Archive for the ‘Consulting fees’ Category

Consulting fees

Consulting fees and how to set them can be a challenge to new consultants. You might be wondering how much to charge or be unsure of your own value. Many new consultants start by undercharging. However, setting your consulting fees in the right range is easier than you think. There are several approaches to setting consulting fees that you can take. In this article, hourly, daily, fixed, and competitive rates will be examined.

Setting your consulting fees:

Hourly consulting fees
What would you make per hour if you were working for someone else? Take that number and double or even triple it. Using an hourly rate may be appropriate when you don’t work full days, or if you work erratic hours.

Daily consulting fees
The daily rate works well if you normally work an 8-hour day, and if you have a good sense of how many days a project will take.

Fixed consulting fees
Fixed consulting fees are a common method. For example, you might charge $3000 for wedding planning services from start to finish. With this method, you must have a good idea of your skills and the time it will take to complete the job or else you’ll risk running over-time and over-budget. One of the benefits of this method is that the client has some certainty regarding how much to budget for your services.

Competitive consulting fees
The competitive method of setting consulting fees takes into account what other consultants are charging. However, setting your rates based on your competitors’ rates is not necessarily in your best interest.

Other factors to consider

In general, when setting your consulting fees, don’t forget to factor in business expenses and costs. Electricity, telephone, office supplies, vehicle expenses all must be taken into consideration. If need be, charge extra for expenses like mileage and materials.  

Don’t undercharge your services. Remember you are providing the expertise that your client needs and is willing to pay for so don’t undersell yourself. Establish fair consulting fees, follow through with exemplary service, and you should have no problem attracting and keeping your clients.

Are you having difficulty setting your consulting fees? Find out everything you need to know regarding how to set your consulting fees in my guide, Consulting Fees: A Guide for Independent Consultants.

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Typical consulting fees

What is a typical consulting fee? Good question. Unfortunately, the answer is that there are no typical consulting fees! Consulting is made up of so many variables and factors that there really is no easy answer. As you can imagine, typical consulting fees for skin care consultants are vastly different from typical consulting fees for jury consultants.

Typical consulting fees are all about value. How much value do your services offer your client? By doing a little research and bearing value in mind, you will be able to set a rate that is appropriate to your area of expertise and is competitive within the industry.

What does typical mean, anyway?

Typical means what other consultants are charging for the same or similar service. Typical means ‘the going rate.’ It would be a simple matter if a typical consulting fee was set in stone, but it isn’t. And, besides, you don’t want to be competing based on price, anyway. So, just how do you figure out a typical consulting fee?

Factors to consider:

Industry
When determining typical consulting fees, compare your consulting service to its equivalent, whether it’s direct local competition or rates you’ve researched online. For example, you cannot charge the same fee for a personal fitness consultation as you would charge for a tax consultation.

Location
You will likely be able to charge higher fees in a large city than in a small community. 

The competition
What do your competitors offer that is different from you? Do they offer additional value-added services? Do their services provide extensive follow-up and support? Typical consulting fees are adjusted according to what is offered.

Level of expertise
What are your credentials? If you have little practical experience under your belt or are fresh out of college, you cannot charge as much as a competitor who possesses 20+ years experience and expertise in the same field. That being said, there are excellent ways to jumpstart your expert status and leverage your expertise even if you are a new consultant.

Need help setting your typical consulting fees?

As you can see, there is no typical consulting fee. Would you like to understand your unique position and set your consulting fees for maximum gain? Order "Consulting Fees: A Guide for Independent Consultants" and charge a great hourly rate.

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Consulting rate

Consulting rate – Are you wondering how to set your rates as a new consultant? It’s extremely important to set an appropriate rate for your consulting services. Why? Because not only does your rate reflect your qualifications and expertise, but it’s also your bread and butter! Use a strategy when setting your consulting rate so that you are confident in your pricing structure. Rates should also take into consideration competitors’ rates, physical location (think urban cities versus small towns) and the exclusivity of your services.

