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Billing rates

Billing rates

Billing rates

I started my own company about a year ago and when I went out on my own I had a good idea of what my competitors were billing for Civil type work (site plans, grading, utilities, drainage, ect..) Most local firms seem to be billing about $85 an hour for most civil work, some drainage stuff (flood plain studies..)they are billing at $95.  I have since taken on some residential structural work and learned that most structural guys are billing a higher rate than just plain civil guys, they seem to be $95-125 per hour.  Is this typical that structural engineers bill a higher rate?  I understand that rates are region specific but do these rates seem 'normal' to you guys?.  I live in a region where cost of living is quite high (average home is $450k).  And, lastly, do you think a guy such as myself who works out of the home and has low overhead should bill a lower rate? Some clients seem to think I should be less but I think allthough I have lower overhead I am FAR more effiecient than a large consulting firm so in my mind its a wash.
Thanks for your thoughts.

RE: Billing rates

It's irrelevant where you work from, so long as the work is done in a timely manner.  It may not sit well with a client that you work from home, but it's just a gut reaction from them to expect your charges to be lower... comfort level.

Dan - Owner

RE: Billing rates

Yeah, we bill that much when we do "engineering" structural work.  But some of the hours we bill is as "drafting" which is lower rate ($75/hr).  

Never, but never question engineer's judgement

RE: Billing rates

I charge at least $125 per hour in the St. Louis area - all structural.  But I use a lot of good cheap software that lets me get a lot of work done quite quickly.

I still see a lot of engineers around here sizing beams by hand.  Something that takes them fifteen minutes - I can do in fifteen seconds.  They still pencil out their calcs!!

Also have created a number of spreadsheets that do most calcs for simple buildings for submission to Public Works.

Really saves times.

Good luck.

RE: Billing rates

I think that with the notion of a specialty (structural engineering) within civil engineering, it wouldn't surprise me to see slightly greater rates in general.

I think you should be charging a rate no lower than the firms around you, certainly, and enough to cover your expenses and make a profit.

Actually, I've found that a fixed cost type of contract is usually more profitable than an hourly rate schedule.  That way, you can be as efficient as you want, while charging a fee commensurate with the market for the specific service (or even lower and still make a good profit).  Also theoretically, you're not limited by the number of hours in the day to limit what you can possibly make then...

RE: Billing rates

People value goods and service in large part based on what they pay for them. If you set your rates a lot lower than local competition they will go to the competition with the rationale that he only values his services that much so why should I value them at all.

A friend tried to start a computer repair business out of his house. He set his rates to bare wages and shut down in less than a year because he could not make a go of it.

He ended up working for a local computer shop for about the same wages that he tried to charge directly and was charged out at 3 times the wage rate.

He ended up doing a lot of work for firms that would not even talk to him when he was on his own at the lower rate. Some of that was the bench strength and reputation of the firm and part of that was that he lowered his value so much in the eyes of the prospective clients that they would not hire him.

Charge the going rate for services. I will often quote an hourly rate that is competitive and an estimate of hours and then offer to fix the total based on the estimated level of effort. Clients like this as it fixes their costs and you never get into the argument about charging for phone calls, traveling time etc or defending the time spent. Often I can complete the work in less and make even more hourly than originally quoted. Only a couple of times has the effort expanded to the point where I was working for less than wage rates.

Rick Kitson MBA P.Eng

Construction Project Management
From conception to completion

RE: Billing rates

My feedback/opinions/experiences (including stuff you probably already know)...

1) I rarely charge by the hour. Almost all projects are based on a fee proposal with clearly defined services, limitations, and deliverables. The fee is presented as a range (low to high) and my best estimate is included (somewhere between low and high). The signed proposal is the work contract.

2) The work and deliverables specified by the contract are the minimum that I provide to the client. If the client is good, I like the project/work, or for whatever reason, I may provide additional services beyond the contract at no additional fee. The amount of this obviously varies from client to client and project to project.

3) If I come in under budget (contract fee estimate), I generally split the difference with the client (if it is a good client). I also let the client know that I came in under budget and did not charge him/her/it the amount I could have per the contract conditions. This has always been highly appreciated by the client.

4) If I come in over budget (contract fee estimate), I eat it. Underestimating the project fee is my fault, not the fault of my client. I do, however, show the client how much I went over the contract amount (including on the invoice) and explain to the client that that he/she/it was not charged. This is usually appreciated by the client.

5) I charge double for legal work (expert witness). I do make exceptions for legal work involving little old ladies, churches, and various charitable organizations.

6) I make sure that I relate to my potential client (or current client) that the work is being done is by an engineer (me) and not by a technician - that they are paying for an engineer, not a technician. There is nothing wrong with technicians (I am sure we both know some who are far sharper than some engineers we know), but the good clients will understand paying more for an engineer and understand that difference.

