing the daily rate?

Tell your company to increase your pay based on the fact you are doing 10 hours of work.

[Gaidax]

So get a raise or quit... moral dilemma pfft.

I used to work in a start-up that was developing various custom cellular connectivity products.

We marked up all up to 100% extra time, because more often than not we had no idea how much we are going to take, because much of what we did was experimental development of a physical embedded product (for example smart bags/wear or custom connectivity means).

I had no moral dilemmas with that at all and I'm the one who was formulating technical parts of proposals to the customers, including time and costs. Yes, I went upwards, but the customers weren't exactly Joe and Jane from local roadkill restaurant - these were companies in their own right with more than enough $$ to afford these adventures.

In the end a company is a company, it's not only "whelp I can do it in X time, so let's have 15% margin on that" - it's not only your salary, it's your colleagues salary and $$ to keep the lights on and coffee machine up and running. And then you have to take into account risks and risk management, basic "what if" cases. Fuck that up and you'd have to let people go, so yeah you bet I went for higher margins.

- - - Updated - - -

P.S. 30% margin on worker time flat only? Running a charity there?

[Afrospinach]

very interesting that you guys have such a different take on it.

As long as they can financially handle it, milk them? Wouldn't that also be possible with transparently increasing the daily rate?

This is one of the fundamental things that separates people who can run a business from people who cannot.

Remember your clients are adults who can make their own decisions is all I am going to say about this.

[Zuben]

I don't think this is an issue you can get rid off by changing your employer, since, at least by my experience, it's something that everyone in the industry does. And if not this particular thing then it's something else.

[StayTuned]

It depends on how it's itemized.

If it's itemized as "10 hours of labor by X specialist", and said employee only needs 2 hours, then yes; that's fraud. If you estimated 10 hours and it only took them 2, you're obliged to only charge the client for the 2 hours it actually took.

If it's itemized as "Set fee to accomplish task Y", then no. No fraud. But if they're charging for 10 hours of the employee's time, effectively, and it only actually takes that staffer 2 hours, then that staffer's the one being (technically legally) screwed over, rather than the client. What he should've done is figure out the algorithm, and then sell it to the company for some exorbitant retire-early-off-this price. And if they won't buy, sell it to their competitors while refusing to actually use it themselves.

It is itemized now to a set fee, so that it doesn't fall under what you described as fraudulent. However, the calculation as to how we get to those numbers are a lie.

Before we would always charge what we actually used.

Now we internally estimate work, and account management adds bogus hours on top, and communicate timings that don't actually reflect reality.

The official communication towards the client is that our work takes this long. But the truth is that we now usually finish early if everything goes well and the client is stuck paying for labor that never happened.

To me this feels like predatory behavior, and causes a dishonest relationship with your client.

This could be avoided by raising your daily rate to achieve the better bottom line and having open book regarding your risk buffers. Additionally, it allows for proper pipeline planning with the client together - we only have business with stable key accounts who continuously order work from us.

If a client wants to drop you because you're too expensive now, I wonder how long they will keep you if suddenly your work takes ~15% "longer" to be completed on average. It's almost a potato potatoe situation, but only one leaves a sour taste in my mouth.

I strongly believe that open partnerships with your clients are more stable and lucrative in the long run and will give you a better industry reputation than inflated prices not rooted in reality.

- - - Updated - - -

P.S. 30% margin on worker time flat only? Running a charity there?

Well, yes? Why would it be a charity? The actual margin is hidden in my daily rate. In addition we have risk and overhead buffers that are calculated additionally on top of everything else.

The 30% is the estimation how much effort I need to invest to finish the project. In reality it's more an average of 10% of the total hourly estimation.

If a task is 100 hours long, I will usually manage it with roughly 10 hours of investment. We're now selling and pretending that it will take me 30 hours instead. But we hide this in a fixed sum offer.

In your case, you say you need 5-15% of time on top of the original estimation. And your boss is putting 30% in. So, it comes down to this; is this just what he's putting in the estimate? Or is he charging 30% regardless of your actual time investment? Being generous on the estimate to avoid any chance of price shock with overruns is kinda fine. The latter is charging the client for work that wasn't actually done, which is fraud.

He still charges the 30%, because he sold the whole project as a fixed sum based on that calculation. If I ever need 30% to do my job, I will quit voluntarily.

