I did a stint as a "contractor" at a body-shop consultancy back in the 90's, only a few years out of college. Although they did pay well compared to what I could get as a perm employee, they were charging THREE TIMES what they were paying me. The friction that this caused was a deal breaker: the project manager knew that I was costing as much as quadruple what their ordinary employees were costing them, and expected 4x the output.
I've subcontracted out to folks, and even at a 2x markup, with the coordination, review, and other unbillable activities I made almost no profit. As a percentage, it was barely worth even having the initial leverage and I rarely did it (at 2x markup) unless it was strictly to meet a deadline. In large orgs where profit is a requirement for just about every interaction I can see how 3x or 4x would be necessary to justify doing the work in the first place.
IME this is very common and in some situations can be beneficial for everyone involved. The company hiring the consultants get the flexibility of being able to quickly hire you/fire you if needed, rather than going through a lengthy recruiting/hiring/firing process. They pay the premium for it, but it can be worth it.
Then the consulting agency obviously makes a nice profit off of it.
And then the consultant themselves can usually benefit from it as well, because typically they get a higher wage than the average employee to begin with, and also it becomes a very easy conversation to have with the company "just hire me as a FTE instead of paying the consulting company. My salary is currently $50/hr, you're paying them $150/hr for my work. Instead you can just pay me $100/hr, and we both benefit." I've seen a lot of consultant -> FTE transitions happen like that.
That only does work if the company is actually looking for a long-term FTE, though. Like I mentioned above, a lot of the time the company is paying the premium in the first place is so that they can quickly and easily drop you off their payroll if needed. They lose out on that by bringing you on as FTE.
Early job in the 90s - first 'web' job (1998) - was earning around $40k - $20/hr (more or less). I was being billed out at $125-175/hr. Factor in a loaded cost for me with some 'benefits' (not much) and it was ... $30/hr? Being billed out at 4-6x your wage eats away after a while. I was given some motivational stuff about teams and overhead and such. I asked for an office with a door and $60k salary, and was rejected, so I left. Had they even just given me the office with a door, I'd probably have stayed, and life would have been a lot different. They had a new office building built to spec - with a cube farm, then a wall of offices with doors. Those were empty. "For future managers". I wasn't allowed in them - they sat there empty. :/
Sure, but that applies to all the numbers. The average agency developer in a country that shows up with $30 in this survey isn't making that either (India is at $36, and I've heard talk of $15 or lower wages there).
The percentage that is overhead will vary, but only by so much. Otherwise, someone will come along and find a way to undercut your prices and take your business. It's reasonable to assume that if one hourly cost is double another, the developer's pay is higher.
(Not denying someone might find a way to really pull a scam in the short-term, and find a kid they can pay minimum wage to, but that's not a scalable or stable arrangement).
>The percentage that is overhead will vary, but only by so much. Otherwise, someone will come along and find a way to undercut your prices and take your business. It's reasonable to assume that if one hourly cost is double another, the developer's pay is higher.
That's really only true if you assume that all of these dev agencies are equal. In reality, a lot of them have different specialties (both tech wise or industry wise), better (or worse) reputations, or certain partnerships. All of these things can greatly change the amount that the dev agency can charge.
I've personally seen plenty of agencies charging $100/hr while another agency with a different "specialization" (but otherwise similarly skilled and paid devs) charge $250/hr. The bill rate hardly ever corresponds with salary, IME.
an early consulting contract in the USA for me was, to retrieve the code and data from a State University department.. the contract was for >$10k per month, yet the graduate students who built it were paid miniumum wage.. records were in the collection. The school would not release the code+data for years, apparently, with infinite excuses and stalling, never a "no"