How will all this work then?
When you come in you decide on two things:
- How much you want to earn every month. Typically you want this to match the running expenses of your lifestyle.
- How many months of security you want. This is the number of months you can be non billable while still drawing a salary.
The example below illustrates someone who set a Rs. 100,000 a month salary with a security period of 6 months. This example illustrates how things will work for a consultants who takes chooses a 100,000Rs/month salary with a 6 month security reserve. Follow the figures in black to trace the example.
- Assuming that the resource earns $30/hr and spends 40 hours a week (160 hours a month), the total revenue earned is roughly 400,000 Rs/mo
- Of that, about Rs.80,000 (20%) goes to the person who did the sales.
- The admin costs are deducted further on the actual spent. For our example we choose a figure of Rs.20,000/month.
- This leaves about 300,000 Rs that the consultant “earns” every month. Since he chose a Rs 100,000 salary, he is saving 200,000 Rs in his “Reserve” (the pink line) that month. This reserve will be used up when the resource is non billable.
Month 2 – 4:
- Resource continues to work in the same mode drawing a salary of a 100,000 every month, while accumulating reserves up to the 6 month level (600,000 Rs).
Month 5 & 6:
- Since reserves are now built up, the consultant gets a net salary of 300,000 per month (100,000 as basic salary and 200,000 as project bonus).
- The reserves stay at the 600,000 level giving the desired level of security to the consultant.
- The resource is now non-billable. He now earns no revenue and hence needs to eat into his reserve. He gets his salary from his reserve.
So why is this so great?
This is fundamentally how most companies operate except for a few key factors:
- Most people work for companies under an ASSUMED net of safety. Most people are not privy to company finances and don’t know how much of a reserve is available for bad times. Hence they entrust their future into someone else’s hands. We believe in open and fair communication and send a summary similar to the above to every employee every month.
- You get to choose how much of a security reserve you want. If you are young, you might prefer to get your bonuses early by keeping a smaller reserve. If you have a family, you might prefer a yaer’s worth of reserves.
- In a regular company you can be billable (many times with the same customer) for year and year and endlessly chase a security reserve that was built loong ago.
- Most importantly perhaps, monthly finance summaries mean that resources can clearly relate behavior/peformance to reward. This very quickly corrects undesirable activities and reinforces good activities. If you finish a project sooner for e.g. you get a bigger bonus at the end of the month.