One of the most common, and important, questions that consultants ask is how much money do they make? If you have a salaried position, a consultant could make anywhere between $28,000 to $131,000 – depending on what area of consulting you focus on. If you’re out on your own, you the short answer, according to Stephen J. Freidl, would be a mix of “whatever the market will bear” and “how busy you wish to be.” However, it’s not uncommon for consultants to work by the hour, on a retainer, or by fixed-project rates.
Before you decide on a rate, it wouldn’t hurt to do a little research and find out what other consultants are charging. The easiest way to go about this is seeing if they have prices listed on their website or asking for a brochure. You could even ask clients or fellow consultants at industry events what the normal rate is for consultants or take a like at sites like Careers-in-Business. This should help you establish a rate that will be competitive. If you’re just starting out though you may want to consider having lower rates until you have some more experience under your belt.
Another task to accomplish before you set your fees is to list all of your expenses. This will also give you a better understanding of how much money you’ll have to charge so that you can pay all of your bills and have a little something leftover. The last thing that you want is to have a rate so low that you can’t pay for overhead like insurance, rent, utilities, or office supplies. For example, if your total expenses are $3,500 per month, then at least you know that’s the minimum amount you have to bring in.
After you’ve checked out the marketplace and taken a closer look at your expenses, it’s time to settle on a hourly, retainer, or project rate for your services.
Hourly fees can get a bit tricky. Either the rate can be so high that clients won’t be able to afford you or because the rate is low you won’t be taken seriously.
Since you already listed your expenses, you could add that and your salary together (your salary could what you previously earned or what your competitors are charging), multiple that figure by a 10% or 20% profit margin, and divide that figure by your billable hours to determine your hourly rate. However you determine your hourly rate, it’s pretty normal for consultants to double that figure so that they can cover their overhead.
Just remember, if your hourly rate is higher than most other consultants, then the clients who hire you except you to be worth every dollar.
This type of payment is a monthly fee, which averages around $3,500 per month, that you and the client agree on. The catch? You have to be on-call for the client for a specified amount of time each month – which can be rolled over into the following. This is a common form of payment for consultants since it gives the client access to the consultant whenever they’re needed. And, consultants like this form of payment since it is a steady stream of monthly income.
The only drawback is that you’ll most likely have a clause in your contract that prevents you from taking on additional jobs from competitors.
If you’re just starting out, project rates may be difficult to determine at first since you may not know how long projects take and how much your hourly rate is. Once you do figure this figure out, you can add 10% to your monthly rate. But, if you do decide to go with a project rate, just know that this is a fixed amount that you’ll be paid for a specified amount of time, which is usually paid monthly.
At some point you will have to raise your rates. This can be uncomfortable if you have a solid rapport with current customers. But, if you’re great at your job, you customers will realize that you’re in demand and that’s why you have to raise your rates. When you do raise your rates, give your customers plenty of notice, at least one billing cycle, and should be modest.
Also remember that you can have different rates for different customers. For example, your longstanding customers, aka your bread and butter, should be charged lower rates then the client you just acquired last week.