How long do you give clients to pay? When I set up my consulting contracts, I specify that payment is due at key milestones. I take a certain amount upfront and, depending on the size of the contract, I invoice about every two weeks or at key delivery points. However, I don't give clients 30 or 60 or 90 days to pay...unless they're prestigious "brand name" clients, such as a Fortune 100 technology firm that told me, up front, that they'd take net 90 days to pay.

But, for the most part, I expect clients to pay right away. I will delay further work if payment is late. And I charge interests rates that compete with any department store credit card. I also take up to 50 percent as a deposit on my consulting fees.

As a result, most of my clients pay me within a week or two. One of my clients often pays the entire amount before we even start the project.

I'm not a bank. I avoid extending credit to customers. Besides, when I'm firm about my rates and payment terms, I signal that I'm running a business.

How long do you give clients to pay?

Related to consulting fees and payments

• New business line of credit
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• Consulting Fees: A Guide for Independent Consultants

A bad client can turn into a money maker. How's that? Get rid of the bad client and implement a new policy.

Early in my consulting career, a prospective client asked to hire me for 30 minutes, just to see what I could do. It was late on a Friday and I figured I could use the extra money to splurge on dinner. The guy sent over a deposit within the hour, since he was in a tower down the road. I got to work and delivered the mini project on time.

The client phoned me back and said he loved my work. But now he wanted to see what I could do in 15-minutes. Realizing that administration of the project would soon overtake the time of the project, I declined. I immediately implemented a minimum charge. The client wasn't willing to commit to such terms. So we parted on good terms. I was happy, because I'd just warded off future five-minute and perhaps even one-minute projects.

All these years later, I still have that minimum charge. It's allowed me to eliminate clients who have projects that take more time to administrate than to do. As a result, my earning power has increased, since I've minimized non-billable work.

What do you think of minimum charges?

Related to consulting fees

• Setting consulting fee rates
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What do you do about travel charges, when a plane is delayed? Ella posted a comment in my article about billing travel time charges. She wrote:

I am a consultant for now (my client said that he will make me an employee after a trial period, but didn't specify how long). I recently had to go on a business trip with him for 3 days and not sure how to bill for it. The cab picked me up @ 6:30 AM on Monday to take me to airport and after we landed we went to see the client and then company dinner. After that to hotel (did a little work on computer as well). Then conference/another party and back to hotel. Last day conference until 6 then airport - my flight was at 9 PM and got delayed, so cab brought me home by midnight). I would really appreciate your suggestions. Thank you.

Here's the thing. You should iron out travel time fees before you start work. Get it in writing -- use a contract. This can help avoid headaches later.

In Ella's case, it's especially tricky because she's hoping to become an employee of the company in question. Right now, she may not entirely have a consulting role -- she needs to look at whether she's an independent contractor or an employee. If she really wants to work for this company as an employee, she doesn't have as much leverage as if she's a contractor.

It's hard to give Ella concrete decisions, because I'm not aware of the terms of her contract. And she may need to act more like an employee, if that's her goal for this work.

If you're an independent consultant, you can be a little more forceful about how you deal with this situation. You'll still need to look at how you've structured your consulting rate -- by the hour, project, day and so on.

What would you tell Ella?

When you walk into a meeting with a client, are you ready to talk numbers? Whether a client wants to know your hourly rate or your quote for an entire project, you need to have a handle on your numbers before you meet.

That's not to say that you need a firm estimate for a project. You should never give a firm quote without having time to think a project through. However, you need to understand that a client will want to have an idea of a project's cost. You've got to have a plan for handling questions -- and objections -- about your fees.

When a prospective client asks me about my fees, I tell them my hourly rate, but add that my rate isn't nearly as important as the project total and the value they're receiving. If I can do the work three times as fast as someone charging half what I do, I'm actually the better value. It's also important to get my clients to talk about the value they'll receive from the project, so that they have more of a focus on what they stand to gain than what they stand to spend.

I talk about handling client objections to price in my Consulting Fees Guide. What steps do you currently take to prepare to talk price in client meetings?

Related to consulting fees

• Consulting Fees Guide
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This morning, I was astonished to discover that someone I know has been charging the same consulting fees for TEN years! Ten! And, not only that, this consultant only charges $50 an hour!

Yikes! If this consultant had merely increased fees at the rate of inflation, they'd be charging $61 an hour now. I mean, $50 today was worth about $40 ten years ago.

