Setting rates:
The main strategies for setting consulting fees include:
Strategy My rate would be:
1. Doubling/tripling your hourly wage . $200 - $300/hr
2. Using a daily rate for consulting $1600 - $2400 / day.
3. Setting consultant fees strategically using real-life data $160/hr * assumes very low risk and very few expenses.
4. Charging what everyone else charges $185 - $240 / hr.
Main Strategies for Setting Fees (sample data calculations are from the web)
1. Double/triple your hourly wage as basis for consulting fees
To set fees, some consultants simply take the hourly wage (plus benefits) that they would earn when working for someone else and then double or triple it. If you're doing this, you'll probably find that tripling your hourly wage is the best move. Some consultants choose a triple rate because of what they call the rule of thirds -- one third goes to your real wage, one third to expenses, and one third to administration, low utilization and bad debt.
($60,000 salary + $15,000 benefits) / (48 weeks * 40 hours) =
= $75,000 / 1920 = $39.06
= 78.12, rounded up to $80 per hour
Or $39.06 x 3 = $117.18, rounded to $120 per hour.
Of course, this assumes you use an hourly rate for your consulting services. Many people work out an hourly rate, but actually charge by the half-day, day, project or another arrangement.
2. Setting a daily rate for consulting (per diem rate for consulting)
To set a daily rate, simply multiply the hours you work in a day by the hourly rate from the above example.
8 hours * $80 hourly rate = $640 per day
3. Setting consultant fees strategically using real-life data
This strategy involves several steps:
Setting a consulting fee based on working days
In this calculation, you base your charges on working days per year.
52 weeks in a year
Allow six weeks for vacation, stat holidays and sick time.
= 46 weeks
46 weeks x 40 hours = 1840 hours a year
Determining your billable hours as part of your consulting rate
As noted above, you have 1840 working hours available each year. However, what percent of your time will be spent on work that brings in money, as opposed to work that helps you find clients but for which you aren't actually paid?
100% possible hours
- 20% spent on administration, running errands, paperwork, etc
- 20% spent on marketing, networking events, website management, etc
- 10% spent on other non-billable work
------------
50% spent actually working for pay
1840 hours x 50% utiliization rate = 920 billable hours
Considering bad debt rate as part of your consulting fee
Despite your best intentions, not all your clients will pay you. Some will take weeks or months to pay, but a small percentage will never pay the bill. So consider this in setting your fees.
Collection rate: 97%
920 hours x 95% = 874 hours
Rate of Pay as Basis for Consulting Fees
How much would you earn if you were paid a salary at a company?
$60,000 base salary + $15,000 in benefits = $75,000 salary
Salary / Billable Hours = Hourly Consulting Fee
$75,000 salary / 874 billable hours = $85.81
Overhead rates for consultants
Most consultants need to allow for:
Internet
telephone
cell phone
office gadgets
Internet connection
laptop or desktop computer
printer
printer toner/ink
shipping and postage
subscriptions
professional associations
business licenses and permits
accounting
legal services (in some cases)
home office supplies
paper
stationery
business cards
office furniture -- desk, armoire, chair, shelves, bookcase, filing cabinet, lighting, etc.
insurance -- health, life, disability, liability, etc
car -- insurance, maintenance, gas, lease
advertising and marketing
meals and entertainment for professional purposes
continuing education
professional meetings, conferences and tradeshows
cleaning supplies and cleaning services
rent or mortgage interest
utilities
maintenance and upkeep
property taxes
other
Divide the total cost of your overhead by your billable hours:
$5,000 overhead / 874 hours = $5.72
$5.72 overhead + $85.81 fee = $91.53 fee
Profit margin and consulting fees
As a consultant, you're taking a risk and running a business. So it's reasonable to expect a profit margin on your fees. Consultants usually mark up their fees by 10% to 33%.
$91.53 + 25% mark up = $114.41
Since consultants tend to round to the nearest $5, our example results in $115 per hour rate.
4. Charging what everyone else charges for consulting
This last tip may seem silly, but sometimes it really does make sense to charge what everyone else charges for consulting. It comes down to what the market will bear and what your competitors are doing. If you fall in line by charging the same as everyone else, you're signalling that you're a worthy (qualified) consultant who plays fairly. You're also making sure you get the base line rate for consulting in your market.