7) If I don't like the client or project, I charge more or don't do the work. Of course, I make sure to clearly state what my charges will be up front. Sounds easy enough, huh? That may be more than a bit tough at first if you don't have a reasonably dependable client base, but I suggest working towards it.

8) More qualifications, good project record, and goof references support higher billing rates and higher contract fees.

9) Clients who "shop around" for the lowest hourly rates or lowest contract fee are not the clients I want. I have found those are the clients who complain the most, appreciate the least, sue quite a bit, and don't want to pay. I try to always take the time to explain to my potential client (or current client) why lowest hourly rates and lowest contract fee are not the main issue. I walk them through how my fees are usually small percentages relative to the overall project cost and my design time directly affects the project cost. Either: more time on my part can mean lower costs on my client's part; or my fee may be higher than others, but the end result will be better for the client - general Qualification Based Selection stuff. Much of that depends, of course, on the previous comment (qualifications, record, references). I have found that good clients actually appreciate this - most had never thought of it before I presented it. That doesn't mean I haven't started out with a lower fee on my first project with a new client, but I presented such to the client that I was doing this in expectation that they will appreciate and understand the value of my services. If so, I could then increase fees to my standard level. When I took this approach, most clients either immediately appreciated this or did not retain my services at all. All of this was tough the first few times, but quickly got easier after that.

11) Not withstanding the comment above, I don't undercharge. I have learned never to compete on solely a fee basis. I discovered early that is one of the worst business decisions I could make. My fees are fair and reasonable.

12) Where you work directly affects your bottom line, but it shouldn't affect how your client views your work or your fees (though it may). If your clients have questions about this, tell them directly and honestly why you are working at home. For me, I am far more efficient at home and I get to see my children tons more than when I worked at the office. My clients haven't minded this at all and few have asked. For your clients who do ask, I suggest asking them to make decisions based upon your work product.

13) Don't hire staff! (Ever).

14) Do your best! (Always).

tsgrue: site engineering, stormwater
management, landscape design, ecosystem
rehabilitation, mathematical simulation

RE: Billing rates

Dear Alpineengineer;

I haved owned a structural firm for 19 years and will offer the following:

1-There were some excellent suggestions in the above responses; consider them carefully and use the best suggestions for your business.

2- I charge at least $125/hr for design work.  However, almost every client I have worked for preferred a contract amount.  A lot of my projects were relatively risky and were worth far more than what I would receive on an hourly rate.  Besides, to be efficient you have expenses in software, hardware, etc.  How long would it take you if you were doing everything by hand?

I also prefer a fixed fee since I am charging on the "value" of the work.  For estimating purposes I use
between $100 and $125 per hour for my purpose.  Also, do not forget that you will have quite a lot of time involved that are related to the project that is not pure design time; allow for it.

3- I firmly believe that "perceptions" are extremely important.  I started in my home because I had to but I rented a small office within a few months.  It wasn't an expensive office but it creates the perception that you are serious about your business.  I have found it very valuable and worth the money.  Additionally, I have found that there are too many distractions at home.  Also, it is much easier to seperate your business time and your personal time.
I know some individuals that say they work in their home but in reality they "live in their office"; not for me.

I also believe that you will receive better rates if you are "perceived as being a professional firm".  I have read all kinds of letters that engineers want to be treated like professionals.  How will you be perceived as a professional if you don't act like one.

4- I read one statement that indicated not to hire staff.
I respectfully disagree.  When I was the only one I was absolutely married to the office.  I was extremely limited on taking any personal time away or even having to take a few days and travel to a jobsite.  Managed growth is good for you and your future.  For example, I have a staff of 7 engineers and I am able to only work a 3 to 3 1/2 day work week most of the time.  Watch your cash flow and grow slowly.


RE: Billing rates

Star for RHB51. The longer you work alone and at home, the harder you will have to work. You will have a job that, assuming you do good work and clients come back, will snowball into an unending burden. Create a system, hire, train, and get out of the way. Take your time hiring, watch the cash, and grow at a slow steady pace.

Back to your original post, your rates should be what you are worth. Don't apologize. If you have low ball rates, you will have low ball customers. Get better at what you do and spend more time adding value for the client. This will lead to them saying, "AlpineEngineer is our engineer, no matter what it costs."

Finally, many companies start from home. This can be done professionally and non-professionally.  You need to decide if you are a business or a consultant. You need dedicated space with no distraction or noises. And you need a good answer to why you work from home when asked. "It keeps my overhead low" implies your rates should be less. "I have a large dedicated space that allows me to be more efficient and responsive to my customers and puts my commute hours into your projects" might be a better angle.


RE: Billing rates


Looking at the other comments and back at mine, I should clarify a few items...

