12/10/2017 Consulting Rates | Consulting Success

How to Set Your

Consulting Rates
BY Michael Zipursky - 9 Comments

There are several ways you can determine how to set your consulting rates and
fees.

There really is no right or wrong way to go about this as long as the result has
you being paid what you feel is fair and that it is sustainable to grow your
business.

The worst thing you can do as a consultant is undercharge. The exception here is
if youve just become a consultant and want to get your feet wet. In that case,
taking on some lower paying work to establish yourself, build a client list and test
your skills is a smart move.

However, in most cases you dont want to undercharge as clients will naturally
undervalue your services. The more you charge, the great perception clients will
have of the value of your services.

Settle down tiger. Before you get all giddy and go jack up your fees to the moon
be sure that your fee is set in a logical way. So without further ado lets get into
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this

The Consultants Status Quo

One of the easiest ways to get started in consulting to gure out what prices
other consultants are charging and decide upon your fees accordingly.

By doing this youre instantly positioning yourself as one of the consultants.

This can be a good standard to get going with, but a dangerous one as you
never want to lump yourself in with all the rest.

Set your annual Salary Goal

In this case you gure out what you want to make this year. If you were a
company employee what would you make?

If your goal is $80,000 you take this number and divide it by the number of hours
you have available to work each year.

To get this number you take the 52 weeks we have in a year. Subtract vacation
time, stat holidays and sick time and what youre left with is usually about 45
weeks. And you spend about 40 hours a week working.

So 45 weeks x 40hrs of work = 1800

New consultants will often go ahead and take this number and divide it by their
goal salary. In this case it would be 80,000 / 1800 = $44.44 would be your hourly
rate.

BUT there is a huge issue overlooked here. You wont actually be working for your
clients for 1800 hours a year.

Why? Because you need to spend time on marketing, administration and the
general duties to run your consulting business.

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So heres what you do. Youll probably end up spending 50% of your time on
actual client work. So right away divide your 1800 hours by two. Your new total is
900 hours of billable work.

So youre left with 80,000 as your goal salary / by the 900 hours of billable work:

80,000 / 900 = $88.88 an hour

So what this tells you is how much you need to work and at what fee to be able to
hit your goal of $100,000 salary.

If your goal is lower, your fee will be lower. If you want to spend less time but
make the same amount of money, youll need to raise your fee. This is a sliding
scale to give you an idea of how to set your fee.

Another note here is not to forget any overhead expenses you have. If your
annual overhead is $10,000 (rent, phone, internet, supplies, etc) youd take this
number and divide it by the number of billable hours. In the above example it
would be $10,000 / 900 = $11.11

So youre previous rate of $88.88 (which might be a great rate if youre working
with Chinese companies) would now be 88.88 + 11.11 = $99.99. Round that o
and your real hourly rate is one hundred big smackeroos.

If you didnt understand my last sentence above, that would be an hourly fee of
$100.

Using a Project Fee

You can move away from hourly work and into a project based fee structure. In
this case you will need to determine how many hours you feel the project will
take.

Id recommend adding an additional 50% or so to the expected hours you think it

will take to complete the project. This allows for administration of the project
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and over ow. Adjust this additional percentage as needed.

The fact is, even with project fees you still need to know what your hourly fee is
so that you can estimate what it will take to complete the project.

Daily Consulting Fee

Some consultants also prefer to bill by the day or half-day. Theres nothing wrong
with this approach and youll still need to know what your hourly fee is so that
you can calculate your daily fee.

Getting Paid For Results

Some consultants despise this set up and others love it. So heres the nitty-
gritty on performance based fees.

First, how it works. You work your behind o for your client and they pay you
nothing. Until that is the sales start rolling in as a result of your work, or a deal
gets closed that you played a role in. When that happens you then receive a
percentage of the money that is generated.

You should only use the performance structure to be compensated if you feel
comfortable with the client. ie, you have worked with them before. They are
enjoyable to work with, they pay on time, and most important you feel you can
trust them.

Once you have all that, then you can move to the performance based fees. In the
long-term this set up can mean alot more money in your bank.