@Krastyn ... yes

[Gaidax]

Well, yes? Why would it be a charity? The actual margin is hidden in my daily rate. In addition we have risk and overhead buffers that are calculated additionally on top of everything else.

The 30% is the estimation how much effort I need to invest to finish the project. In reality it's more an average of 10% of the total hourly estimation.

If a task is 100 hours long, I will usually manage it with roughly 10 hours of investment. We're now selling and pretending that it will take me 30 hours instead. But we hide this in a fixed sum offer.

What is your position even? I mean, do you actually have any real touch with finances in said company, do you know what it plans to achieve and what is currently at stake?

Ultimately, it's up to business and finance staff to figure out what they need to do for whatever goal the company wants to achieve. Ultimately, over 15 years of working I learned to never spit in a well I drink from and IMO trying to do musings over whether company ethically charges customers or not is just silly, because they could just mask the end price in other way anyway.

The end question is whether the price is competitive for the service given or not. It's like some other said - your customers are not dumb, if they are ready to pay the asking price with markup, then it's all fine.


From the perspective of the company I am working for now (big fintech corporation with 10k+ employees around many countries in the world), we have a cross-division issue of underreporting time spent on development. There's legit millions of dollars of underreporting going on. Heck last quarter, just our R&D division in just 2 R&D offices in Israel and India underreported roughly $4m USD.

So who knows, what's it on your end, for all you know your end customers might be getting 30% markup, but then they get a "discount" simply because 10-15% of that is not reported. Heck, reminds me of that startup back in the day - time reporting for work done was spotty at best, despite some efforts to improve it.

Ultimately it's not that simple, unless of course you claim company-wide reporting perfection, my doubts about that.

[Evil Midnight Bomber]

I am starting to have a huge moral dilemma with my employer.

Basically, my job isn't really something you can put a hard number behind it, and then sell it to a client. Instead, my work is calculated on top of what the rest of the team estimates that any particular task will take.

Normally, my performance is efficient enough that I can manage my job with 5% to a max of ~15% of time on top of the total estimation of the work. It depends on the complexity of the task and the team size.

This is also what I communicate to our account managers and how we've historically formulated our offers.

We have had a recent change in how we calculate and sell projects. My job isn't mentioned anymore, instead we started selling at a fixed price instead of time and material. The base calculation for my task, internally, is now 30%. That's DOUBLE the time I would at most need to perform my job.


I compare this now to the following situation:

Imagine your car is broken. You take it to a repair shop, but you really don't know jack shit about cars. The repair shop knows this, and they sell you 8 hours for something they only need 4 hours for to fix. The invoice only reads "fixing your car".

Now, we're not working with the little guy. My clients are the world's biggest corporations, no joke. They can afford and accept almost every cost quote you send their way. Regardless of the fact, I don't think this is right.

I have told my supervisor about this, but their opinion is that with the additional funding, we can now afford better conditions at the company. Increased yearly budgets for training, more time to do internal improvements and projects, etc. etc.

Since I am not stupid, I know that the primary reason was of course the fact that our bottom line was struggling for a couple of years now already.

I am honestly considering switching my employer. What is your take on this?

Seems to me that if the company was struggling...you may have been undercharging before and the new way of calculating price fixes that.

[StayTuned]

What is your position even? I mean, do you actually have any real touch with finances in said company, do you know what it plans to achieve and what is currently at stake?

Of course. We're not that big. I review our numbers directly with the head of finance monthly because I am working on one of our most important accounts. I am leading the projects we win with them, together with my product owner and account management team.

I perfectly understand that we have struggled financially. But I disagree with the path we've taken to fix the problem.

Underreporting usually doesn't happen with us to any major degree since we have abnormal level of internal tracking requirements. But it is certainly not perfect.

- - - Updated - - -

Seems to me that if the company was struggling...you may have been undercharging before and the new way of calculating price fixes that.

We were. Especially on senior and leading positions we often had unfavorable daily rates, which caused our margin to drop drastically.

Which is why I've argued with my management to increase our rates. But not like this.

[Evil Midnight Bomber]

We were. Especially on senior and leading positions we often had unfavorable daily rates, which caused our margin to drop drastically.

Which is why I've argued with my management to increase our rates. But not like this.

Seems to me like they were just looking for the easiest place to increase those margins a bit so they can keep the lights on. I mean, I'm not looking at the books so it's hard to say for certain. It doesn't seem like there's any fraud involved with the structure change...and you said the clients aren't complaining. And believe me, if the clients are as big as you say they are, if they thought they were being overcharged...they'd let you know.