Don’t under-value your consulting services

If you set your consulting rates too low, you are underselling yourself, and clients will think so, too. They will wonder why your services are so inexpensive, and they may even question your ability to deliver based on your consulting rate!

Another drawback to setting your fees too low is that it will be difficult to raise your rate later for existing clients. If you undersell yourself from the beginning, you may find yourself working for less than you deserve for some of your initial clients.

An obvious but nevertheless crucial drawback for setting a too-low rate is that you won’t make enough money! You’ll find that you are working long hours for minimum profit, and this is not how you want to run your consulting business.

Do your homework when it comes to setting your consulting rate

In order to get it right you need to take the time to research setting your consulting rate. Some factors to consider are:
What are your competitors charging?
• Are you offering a unique service that will bear a higher rate?
• Are you highly qualified and experienced or are you just starting out in your career?
• Do you live in a large city or a small town?

It’s worth it

You might be tempted just to name a price and get on with becoming a consultant. However, setting the correct consulting rate is key to the success of your consultancy. Setting the wrong consulting rate can negatively impact the number of potential clients, decrease your revenues, reduce the profit you make and may not be easy to undo.

Take the time to set the correct consulting rate for yourself.

So how do you set a consulting rate? 

Coming up with your consulting fee for the first time may seem daunting. However, once you’ve found a strategy in which you really believe, you’ll be good to go. You may want to revisit your decision from time to time, taking into account your experience, client feedback and even your competitor/rs’ activities.

Like this article? Get practical tips and 124 pages on making money as a consultant! Check out my Consulting Fees: A Guide for Independent Consultants.

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4 things you never knew about consulting fees

I’ve done a lot of work on consulting fees, including writing Consulting Fees: A Guide for Independent Consultants and helping numerous new consultants set their consulting fees. When discussing consulting fees with clients and new consultants, I’ve noticed common misconceptions about consulting fees.

I’ve compiled these common misconceptions into this article to help set the record straight when it comes to consulting fees.

4 things you never knew about consulting fees:

1. Consulting fees are not necessarily correlated with the amount of time it takes to accomplish a project. 

The time it takes to perform a service is sometimes irrelevant to the cost of the fees. Remember, the focus of your services should be about the value the client is receiving in exchange for your services. For a concrete example of how this works, check out the story in Section 3 of this article.

2. What other consultants are charging for "similar work" can be irrelevant.

Don’t set your consulting fees based on others’ rates, and don’t cave if a client balks at your rate and suggests that another consultant offers a much lower rate for "similar services." Keep your focus on value and the services that you offer. You can get a website designed and developed for $200 or for $20,000(+) depending on the consultant or firm. As you can imagine, services and results will differ. The key is to match the clients needs with a service that will fulfill those needs at the appropriate level. 

3. Consultants charge far more than regular employees in the same industry.

Did you know that consultants’ fees are much higher than the wages of salaried workers doing similar work? Find out why.

4.Your consulting fees can vary and that’s okay.

One of the beatiful things about being a consultant is that you can use your own judgment when it comes to setting your fees.

  • Getting a bad feeling about the pickiness of a potential client? Set your rate higher than normal.
  • Or want to help a non-profit with your services and get personal satisfaction in return? Offer a discounted rate because you want the work (but be sure to display the full price and the discounted rate in your quote).

Allowing yourself some flexibility with your pricing structure is one of the many reasons not to post your rates on your website or in your marketing material (unless you’re offering a package of services for a set price).

How many of these four items did you already know about setting consulting rates? What secrets do you have to share about consulting fees? 

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But it’s just your time!

"Could you spare 20 minutes to talk to me on the phone?"

"I’d be happy to work with you to develop a proposal that will meet your needs."

"But it’s just 20 minutes. In 20 minutes, you could give me such important strategy that would otherwise take me months to develop. You could really help me."

"Yes, I think you could benefit from my consulting services. I’m not available as a volunteer. But I’m happy to put together a proposal for my services."

"But it’s just your time! It’s not like I’m asking you to donate money."

"Yes. It’s just my time. Exactly. It’s the most precious thing I have."