Not only that, by keeping rates flat, this consultant hasn't allowed for any increase in skills or experience. Do you know more than you did 10 years ago? Do you do your work better? Faster? I would hope so!

In fact, if this consultant had increased rates at 5% a year, signalling a strong belief in skills and experience development, they'd now be billing over $80 an hour.

Wow. When I look back at what I was charging 10 years ago and compare it to my current rate, there's been a huge increase. In fact, in my first year of consulting, I raised my fees 43%. And, four years ago, I raised my fees 56%. And I've increased my fees every year -- those are just big jumps. In fact, I now bill 386% more than I did 10 years ago.

My consultant friend is leaving money on the table. Are you? Check out my Consulting Fees Guide.

 

Freelance rate -- if you're wondering how to calculate a freelance rate, it's much the same as calculating consulting fees. You'll end up with a rate that's approximately 2 or 3 times what you'd make per hour at a regular job, once you've accounted for benefits, vacation, sick leave and so on. See our consulting fees article for a step-by-step guide.

Freelance rate sound too high?

When you first work out your fees, you may think they sound high. But, once you consider all the costs you must absorb, you'll see that they're not astronomical. As a freelancer, you'll shoulder more responsibilities than someone with the security of a full-time job.

Related to freelance rate

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When you're setting your consulting fees, do you consider invoicing to be billable or non-billable time? Depending on how you set up your fees and contracts, you might designate time spent invoicing as administrative work -- the cost of doing business. Or you might consider invoicing part of client and project management -- and bill for it.

I'm curious about how my readers handle invoicing. Really, all paths may lead to the same place. If you put invoicing under administrative time, it will be absorbed into your fees. If you put it under project management, your project fees will be higher. What do you do?

I just stumbled across this handy breakeven calculator from Case Western Reserve University. It's a handy way to analyze the price point at which your business will breakeven, given the costs of production and the volume of sales for your product. First-year economics students and MBAs spend hours pouring over breakeven charts, but this calculator does everything for you. Note that it's better suited to products than services. If you want to price your services, try using my article on consulting fees.

Via Dane Carlson, here's this week's Friday 5: the top 5 signs you're charging too little. You may need to raise your consulting fees if this one rings true:

"You never run out of work, yet you are subsisting on beans and ramen noodles."

I've got a friend who made as much as I did last year, but she had to work much harder. She charges almost a third of what I do. She does outstanding work and she's very experienced. She wouldn't need to work as hard if she charged more. Sure, some companies would balk at her prices, but she'd make more from those who stuck around. And there's obviously room to increase her prices, since I'm charging almost three times as much.

Related to charging too little

What do you do when you have too much business?

Setting your consulting fees is one thing, but do you ask clients to make a deposit when they hire you? Asking for a deposit poses several benefits.

Benefits of a deposit

• May help provide legal proof that you've entered a contract -- money or "consideration" has changed hands
• Reminds the client that they've entered a binding contract
• Scares off some people who had no intention of ever paying you
• Ensures you'll receive at least something, if the client disappears without paying
• Improves your cash flow situation, so you can pay your bills while you're doing the work
• Protects you if a client decides to cancel the contract before you start -- when you've already turned away other paying work
• Reduces the amount of credit you're extending to the client
• Allows the client to spread payments over a period of time
• Provides some money for you to pay subcontractors and third parties

Professionals expect deposits from their clients. Don't be embarrassed to ask for money upfront.

Related to deposits

• Sample consulting and freelance contracts
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The phone rings and a prospective client would love to hire you. They've read your website, heard your sales pitch and perhaps checked some references. And now they're ready to enlist your services. There's just one catch. They've never worked with a consultant before and they're a little leery of the process. "Can we hire you for 30 minutes, just to see what you can do?" they ask.

Half an hour of your time. You're still a little strapped for cash and even $75 for a few minutes of your time sounds attractive right about now. Heck, even if your consulting practice is booming, how hard would it be to carve out 30 minutes for this prospective new client? After all, if they hire you for a bigger project, it could turn into thousands of dollars.

So what should you do?

1. You could take on the work, with the hope that it will turn into more work. But, realistically, you can't accomplish anything in 30 minutes, let alone get to know a client, set up a contract, invoice and pursue payment.
2. You could turn them away. They've insulted your sensibilities. But you're missing out on a great opportunity to educate the client about your consulting process and the value of your services.
3. You could tell them you'd be honoured to do the work and that you understand their hesitations -- but insist on a minimum charge. This will cover the administrative aspects of the project and allow you to provide value.

