Margins in Web development

A question from Yahoo! Answers:

What should the profit margin % be on a medium sized web dev and consulting firm be?

Trying to figure out if we are underpriced. Our margins are really tight. We have 15 employees. Trying to determine if our margins are out of line with the amount of work we throw into it.

Your margins should in all honesty be negative. You are competing against people who work from their homes and thus not only have no office overhead, but get a tax break on a part of their rent. Not to mention the industrious near-shore and off-shore developers…

If you want to see if you are underpriced, post a couple of dummy projects on Craig’s List in your area and ask people to send you their rates.

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