DON'T BE FOOLED - THE REAL COSTS ASSOCIATED WITH AN EMPLOYEE VS. A CONSULTANT

THE NUMBERS DON'T LIE ... I'LL EXPLAIN AND YOU DECIDE

Recently I read this article from Hyam Singer, VP User Engagement at TOPTAL, that in my opinion “nailed

it” on this subject.

Don't Be Fooled: Calculate the Real Cost of Employees and Consultants

This article is a must read for employers. It outlines and delivers a hands-down argument, that should

not be ignored, especially in today’s economic turmoil.

I’ve been on both sides of this question, as a former employee, as a company that hired employees and

as an independent contractor. Here are my thoughts on this subject, especially as it pertains to senior

level marketing positions within our industry.

First, let’s look at retail today and the looming economic factors companies are staring down today. I

recently wrote extensively about this on my blog: http://www.social4retail.com/the-real-retail-

economy-is-not-in-good-shape.html

It all boils down to “revenue vs. costs”; generate more revenue while minimizing costs.

I’ve always tried to post information that will help retailers and brands do more business with less cost

to compete more effectively. Lately that has been about using technology as a means to mitigate costs

efficiencies, gain more leads, sell more stuff and ultimately … “make more money”.

As a marketing guy I’ve been blessed with having the best mentors in the business, as my professional

journey took me from the printing/packaging industry, consumer product marketing, agency owner and

now industry consultant.

The problem with the marketing profession today, is that most senior marketers have a job shelf-life of 18-24 months, OUCH. More on this later….

SO ONWARD WITH THE DISCUSSION.

According to the government's Bureau of Labor & Statistics (BLS) the “average” median pay for a senior level marketing person is approximately $124,850/year, or $60.03/Hour. BUT that is only the base cost

and does NOT INCLUDE;

Insurance (medical, dental, life) – Approximately (12%-15% additional)

401K/Profit Sharing Contribution – Approximately 2%-3.5% additional (Optional)

Payroll taxes (company paid portion) – Approximately 7%-9% additional, company paid portion

Any employee bonuses – Ranging from 3%-7%, depending on overall compensation package

TIME TO RE-DO THE (YOUR) MATH

Base Salary (Based off BLS above) –

$124,850.00

Plus 12%-15% Insurance/Benefits (AND you know these costs are only going UP) !!!

$14,982.00 - $18,727.50

401K/Profit Sharing Contribution (Optional cost depending on company)

$2,497.00 - $4,369.75

Payroll Taxes – Company paid portion

$8,739.50 - $11,236.50

Yearly Raise/Bonus (Optional)

$3,745.50 - $8,739.50

Your total investment

Base Salary - $124,850.00

Additional expenses (LOW-END figures) – $32,964.00 +26.4% added to base salary

Total $154,814.00 or $75.88/Hour, from $60.03/Hour

Additional expenses (HIGH-END figures) – $43,073.25 +34.5% added to base salary

SO, DO I HAVE YOUR ATTENTION YET? IF NOT, LET’S DIVE DEEPER INTO THIS RABBIT HOLE.

I didn’t calculate the cost of the i.e. “Learning Curve” time and the resources for this new employee’s

acclimation into your culture, business systems and processes.

Think about that for a minute. Other employee’s and time/resources expended in mentoring this new

employee plus all those additional direct and indirect costs, explained by the author, amortized into

each employee’s “real cost”. Items such as;

Accounting fees

Advertising

Computer hardware

Computer software licenses

Conferences and trade shows

Corporate graphics and web design

Corporate taxes (property, etc.)

Dues and subscriptions

Equipment

Furniture – (Had to throw this one in there ;-)

Insurance (liability, workers comp, unemployment insurance, etc.)

Legal fees

Meals and entertainment

Meeting expenses

Office supplies

Overhead staff (executive, administrative)

Printing services

Recruiting (advertising and fees)

Travel

HERE’S THE REAL SHOCKER.

According to DCAA Accounting standards ...

The real “ALL IN EMPLOYEE COSTS” for this person equates to $248,352.00/year or $119.00/Hour,

figuring a base hourly rate of $60.03/hour and adding in all the additional costs outlined above.

I know, the math is getting really obnoxious. But the math is going to get easy, very easy.

If you hire a consultant at $60.03/Hour to do the same job, that’s what you pay, plus any additional

“authorized” ancillary or travel expenses.

The amount of infrastructure that a consultant uses is significantly less than that of an employee (not to

mention the fact that the consultant doesn’t receive any benefits from the company).

As a result, the actual cost of a consultant is affected by G&A (General & Administrative) costs

only; Fringe (i.e., benefits) and Overhead are irrelevant to the cost of a consultant.

And not to mention a couple other considerations. Check out what the REAL EMPLOYEE COST

CALCULATOR and comments below from HYAM SINGER - VP, USER ENGAGEMENT @ TOPTAL

CLICK HERE TO ACCESS THE CALCULATOR AND DO YOUR OWN MATH

https://www.toptal.com/freelance/don-t-be-fooled-the-real-cost-of-employees-and-consultants

Hyam also points out in his article;

“Potential financial risks. Companies tend to make hire/fire decisions much more rapidly with

consultants than with employees. It is not uncommon for under-performing employees to be kept on the

payroll for multiple months, throughout various stages of probation, to minimize the potential for an

employee-filed lawsuit. The resulting cost to the company can be quite substantial. In contrast,

companies tend to dismiss consultants with minimal if any notice when in any way dissatisfied with their

performance”.