Also, just to play the grey hat card, your clients would probably have no problem with milking their customers for every cent they can get... so there's a kind of justice at play if your company is doing the same thing to them.

[PC2]

wth? If you raised your prices without a significant drop off in customers then that means you weren't charging enough before.

[Krastyn]

Now we internally estimate work, and account management adds bogus hours on top, and communicate timings that don't actually reflect reality.

You don't know reality when you quote. You're predicting the future. You can try to use the past as an estimate, but that's still not the future.

The official communication towards the client is that our work takes this long. But the truth is that we now usually finish early if everything goes well and the client is stuck paying for labor that never happened.

Right here is one of the major differences between time & materials, and fixed price. Risk. In a time and materials quote, almost all the risk lies with the customer. With fixed price, it lies with the seller.

To me this feels like predatory behavior, and causes a dishonest relationship with your client.

How is it dishonest to the customer. You're telling the customer if they pay $X, they will receive their goods by Y date. You then deliver the goods on Y date. They got what they paid for.

This could be avoided by raising your daily rate to achieve the better bottom line and having open book regarding your risk buffers. Additionally, it allows for proper pipeline planning with the client together - we only have business with stable key accounts who continuously order work from us.

"Open" books aren't necessarily open. Unless you not only have cameras set up filming all of your workers, but also have a reference list showing what the "average" time to do a task is, there is no more "trust" to time & materials than to fixed price.

If a client wants to drop you because you're too expensive now, I wonder how long they will keep you if suddenly your work takes ~15% "longer" to be completed on average. It's almost a potato potatoe situation, but only one leaves a sour taste in my mouth.

As a purchaser, I 100% prefer fixed price over time and materials. You tell me how long it is going to take, and how much it will cost, and I now have that planned. You finish early? Great. Doesn't impact the rest of my work. I don't care if I "overpaid", because it still only cost me what I expected.

What I care about as a purchaser is:
- Accuracy
- Quality
- Delivery Time
And distantly behind - price

As a company we will routinely pay above what a low bidder will offer in order to stay with a good vendor. Sometimes significantly (+50%) more.

[StayTuned]

What I care about as a purchaser is:
- Accuracy
- Quality
- Delivery Time
And distantly behind - price

As a company we will routinely pay above what a low bidder will offer in order to stay with a good vendor. Sometimes significantly (+50%) more.

You sound like my ideal client :>

I still don't agree that our process is fair but certainly the opinions here have given me some further perspective on this topic.

[stevenho]

Free market is free for a reason.
If you are charging too much, clients will find cheaper alternatives. Unelss you are a monopoly, in which case appropriate agencies should look into it.
If you have a problem with maximizing profits - quit.

[Orange Joe]

I am starting to have a huge moral dilemma with my employer.

Basically, my job isn't really something you can put a hard number behind it, and then sell it to a client. Instead, my work is calculated on top of what the rest of the team estimates that any particular task will take.

Normally, my performance is efficient enough that I can manage my job with 5% to a max of ~15% of time on top of the total estimation of the work. It depends on the complexity of the task and the team size.

This is also what I communicate to our account managers and how we've historically formulated our offers.

We have had a recent change in how we calculate and sell projects. My job isn't mentioned anymore, instead we started selling at a fixed price instead of time and material. The base calculation for my task, internally, is now 30%. That's DOUBLE the time I would at most need to perform my job.


I compare this now to the following situation:

Imagine your car is broken. You take it to a repair shop, but you really don't know jack shit about cars. The repair shop knows this, and they sell you 8 hours for something they only need 4 hours for to fix. The invoice only reads "fixing your car".

Now, we're not working with the little guy. My clients are the world's biggest corporations, no joke. They can afford and accept almost every cost quote you send their way. Regardless of the fact, I don't think this is right.

I have told my supervisor about this, but their opinion is that with the additional funding, we can now afford better conditions at the company. Increased yearly budgets for training, more time to do internal improvements and projects, etc. etc.

Since I am not stupid, I know that the primary reason was of course the fact that our bottom line was struggling for a couple of years now already.

I am honestly considering switching my employer. What is your take on this?

This is how a free market works. If they are charging too much a competitor will be able to move in and undercut them. If not it's all good.