 Do people ever try to twist your arm to get free consulting services? Do you ever struggle with figuring out how to set and get your consulting rate? What do you do when people try to get you to work for free?

IT contracting rates

IT contracting rates vary greatly based on a number of factors, including location, skills required, and specialization.

Location – IT contracting rates:

In today’s world where outsourcing and cloud computing are becoming increasingly popular, be mindful that IT contractors are often competing with other IT experts from all over the world, including countries with lower costs of living. However, this competition doesn’t necessarily mean that rates are reduced or that there isn’t room for you in the IT contracting world. In fact, IT contracting rates continue to vary greatly, and there is still room for IT consultants at the higher end of the rate spectrum–as long as you are clear on the value that you provide and who your market is.

Skills required – IT contracting rates:

Regardless of location, there are a wide variety of client requirements–from small projects for individuals or small businesses to multi-year contracts for large corporations or governments. In light of this, IT contracting rates will vary greatly depending on the project and the perceived value or importance of the IT work that is being contracted. Some IT contracts require high-level skill and professionalism. For example, IT contracting in the securities and banking industry obviously require increased quality, monitoring and accountability which are reflected in price. This brings us to the next factor: specialization.

Specialization – IT contracting rates:

As in any consulting field, it’s crucial that you carve out a niche for yourself. Getting specific about your service offering helps in many ways, including being seen as an expert and being able to focus your marketing on a small, clear group of potential customers. Many IT contractors start out as generalists but they soon discover that IT contracting rates are higher in more specialized fields. Why not save yourself some time and skip directly to a specialization? Discover your niche and grow your IT contracting rates.

Are you interested in learning more information about setting IT contracting rates? Check out this excellent article about computer consulting fees. Further, if you’re looking for help setting your own IT contracting rates, obtain a copy of Consulting Fees: A Guide for Independent Consultants.

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Keys for getting clear about consulting fees

Setting your consulting fees can be a huge stumbling block. If all this is new to you, you may feel your head spin when you start looking at coming up with a fee. If you’re also dealing with a career change, a career break, cultural or gender factors, things get more complicated. Fortunately, you can use clear models and recommendations to help navigate this new path.

Career and business culture influences how you approach fees
If you’ve never had to "sell" your services before, you may be a bit wary of naming a price. Perhaps you came from a field where the thought of a fee or price never crossed your mind — a non-profit, educational, human services, government or other background. Or maybe you were in a role where you simply earned a salary and you never had to think about how your earnings related to those of the business. You might even have come from a cultural background that shies away from talking about money under any conditions. If any of those situations rings true for you, it can help to study consulting fee models so that you understand the rationale for setting your rate. Otherwise, you may feel less confident, which may lead you to discount your rates, backpedal or even come across as a bit nervous.
 
Gender affects the mix
A 2006 Harvard Business School study, When Gender Changes the Negotiation, found that women perform on par with men when negotiating salaries in low ambiguity industries. Low ambiguity industries are those where salary expectations are more clear to applicants. Although consulting is included as a low ambiguity industry, there’s a big difference between applying for a job and attempting to win a consulting contract. Independent consulting and freelancing – where you’re on your own — may seem far more mysterious and ambiguous.
 
For many people, the thought of negotiating consulting fees sounds mysterious, overwhelming and indeed ambiguous. At Consultant Journal, I get a lot of email from readers who’ve stumbled on to my site late at night, while tearing their hair out over a need to get a proposal out the next morning. If you’ve never had to negotiate a fee for your services before, it can be intimidating. If you’ve made a career change, taken a career break, just started in entrepreneurship or never gone to bat for yourself before, you may feel like you’re facing several obstacles. But with a good roadmap, you can get yourself around, over and through those obstacles and come out on the other side.
 