I always go with number 3, unless the prospective client seems unreasonable and inflexible. Some people simply want to nickel and dime you, no matter how high or how low your consulting rates are. But, in most cases, I can explain why I need to stock with a four-hour minimum. If the prospect balks, I know it wasn't a good fit.

Consultant rates -- the rate for a consultant's fee varies from consultant to consultant. Setting a consulting fee rate should never be looked on as a minor activity. The rate you choose to charge for your consulting services has a lot to say about you and your business.

If you waffle when clients ask about your fees, they may think you're inexperienced, about to inflate your rate, or unsure of yourself. Know your fees before you ever talk to a client. If you charge by the project based on a variety of factors, tell the client. Say what you use to calculate a fee and tell them that you'll come back with a quote in X days. Most people would rather hear that than "Um, uh....I don't really know what this would cost. Uh, I'd need to think about it."

When people ask me how much I charge per hour, I tell them, "I charge $x per hour, plus tax. However, that's not as helpful to you as knowing the rate for this project. I typically charge by the project, so that you know what you're committing to and so you can budget accordingly. I'd be happy to prepare a quote by next Thursday."

Posts related to consultant fees

• Setting consulting fees
• Dealing with consultant fee sticker shock

(Want even more info? Get 60 pages on setting consulting fees in my Consulting Fees: A Guide for Independent Consultants).

What's in a consultant fee? If you're wondering what to include in your consultant fee, you should consider the following, which come from setting consulting fees:

• working days
• billable hours
• bad debt
• rate of pay at a regular job
• overhead
• profit margin

That's not everything you should consider, but it's most of it.

"What's in a fee? | Consultant fee" from Become a Consultant at ConsultantJournal.com.

Choosing the right level for your consulting fee is an important part of being a consultant. My post on setting a consulting fee goes over some ways of establishing your rate. However, how can you tell whether your fee is too low?

Five ways to tell your consulting fee is too low:

1. No one has ever balked at what you're charging
2. Prospective clients say, "Gee, that's really reasonable!"
3. You're charging the lowest rate in your market
4. Prospective clients are excited to receive a quote but then follow up with, "Thanks, but we're going to go with someone more senior."
5. Once you look at how much time you're spending on your consulting business, your hourly rate works out to be peanuts.
   

Posted related to Consulting Fee

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"Consulting fees: are yours too low?" from Become a Consultant at ConsultantJournal.com.

I know from the emails I receive that some of you are already consulting -- you're just not getting paid for it. You may be providing your expert advice to your friends, family, charities or religious organizations. Stop working for free!

But -- wait! I'm not telling you to start charging your friends and family!

I'm not one of those MLM types who wants you to start gouging your friends and loved ones. No way. I'm just saying that you need to start thinking like a business person, if you're going to make the leap to consultant.

You can still give free advice to friends and family and anyone else who strikes your fancy. But here's where you need to make a change.

Turn your donated time into a business strategy.

When you give away your consulting, you undermine its value. If you want people to take you seriously, you need to make sure you're treating your time and knowledge as valuable resources.

Identify reasons for giving away knowledge -- then determine what you gain from giving away your knowledge.

• Do you want to build up your portfolio?
• Develop and enhance new skills?
• Demonstrate competency in a particular area?
• Build relationships?
• Get references?
• Foster goodwill?
• Meet personal goals?

If you trade your time and knowledge for specific outcomes, you're not really working for free. You've identified the outcome of the transaction.
Although my Consulting Fees Guide tells you not to give away consulting services to businesses, you can make an exception if you're building your personal inventory and you haven't yet made the jump to making money. But don't give away your services to anyone you even dream of having as a client. They'll never be able to believe you're worth $150 an hour if you were doing the same thing for free before.

So, if you want to do work without charing for it, do so. Just make sure you understand why you're doing it.

By the way, if you like donating your time for the sake of helping other people, there's nothing wrong with that. You're meeting a personal goal. And not everything in life has to be about business. But, if you're struggling with making the transition to actually charging, take the time to rethink your strategy.

"Want to stop working for free?" from Become a Consultant at ConsultantJournal.com.

"What's the most you've ever made per hour?" writes Pablo Martinez. I'd have to say $500 an hour. I was working for a major US client where I was getting paid by the project.