“Recruiting fees affect the cost of all employees. One obvious savings with consultants is the avoidance

of often hefty recruiting fees. What may be less obvious, though, is that each recruiting fee paid drives

up the real cost of all employees. Since recruiting costs are including in overhead expenses, every

recruiting expense that your company incurs increases your overhead costs, which in turn raises your

overhead rate multiplier, which in turns drives up the effective cost of each and every one of your

employees”.

AND THERE IS MORE ...

Liabilities.

When you hire an individual, such as myself or my company, we take on all the liabilities and usually

hold our client “harmless. We carry our own insurance, pay our own taxes, use our own computers, cell

phones and more. Sure we bury those costs into our agreements, but they are minimal compared to

your infrastructure.

To add to this, figure in the “ROI” of this hire. Remember in the beginning of this article I stated that

most marketing people have a “shelf life” of 18-24 months?

Consider this, especially when the marketing paradigm is changing monthly. How much “real profound

knowledge” does your current marketing person have? Do they adapt, change and grow with the times,

or do they only practice what they knew when you hired them? My bet is that they don’t evolve, that’s

why they have a short shelf-life.

(More articles on this subject below)

SUMMARY

HERE ARE SOME QUICK DISCUSSION POINTS OF USING

US VS. THEM

No long-term employment commitment. When you hire a consultant make sure the engagement terms

are usually very short with specific goals outlined for the term – 3-6-12 months with 30-day renewal

clauses for two reasons;

1. Speaking for myself, this gives me the opportunity to “fire you” should the synergy not work. For

me, I will not work with/for someone who doesn’t want to listen and implement needed and/or

proven strategies and tactics….and then when they fail to do what we suggest, they want to

blame me or my company for not getting the job done or their investment ROI

A good consultant/company relationship should thrive based off synergies and exceeding goals without

the need of a contract hanging over their heads. For us, we ONLY do short term contracts, usually 3-6

months with automatic 30 day renewals and 60-day “out clauses” for each. Our belief is that we want to

addict you to the candy, not the medicine…with tangible results.

Yep, we want you to WANT to keep paying us, so we'll work really hard to do that.

AND FINALLY, WHAT SHOULD YOU EXPECT TO PAY FOR A SEASONED, SUCCESSFUL CONSULTANT?

Well, that depends of course on the extent of your needs, the industry, the level of expertise needed

and the time estimated to get your results.

For us, it’s simple.

Our services range from $2,500/mth - $15,000/mth. Many of our engagements are in the lower end

because what’s mostly needed is to create leads through messaging, creative, PR, go-to-market

strategies and tactics, as long as the company has “in-place” the systems and processes to deliver on

these promises. If they don’t, then we start there first, for anyone can create a “marketing promise”, but

if you can’t deliver on that promise, consumers will abandon you and it will cost you 5X more to get

them back.

When the consultant you want to hire has a track record of doing this, over and over in a multitude of

positions and industries, it’s probably in their DNA to be successful with a short learning curve. If not,

you execute your “out clause” and you will achieve one of two outcomes; Success or disappointment,

but either way, you’ve saved a ton of money…and hopefully made even more.

And one additional note, confidentiality and non-compete. All of our agreements protect our clients

with a one year, minimum, confidentiality and non-compete clause. These clauses are standard in our

industry to protect the integrity of the business relationships so information can “free-flow” for strategic

purposes.

Every company and situation is different so there’s no “one size fits all” answer here. But an awareness

of the factors and issues discussed in this article will help arm you to make the best financial decision for

you and your team.

ADDITIONAL RELEVANT ARTICLES ON THIS SUBJECT

The Arrogance Of Ignorance

DO BRANDS EVEN MATTER IN THE FURNITURE CATEGORY?

WHY IS IT BRANDS AND RETAILERS ARE SLOW AT ADAPTING NEW TECHNOLOGIES THAT

CONSUMERS WANT

About Bill Napier

Bill Napier has been in the Marketing Industry for over 35 years and is currently the Managing Partner

at Napier Marketing Group, Inc.

Furniture Today Magazine has labeled Bill Napier as being a “disruptor” in the home furnishing industry

and he loves that moniker!

In the 90’s, Bill’s marketing agency PMA Network (Promotional Marketing Associates, Inc.), with offices

in Minneapolis and Chicago, launched many consumer brands, as well as being a strategic consultant for

The Times Square Millennium Celebration.

He was hired by Ashley Furniture in 2000 as their Chief Marketing Officer (CMO) and was blessed to be

part of their astronomic growth from $800MM – $2.7BN over his 5-year tenure.

He has also worked with two other furniture brands as CMO. He has been an industry consultant since

2007 and with his company Napier Marketing Group has developed and managed some of the largest

promotions ever done in the industry.

Bill has developed and maintains the largest aggregated marketing informational website for retailers

and brands:

www.social4retail.com .

Need help bringing a product/brand to market in the Home Furnishing's category?

See what people have said about Napier Marketing Group's results from existing & former clients

HERE

billnapier@napiermkt.com

612-217-1297

CHECK OUT WHAT OUR CLIENTS SAY ABOUT US