Get confident by studying consulting fee models
Take the time to explore typical models for consulting fees. When you realize the value of each hour of your time, it can help you feel more confident about asking for a decent hourly rate or project fee. While you’ll eventually want to move on to solution-based fees that really get into the value you provide, most people start out with hourly rates – and many are happy to stick with those. But you’ll find there’s a range of models for determining fees:
  1. Doubling/tripling your hourly wage – if you’d make $25 an hour in a day job, charge $50 to $75 as a consultant. Likewise, if you’d make $60 an hour, charge $120 to $180.
  2. Using a daily rate for consulting – multiple an hourly rate by the hours in a day
  3. Setting consultant fees by the project – work out a fixed fee for each project so that your client need not worry about how much a phone call is going to cost or what the end amount will be
  4. Setting consulting fees based on performance and value added – if you do this strategically, you can make a good profit, but with no control over how your client implements or manipulates your recommendations, you may not see the results you want.
  5. Setting consultant fees strategically using real-life data – a combination of working days, hours, profit margins, overhead, bad debt,
  6. Charging what everyone else charges – this is a popular tactic, but does nothing to address the unique solutions you offer
  7. Moving to Solution-based Fees – this is more complicated and means you need a solid business and marketing plan behind you, but it’s the model that will leave you with the most profit.
Take the time to really evaluate and understand common ways of calculating consulting fees. Get into the models and take an in-depth look at each one. By taking the time to understand what goes into fee negotiations, you’ll feel more confident about presenting your fees to clients. You’ll also be in a better position to handle requests to defend your quotes or cut your rates.
 
Build a solid marketing and business plan
If you develop your business and marketing plan so that it’s in line with your unique qualities, values and target market, you’ll build expert appeal. Confidence comes from developing marketing programs and tools that help position you (and your business) as an expert who can solve real problems for clients.
 
Negotiate for all your stakeholders
The Harvard Business School study on gender and negotiation found that women do better at negotiating for others than they do for themselves. HBS recommends women think of themselves as negotiating for their departments, company or customers. As a prospective consultant, you can learn from that. Think of yourself as the owner of a business and negotiate for your business and all that represents. Whether you’re “just” starting out as a freelancer or running a multimillion dollar consulting firm, you still have stakeholders. They include:
  • You
  • Your family (kids, aging parents, close friends you help out)
  • Your vendors and service providers
  • Other businesses you support through your own business
  • People in your network to whom you refer business
  • People you could or do now hire as freelancers or contractors
  • People you could or do now hire as employees
  • Those you mentor
  • Charities you support with your time and money – if you’re starving, you’ll have less time to help out
  • All the people in your industry, profession or community striving to earn respect and a living
Look at the fit between you and the client
Whether you’re consulting, freelancing, contracting, gigging or just taking on side jobs, you’re working to solve problems faced by your clients. If you really want to solve problems for clients, you need to consider the fit between your business and the client. To deliver value for your clients and be in a position to solve their problems, you need to feel like you’re in a good relationship. If you instead feel undervalued – or that you’ve sold yourself short – you’re going to be in a bad relationship. Standing up for the value you deliver to clients means aiming for a good relationship with your clients. It also means you’re seeking sustainable relationships that will allow you to keep on delivering that value (while also paying your rent and groceries or, on the other end of things, growing your business to a size where you can help other people pay rent and buy groceries).
 
Focus on the value you create
If you enter every business negotiation with the idea that you’re selling yourself to the client, take some time to create a little distance from your business. Focus instead on how your business will create value for the client. If you keep the focus there, your fees should matter less. Moreover, you might want to take some steps to distance your business from “you”. When you start making decisions about your business, you may find that you feel a little more free to ask for fees that better reflect the value you deliver to clients.
 
Get support
Reach out to others who’ve been down this path before. Colleagues, mentors, instructors and coaches can help you feel more confident about your fees. Take a course, join a professional association and go to networking events. If you feel more connected to your community, you’ll feel more valued and more connected to the value generated by the work you do. And, like the Beatles song, you’ll get by with a little help from your friends.
 
If you’d like more information on setting consulting fees, check out our article on setting consulting fees or take a look at our Consulting Fees Guide.

Related to consulting fees:

Consulting Fees: A Guide for Independent Consultants

Rates for independent consultants

Rates for independent consultants can be one of the most important elements to understand as a consultant. How do you set rates for independent consultants? What are other consultants in your field charging? How can you justify a high rate? Should you negotiate your rate? How much is too much–or too little? What strategy should you use to calculate rates for independent consultants?