When I estimated the project, I'd anticipated lots of hiccoughs in the project. So I set my consulting fee for each deliverable at $500. As it turned out, the client was a dream to work with. They accepted each piece of the project without question. I'd anticipated time for going back and forth, returning phone calls, making revisions and the like. But the client liked my work as is. That meant I was getting paid $500 for 45 to 60 minutes of my time. And that was 10 years ago, so, if you adjust for inflation, I was really making more than that.

Of course, if the client hadn't liked my work, I could have been working more hours to earn that money, resulting in less per hour. One of my graphic designer friends calls this "eating the project".

"The time I made $500 an hour" from Become a Consultant at ConsultantJournal.com.

Consultant fees can make you $100 an hour. You heard me right. If you set your consulting fees properly, you can earn $100 an hour -- even $150, $200 or more. How do you do it? My post on setting consulting fees gives you many of the answers. But what if you've been scraping by at $40 an hour or $75 an hour?

Many people make the mistake of setting their consulting fees too low. They worry that their clients can't afford to pay more, that they aren't good enough to charge more, or that they'll look arrogant.

Every time I've raised my fees, I've gained more clients. I scare off the occasional client, but the reality is that most clients respect your right to earn a fair living. And if you're dealing with people who don't respect that, those clients are probably going to be trouble anyway. See my post on consultant fee sticker shock.

So, if you've read my setting consultant fees post and you're still afraid to charge your market value, stop being afraid! Tell the very next lead your new rate. That person wasn't your client to start with, so what do you have to lose by telling them your new higher rate? The last time I raised my fees, the next prospective client said, "Oh, that's very reasonable" when I quoted him at my higher rate.

(Want even more info? Get 60 pages on setting consulting fees in my Consulting Fees: A Guide for Independent Consultants).

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"Consultant fees: make $100 an hour" from Become a Consultant at ConsultantJournal.com.

What's a reasonable hourly wage for consulting? If you've read my post on how consultants go about setting consulting fee rates, you'll have an idea of how to calculate the fees you charge. Still, many consultants wonder what sort of hourly wage would be reasonable.

Well, for starters, calling your consulting fee an "hourly wage" is really not the way to go. You're not an employee, so you're not earning a wage. What you're doing is creating value for your clients. You're helping them make money or save money. As a result, a reasonable consulting fee reflects the value you generate, while allowing you to meet your expenses, pay yourself, and earn a profit from the risk of running a small business. If your clients have consulting fee sticker shock, try helping them focus on the value you generate for them. And, for your own sake, keep in mind that you're a business too.

You may also be interested in this post on consulting fees (PDF) from IEEE -- although it's aimed at engineers, the document is still interesting.

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"Setting a reasonable hourly wage for consulting" from Become a Consultant at ConsultantJournal.com.

Following my post on the top 10 consulting myths and working on spec, here are some bonus myths that deal with spec work:

1. Consultants should make presentations about more than just their backgrounds and experience before they are hired. Nope. I'm a business. I can't afford to do work for free.
2. Consultants should trade their strategies for a free lunch. Not a chance. $15 will not buy my best ideas.
3. Consultants should develop business plans, articles, designs, and strategies, then present them. If the company thinks your vision is in alignment with theirs, they'll pay. No way. If youwant my brain, you've got to pay.
   

"More consulting myths about spec work" from Become a Consultant at ConsultantJournal.com.

Spec work is better known in the graphic design world, but many consultants are asked to work on spec at some point in their careers. Spec work (short for speculative work) involves doing work without a contract or even promise of pay. For example, a prospective client may ask you to put together a marketing strategy on spec. The idea is that, if they like it, they'll pay you. Of course, they're probably telling several other consultants the same thing.

Before you work on spec, you should check out No Spec, a great website devoted to explaining the problems involved with spec work -- for consultants and for clients. I found it today via Google.

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• Setting consulting fee rates

"Spec work aka speculative work" from Become a Consultant at ConsultantJournal.com.

Consultant per diem rate definition

"What does per diem mean?" asks reader Angie Dixon. Good question, Angie! Many people write in to ask what per diem means. Consultants often toss around the term "per diem rate", but the odd term does make some people wonder what it means. This Latin phrase's definition is fairly straight forward. Per diem simply means "by the day" -- the amount the consultant expects to be paid for a day of work. Some consultants only use a per diem rate. Others charge out by the hour and multiply by eight hours to get their daily rate -- some discount that a little. And, of course, consultants use many other ways and means of setting consulting fee rates, as I've mentioned before.

