How to Determine the Right Rate for Consulting Services

Learn how much do consultants earn? Understand how hourly billing works and how daily rate is derived from hourly rate? Get tips on how fractional CEOs collect monthly advances.

How to Determine the Right Rate for Consulting Services

The scope of work should be a major factor in determining your rates, but it can be difficult to estimate the cost per hour or per project. For instance, you may find it quicker to write a 2,000-word article for a company than to help produce a 5-minute podcast episode. If a client offers you a large sum for a large project, you may analyze the work and find that it takes twice as much time and effort to do what rewards you with a smaller project with a smaller budget. However, remember that this type of pricing does not take into account the true value of your work. Consider the example of the Declaration of Independence.

If you are doing work that can have a major impact on a business, that also comes at a financial cost. When a customer asks: “How much do you charge for consulting?” from the start, try to guide the conversation towards the details of the project. For example, you can say, “I'd like to have a good idea of the scope of work before we talk about rates. Sometimes, you will have to commit. For example, a customer's budget may not be able to afford it.

Instead of completely rejecting the customer (or having the customer reject you), guide them towards negotiation. Consulting fees and pricing can be structured in many different ways. But like most companies that offer services, the number one challenge is pricing their offerings. Pricing products is easier than services because, with products, you can easily track production costs. However, in the case of services, determining the value of what constitutes your service (time, staff, and experience) is very subjective.

This is why different consultants employ different techniques to ensure that their services are properly priced. In doing so, consultants consider all the factors necessary to ensure that they don't overcharge or undercharge. Otherwise, there is always the risk of losing customers through pricing. So how much do consultants earn? According to a study conducted by Consulting Success, the following statistics show how most consultants structure the pricing of their consulting services. Most of these consulting firms consider their fee structure to be a vital competitive asset that they rarely disclose to people who are not clients, making it difficult to compare the rates of other consultants. The largest group of consultants that make up the market are those who work for themselves or are independent and, in general, they charge according to what they consider they are worth, especially since their rates are not usually limited, especially for those in the private sector. Hourly billing is a time-based agreement.

You only charge for the number of hours worked. How do consultants determine your hourly rate? Often, when consultants are paid by the hour, they base their salary on the amount they received from the company they used to work for or where they continue to work by the hour, with a small profit margin. According to the SBA, the hourly rate is calculated by dividing the previous wage by 52 work weeks and then dividing that number by 40, or the number of regular working hours in a week. Next, consultants should check with their competitors to ensure that their profit margin does not exceed 25-30 percent. New consultants charge less to create a portfolio, so expect great deals when working with them.

Although rates may vary mainly by location and other factors. The daily rate is basically derived from a consultant's hourly rate multiplied by the number of hours per day that a consultant is expected to be available to work. Most consultants prefer to charge this way since clients are usually used to hiring services on a daily basis in order to avoid limitations on scope of work which usually happens if you charge by hour. Customers are often more comfortable with an hourly or daily rate because they can evaluate need for consulting services from time to time without complications of most long-term agreements. Customers may not be actively involved in all those stages but they are certainly part of consultant's job so they are needed for estimating project costs. A reliable consultant will assure you that there will be no hidden charges from start to finish. There are cases where services of consultant are needed on an ongoing basis.

In those cases retention agreement is more appropriate. Some examples of consultants who provide services on recurring basis are legal consultants IT consultants and even financial consultants. You pay retention fee in advance in order to ensure that your consultant is available any time you need advice or assistance. Retention fees are usually calculated same way as project rates but putting consultant on monthly advance can give you reduced rate. Monthly advances guarantee consultant regular flow of income without having to spend on additional sales and marketing costs in order secure project with you. You can take advantage of this type of agreement once you've put consultant to test after month or two or once you've covered full scope of project. That said some consultants are only available for hiring agreements since initial investment exists for exploring business and its needs long-term commitment may be necessary.

The best option you have is paying based on value consultant brings to your business not just time you have left over or materials you provide. This is why fractional CEOs often collect monthly advances distributing their time in most meaningful way for company. Finding right option for your business can be extremely difficult as navigating consulting landscape is challenge when you don't have reliable reference or sufficient budget for leading industry guru. Check out my extensive guide on how to find and evaluate consultant in order help you scale your business. Let's take closer look at each these factors in detail so that you can determine what rate works best for your consulting services.

Nadine Chris
Nadine Chris

Amateur beer practitioner. Passionate web nerd. Award-winning pop culture aficionado. Friendly web practitioner. Amateur internet guru.