Questions abound when it comes to setting rates for independent consultants. And setting appropriate independent consultant rates can make the difference between struggle and success as a consultant.

There are numerous types of consultants, and the procedure for setting rates for independent consultants can differ depending on the type of service you provide. For example, a fitness consultant and a jury consultant may use different strategies to calculate rates–even though they may both be independent consultants.

Relatedly, different target markets can bear different consulting rate scales. For example, an IT consultant who targets new small businesses may have drastically different independent consultant rates than an IT consultant who targets Fortune 100 companies.

There are numerous strategies for setting rates for independent consultants, including:

  • multiplying your hourly wage
  • using a per diem rate
  • charging by project or performance
  • using real life data
  • using competitors’ rates

However, all of the above strategies for setting rates for independent consultants miss the most important piece: charging based on the perceived value that you provide.

Want to know more about how to set your own independent consultant rates using this strategy? Get practical tips and 124 pages on making money as a consultant! Check out my Consulting Fees: A Guide for Independent Consultants.

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Repositioning for higher earnings

Could you be making more doing something else? It’s a question I encourage entrepreneurs to ask from time to time. While you want to be on target with your goals – business and personal – it sometimes makes sense to examine the ways in which you meet those goals. Sometimes, you can build a new revenue stream or even ramp up your current earnings simply by making a few changes.

Let’s say you’re a math tutor. You make $30 to $50 per hour, although you have to travel to the homes of your students. You’re also stuck working from 3 pm to 9pm, when your students are home from school. Could you make more doing something else? Is there another line of work that will deliver higher consulting fees for doing essentially the same thing?
 
Well, let’s say you repositioned. You know you’re strong in assessing client needs, planning how to deliver information, coaching and mentoring, and managing the client relationship. You’re also obviously strong with math. What if you repositioned to provide math skills building for the business market? Let’s say you repositioned to create a side business that delivers math education for business leaders. You could:
  • Create a continuing education course called “10 ways to increase business profits with better math skills”
  • Develop a half-morning seminar called “Math smarts for non-techies” and pitched it to marketers, HR professionals, communicators and other non-math professionals
  • Build “scoreboards” to help professionals measure success in marketing, HR and other areas
  • Offer coaching for executives who want to be able to think on their feet in meetings and do math in their heads, so that they can make better business decisions
  • Run your own GMAT prep numeracy courses for people who want to get into MBA programs
All those programs would most likely command far more than $30 to $50 per hour. In fact, with a little planning, you could be billing hundreds of dollars per hour. And you’d pretty much be doing what you already do.
 
So, could you be making more doing something else? Do you have an inner consultant in another area, just waiting to be unleashed?
 
Related
 
Do you offer services to consultants? Check out our consultant service directory listings.

Do consultants charge tax?

Do consultants charge tax? It’s a legitimate question. Whether or not consultants charge tax depends on many factors.

Your location – Do consultants charge tax?

In order to determine whether you should be charging tax as a consultant, make sure you’re heeding advice that pertains to your own country and state or province. If you’re in the United States, the easiest way to determine whether to charge tax is to contact the Internal Revenue Service, as well as your state. If you’re in Canada, contact Service Canada and your provincial government.

Don’t simply go by what other consultants are charging. Get tax information straight from the source.

Your client’s location – Do consultants charge tax?

Whether you charge tax will also depend on the location of your clients. If you offer services over the web you may have to charge different taxes to different clients depending on their location.

Your services – Do consultants charge tax?

The type of taxes you charge may depend on the type of services you offer. Once again, get guidance straight from the source! Be sure to clearly indicate which services are taxable on your invoice.

Your income – Do consultants charge tax?

The taxes you must charge may depend on your income. Because your income will change over time, be sure to reevaluate your taxation policies on a semi-annual basis.

As you can see, the answer to whether you should charge tax depends on your location, your client’s location, the type of services you provide and your income. When in doubt, contact the government in your area or seek advice from your financial advisor regarding whether to charge taxes.

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