I ran a small multidisciplinary firm (20+/- staff) for about 10 years. I worked all the time when that was the case. To me, running a business is running a business, not consulting and design. I chose to work as a sole practitioner for several reasons. I enjoy my work, not managing other people's work. I am far, far, happier now working as a sole practitioner. I was "married to my work" when I had a full staff and worked away from home. I see my wife and kids all the time now. But that is me and not necessarily other folks.

I do have a full office, but will likely start renting the space out as I only use it for storage. (I had 3 offices, sold one, was renting the other). I don't need an office for meetings and such, but that is me and others certainly might need such a space.

I could fairly easily grow the firm to the size it was or larger (as I am blessed to have good, steady demand for my services), but I have no desire for that. At least in my field, I have been able to successfully obtain, undertake, and complete projects small to large and easy to complicated - that I enjoy - as a sole practitioner. My background (education and experience) also help out quite a bit with this. Again, that is me and not necessarily other folks.

Being a sole practitioner allows me to be more selective about my clients and projects as I don't have "mouths to feed" (staff). That may simply be easier in my field and may not be likely or practical in structural or other fields. I don't know, though I do know a very successful sole practitioner who is a building engineer (degrees in civil and mechanical) that works out of his house. He is in high demand, is very profitable, and enjoys his work.

It may also be that I wouldn't be in my current position without having had the experience and knowledge gained through building and running a firm. So, my comment about "don't hire staff" probably wasn't a good one for general advice. It's dependent upon what you enjoy and/or want. Some folks love running a business. That may be you! Just don't forget about the family time. You can start and run a business in your later years, but you can't have your young children back with you.

If you are not married and have no children, much of this can probably be ignored (if not already)!

tsgrue: site engineering, stormwater
management, landscape design, ecosystem
rehabilitation, mathematical simulation

RE: Billing rates

Thanks for all the good information.  Its interesting that most of you do fixed fee contracts, I didn't realize that most guys are doing that.  Certainly something to consider because I do develop spreadsheets and have a lot of software that speeds things up and sometines I'm left wondering why I speed things up if I do bill hourly.  I also appreciate the comments about a professional engineer doing all the work versus a tech, there is indeed a differance.  I have had the discussion with clients about value based engineering; on many jobs I save the client enough money in construction costs to offset my fees.  

Slowly I am learning to see the bill-whinig clients ahead of time and to quote them a high enough fee that they go elsewhere, fortunately I am now busy enough to be able to do that.

As far as working out of the home and growing or not growing the buisness, I appreciate your thoughts. I don't know where I will go with the buisness, sometimes the thought of having more mouths to feed is pretty scary but on the other hand I do enjoy the buisness aspect as much as the engineering aspect. I certainly can relate to the stress of being a one man shop and feeling like I can't leave for a week or the work will backup and I'll have clients upset. When I do leave town I have to plan it months in advance and keep reminding clients that I'll be out and to plan for it.
Thanks again.

RE: Billing rates

I feel that the hourly fee comes into play more in the smaller jobs, where the money is likely tighter.  Personally, I do charge $150.00 per hour and have been getting it without a problem for 6 years now.  It's the bottom line to many clients, but not to all of them.  I do things quickly and have a lot of resources to help me do that.  That's reflected in the fee.   Compared to other structural engineers in the area, I am in the ballpark and have been so for over 20 years now with success.

Regarding whether a Structural should charge more than a Civil, I feel that a Structural license is a specialty of Civil, as is Geotech, as is Highway, etc.  Effectively, it took me 32 hours of testing to get my structural, 8 for the EIT, 8 for the Civil PE, and 16 for the Structural. It is a specialty, and a lot of people's very lives (not livelihood - LIVES) depend on our expertise.  Consequently, the liability is great.  Anyone who balks at the price, I politely show them the door.  To con a well known hair commercial - "I'm worth it!"   

And as Walter Brennan would say - "No brag, just fact".  (bigsmile)  

Mike McCann
McCann Engineering

RE: Billing rates

When we started our mechanical engineering firm, we were working on a project with a very successful electrical firm.  The second project we had with the same electrical firm resulted in the engineer's wife calling and asking me to lunch.  She wanted to  tell me that our fees were TOO low.  Apparently our quote for the work was lower than their electrical quote.  To quote her verbatim, "Mechanical is always more than electrical."

I'm curious, what is your typical billable rate for drafters?   We're southwest and usually bill out at $45.00/hr.

RE: Billing rates

our drafting rates in Civil are at least $65 per hour in my area, many times up to $75.  Today's civil draftsman (the good ones) are using a $7000 software package and are very good with it.  

RE: Billing rates

When I quote a project (I working only on the side), I figure $45/hr for drafting, and $35/hr admin, like making copies, running prints, preparing invoices, etc.

Don Phillips

RE: Billing rates

Alpine, where are you located?

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