Subcontracting must be done profitably for it to make sense.  Your main concern as a virtual IT provider is the profitability of your business.  Before subcontracting work you need to analyze the costs and build in enough of a margin that you are still making money.

To deliver virtual IT profitably to your clients, you need to give yourself enough wiggle room on service agreements to allow for profitable subcontracting of specialty services.  Most of the contractors that you work with are going to have entirely different rate structures than you.  

Before subcontracting, you need to estimate their services on a per project basis with clients:

  • You identify the need for subcontracting
  • You figure out what needs to get done
  • You get an estimate from your subcontractor
Then you pass along the costs on a price-fixed basis to your client.  

In this process you must also give yourself the ability to work with a speciality contractor who charges more than you charge the client.  If you don’t you’ll lose money which you can’t afford to do.

With subcontracting, you need to have a markup to recoup your costs related to:

  • recruitment
  • project management
  • scheduling and billing
  • risk management
What’s a good markup?  25% to 35% is reasonable.  If you pay subcontracting fees of $400 to have some customer reports developed for accounting software, then you would bill the client $500 to $550.  

Do you need to disclose this markup for subcontracting to the client?  Absolutely not. You don’t need to tell them what your contractor markup is, or even that there is a markup when subcontracting.

Bottom Line on Subcontracting
Subcontracting is often the way you get IT work done for you clients.  When you are engaged in subcontracting you need to be paid for the time and energy you are investing in seeking and managing the subcontracting relationship.  Using a standard markup and making sure your service agreement allows for subcontracting fees are essential to the process of subcontracting.

In this article, you’ve been introduced to Subcontracting. To learn more about how you can improve your knowledge about Subcontracting, just click here now to get access to a free one-hour audio training program on 5 Easy Ways to Grow Your Computer Consulting Business.