How do you set consulting fees?

"How do you set consulting fees?" writes Chad, a Consultant Journal visitor. "I read your article on setting consulting fee rates, but you’ve given a few ways to calculate consulting fees and you didn’t mention how you figure out your own rates. What methodology do you use?"

Great questions, Chad. Thanks for writing. I’ve used several methods to set my consulting fees over the years. When I first started out, I just charged the rate everyone else at my level was charging. It seemed fair enough and it saved me some headaches. I used that method to set my consulting fees for the first six months or so.

However, not long after I became a consultant, I realized that my business was different. I wasn’t offering the same services as all the other people. In fact, the feedback I got suggested that I was offering better value and more innovative services. Around the same time, I got some calls from headhunters who wanted me to interview at various companies. I asked them about my prospective salary…then used that information to calculate my rate based on double what I’d be making at a company.

To set my consulting fees, I simply charged a multiple of my salaried rate for the next couple of years. I typically used that rate to charge by the project. I still do a lot of work by the project. And, very occasionally, my clients tell me what they can afford to pay me and I tell them what I can afford to deliver at that rate!

About two years ago, I moved to a new model. I work out a multiple of my hourly rate at a "real" job would be. Then I do research to find out what other consultants are charging for similar or related services. I also use a spreadsheet to come up with a detailed pricing model that includes my working days, billable hours, rate of pay, overhead and the like. Finally, I do an average of the three figures. Surprisingly enough, the three figures are pretty much in the same ballpark anyway.

So, that’s how I figure out what to charge. Thanks to Chad for asking how I set my consulting rates. Keep the questions coming.

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How do you set consulting fees?

Andrea says:

Thanks again, Chad. Readers are always free to send in suggestions.

Chad Kellers says:

Hey, thanks for writing that. You should do a weekly Q&A or something.