Don't worry about the prime's profit margin

A bunch of people ask me what they think they should charge for a billable rate if they go 1099.

Their thought process is usually

"Well I make $100,000 and it probably costs my company 30% more in benefits so that's $130,000, and they're probably making 20% profit so that means they bill out $162,500/year which comes out to a billable rate of $87/hour if there are 1860 billable hours per year.

This means I should charge them $80/hour so they make a small profit."

This is not a terrible process. Getting a good sense of what a company bills out for your labor category is important.

BUT, you should not worry about a prime's profit margin and bake that into your bill rate.

Once you figure out what the bill rate ranges are for your type of work, you should charge as much as you can.

If you find out the market bill rate for your role is $200/hour, don't go into a negotiation thinking you should ask for $190 to leave them some room.

They will just negotiate you down from $190. You should ask for $200 (or even $205).

The prime will watch their profit margin and look out for their own interests. You don't need to do it for them.

Want the full playbook? Check out Going 1099.