In fact, direct response copywriters work on this set up quite often. They receive
an initial sum of $3,000 to 10,000 or more, depending on their track record, and
then they receive money for every piece that they wrote which is mailed. The
result, when they have a winner, is huge pro ts for months if not years.

There is no best solution it all comes down to what you feel would work best
given yoru situation and that of your client. Whichever you choose be sure to use
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a contract or simple agreement so both sides are clear on the terms.

If you set your consulting fees using a di erent method than the above, Id love
to hear about it.

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Richard Wright 8 years ago

One very important point you didn't discuss, which catches many new self-employed
individuals by surprise is the impact of taxes. People who work for a paycheck are
accustomed to the employer withholding social security taxes and income taxes,
and neglect to consider that when they are self-employed, they will need to cover
these taxes themselves with estimated payments. This comes out of the fees you
charge, so if your target is $80,000, 12.5% of that will be needed to cover self-
employment taxes (social security), and at a modest effective tax rate of 15%, you
will need to plan for at least $22,000 for tax payments. Consider whether your target
income is before taxes, or after taxes, and adjust your hourly rate accordingly for
27% to 35% for taxes, allowing for state income taxes if necessary.
2 Reply Share

Michael Zipursky > Richard Wright 8 years ago

Richard - great points you bring up! A reminder to everyone that you should
speak with an accountant to find out the details of what taxes and laws apply
to you and your business.
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Angela Lussier 8 years ago

Michael,

How about setting fees for things like 1 hour or half day workshops? I do a lot of
these and I know a lot of consultants charge different rates depending on whether or
not the workshop is one of their core presentations or specific to that audience. Any
comments on this?
Reply Share

Michael Zipursky > Angela Lussier 8 years ago

Angela, great question. There's no magic number. If the workshop is for a
client that can afford to pay big dollars then go big. Many consultants charge
2,000-5,000 for workshops. You can also run this as a per person charge,
say $50-$100 each. Big names can get $10,000 and up for each
presentation they get.

However, if you're giving these workshops as a lead generation tool to find

clients you can often afford to make less up front as you know you'll get a
few clients each time you put one on. That being the case, you can even
offer the workshop for free.

Think about how much time you'll need to put the information together,
deliver it, communications, etc from start to finish. So if it's not a lead
generation type workshop, be sure that you're getting a good return from it
and charge appropriate fees.

If you ask for too little you'll be devaluing your brand.

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Angela Lussier 8 years ago

Great! Thank you.
Reply Share

Tendai Sean Joe 7 years ago

Impressive .I will use this for my new business in South Africa
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Michael Zipursky > Tendai Sean Joe 7 years ago

Tendai - glad you found it helpful.
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Anthony Porter a year ago

I need to add in as well that don't have that small business mentality that "what you
make is your pocket money". You need to consider ASIDE from your overhead, that
you have to invest back into your business such as stationary, ink, paperwork,
mailing and etc. Always take your gross (Although it's 100% profit in it's own
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g y y g ( g p
fashion), and figure your expenses including taxes and set it aside.

Also go into every consultation with the mind that you will make money. If you have
a negative mind that "if it happens, it happens", it will never happen. DO NOT let
your clients undercut you and you don't undercut yourself. If they believe "We are
helping you out to grow", #1, that's personal, #2, they don't see the true value in
your work and both #1 and 2 will conflict and will cause a client to persistently be
unsatisfied. Just like a client I have with our point of sale app, on the 10th day of non
payment that our StoreCore system does not see, it sets a notification to suspend
the account. I got a call and that's what they said "Man I thought we were friends".
Had to explain that although you feel that way, I still have a business to run and just
like any other business such as a cell phone company, if they do not receive a
payment at a certain time, it's shut off. I really hated to say that. So people, take
personal completely away and assure your client you are there to help them on a
business level and give results. Friendships do not pay bills
Reply Share

Nolwazi Mgibe > Anthony Porter a year ago

Thank you for information,it's great help as I'm planning to start a consulting
company in SA this year.
2 Reply Share

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