Wednesday, January 28, 2009

How Do I Set My Consulting Fees?

When I talk with people who are just starting out in consulting, one of the more common questions I am asked is, “How do I set my rates?”, or “How do I figure out how much to charge for my services?”

The rate you wish to charge is based on two fundamental things. First, how much money do you want to make? Be realistic about this, especially when starting out. The best way to figure out this aspect of what you intend to charge for your services is to research what someone equivalent to your consulting services, working in a company as a full-time employee, would make in a yearly salary. For instance, the equivalent of my consulting services at PinPoint Performance Solutions in a company as a full-time employee would be as a performance improvement specialist. The last time I researched the average salary of a performance improvement specialist, I discovered it was around $60,000 per year plus benefits. Second, you simply need to know what your overhead costs to run your business will be. An educated guess will work to begin with, but track your expenses so you can get an accurate account in the future and apply it to subsequent rate calculations.

These two fundamental aspects will set the foundation for calculating your rate. Your outcome will be two different rates you can then quote to clients - hourly and daily. Ideally, you want to charge a daily rate or project fee. The reasons for this can be a post on its own and we'll save that for another day. If you feel confused, don't be. Here's a great post on how to calculate your consulting fee using simple a simple formula. In addition, I have pulled together these other resources to help you determine your consulting fees:

2 comments:

caffeinatedmarketing said...

When I was deciding if I was going to do the "solo thing", I took a very unscientific poll of my Twitter & FaceBook friends as to how I should charge.
I was surprised as to what I found on question #3, asking if people would pay by the hour or pre-pay.
http://bit.ly/vorm
Finding your value has to be the single hardest decision in consulting...after actually deciding that you are diving in head first of course!
-jen

Justin Beller said...

Going the unscientific route is harder because it's difficult to be objective about yourself. Unless you have an over-inflated sense of self-worth, you're probably not going to set a rate for your services that you likely deserve unless you do the math (the subjective route) and declare a rate that the market can easily bear.

Hopefully your impromptu survey helped. Whether you arrived at a rate objectively or subjectively, you have to be able to look in the mirror and say "My rate is $100 / hour.", without snickering or cracking a smile. You have to believe you are worth that rate and leave no doubt in the client's mind that you are worth every penny.