I recently read that a startup expects salespeople to generate roughly 20 times their annual salary—for example, bringing in $2 million on a $100,000 salary. That seems extreme, especially since the company also has to cover engineering, infrastructure, administration, taxes, marketing, and other operating costs.
I've also heard that software agencies and consulting firms may generate around 5–8 times an employee's compensation through their work. Have you encountered credible estimates like these in professional discussions or reputable sources?
I'm also curious whether these multipliers reflect the actual market value of someone's work. For example, should a freelancer or consultant use their full-time equivalent hourly rate as a baseline and charge a multiple of it?
4 Answers
A high revenue multiple by itself doesn’t prove exploitation, although it can raise fair questions about how the resulting profit is shared. Calling ordinary employment ‘modern slavery’ is an inappropriate comparison to actual slavery, which involves coercion and the denial of basic freedom. The more useful discussion is about pay, bargaining power, working conditions, and whether employees receive a reasonable share of the value they help create.
Revenue and value aren’t the same thing. A company’s sales team may receive credit for revenue, while engineering makes the product possible. The value of an employee is also constrained by what the company can charge customers and by the availability of other people who can do similar work. That doesn’t mean the employee is worth only their salary—it means compensation is shaped by the whole market and by how profits are distributed.
The multiple is usually about covering the entire business, not just measuring one employee’s personal profit. A salesperson may be credited with bringing in revenue, but that revenue also pays for engineers, support, infrastructure, licenses, offices, taxes, and people who don’t directly win customers. In some companies, a sales target of 10–20 times salary can make sense once all those costs and the cost of unsuccessful deals are included.
Engineers can absolutely create several times their compensation in value, but the exact figure varies enormously. The 5–8x number is often used as a rough agency rule of thumb, not a universal benchmark. Margins depend on the type of work, utilization, pricing, project risk, and how much non-billable time the company carries.
I’ve seen the same range vary a lot. An agency might bill a client three or four times what an employee effectively earns, but that spread has to cover sales, management, idle time, benefits, equipment, and other overhead.
Exactly. Developers often enable the revenue rather than directly booking it. In one company, management estimated project hours, multiplied them to cover overhead and risk, and then set the customer price from that calculation.