What are per diem travel rates?

See the article on billing travel time charges for consultants for per diem travel rates.

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"What does per diem mean for consulting rates" from Become a Consultant Blog at ConsultantJournal.com.

Consultant fee rates sometimes give potential clients sticker shock. That's because consultant fees and per diem rates sound really high if you're comparing them to the daily rate at a regular job. However, as my lengthy and detailed post on setting consulting fee rates shows, consulting fees have to account for costs a regular job doesn't cover. Making money as a consultant means you have to do more than just make a wage.

What consulting fees cover

To make money, independent consultants have to use their fees to cover:

• unbillable time spent on marketing and administration
• medical benefits
• dental benefits
• vision benefits
• vacation
• sick days
• training days
• education and training
• retirement savings plans or pensions
• stock options
• equipment
• office facilities
• tech support
• downtime between projects

Consulting fees aren't that high

When you look at all the things a consulting fee needs to cover, it isn't all that high. It's funny, though, that some clients will try to get a consultant to knock down fees. Many of the same people would never question rates charged by their hairdresser, plumber, mechanic, lawyer, doctor or dentist. And yet, if you think about it, those are kinds of consultants, too!


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"Consultant fee sticker shock" f rom Become a Consultant Blog at ConsultantJournal.com.

"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?

Consulting fees, consulting fees...How do you set consulting fees? Here's a guide to setting consulting fee rates. (It's also applicable to those wondering how to set consultancy fees -- an independent consultant is still a consultancy!)

When you become a consultant, you'll need to set consulting fees. Consultant pay and fees can be worked out in several ways. Here's some information to help you figure out what clients should pay a consultant (some clients are still prone to consultant fee sticker shock, though). With this in mind, you can determine typical consultant rates -- what companies pay consultants for their hours, days, projects and expert opinions. (This consultant fee guide has some interesting points for hiring a consultant for your business or non-profit and it covers what to pay a consultant, too.)

Consulting fee models

The main strategies for setting consulting fees include:

1. Doubling/tripling your hourly wage
2. Using a daily rate for consulting
3. Setting consultant fees by the project
4. Setting consulting fees based on performance
5. Setting consultant fees strategically using real-life data
6. Charging what everyone else charges

(Want even more info? Get 60 pages on setting consulting fees in my Consulting Fees: A Guide for Independent Consultants).

 

Main Strategies for Setting Fees

1. Double/triple your hourly wage as basis for consulting fees

To set fees, some consultants simply take the hourly wage (plus benefits) that they would earn when working for someone else and then double or triple it. If you're doing this, you'll probably find that tripling your hourly wage is the best move. Some consultants choose a triple rate because of what they call the rule of thirds -- one third goes to your real wage, one third to expenses, and one third to administration, low utilization and bad debt.

 ($60,000 salary + $15,000 benefits) / (48 weeks * 40 hours) =

= $75,000 / 1920 = $39.06

= 78.12, rounded up to $80 per hour

 Or $39.06 x 3 = $117.18, rounded to $120 per hour.

Of course, this assumes you use an hourly rate for your consulting services. Many people work out an hourly rate, but actually charge by the half-day, day, project or another arrangement.

2. Setting a daily rate for consulting (per diem rate for consulting)

To set a daily rate, simply multiply the hours you work in a day by the hourly rate from the above example.

8 hours * $80 hourly rate = $640 per day

 
3. Setting Consultant Fees by the Project

Some consultants set their rates by the project. They estimate the number of hours they expect to spend on a project, then multiply by their hourly rate.

However, some consultants set their project fees using the value the client derives from the consultant's advice. There's an old joke about physicist Niels Bohr that illustrate this principle.

A company's machine breaks down. The company's owner, an old school chum of Niels Bohr, calls in the physicist for help in fixing it.

Bohr examines the machine. He draws an X on the side and says, "Hit it right here with a hammer."

The company's mechanic hits the machine with a hammer. It springs into action. The company's owner thanks Niels Bohr profusely and sends him on his way.

A few days later, the owner receives an invoice from Bohr for $10,000. Shocked, the owner phones Bohr!

"Niels! What's this $10,000 invoice? You were only here for 10 minutes! Send me a detailed invoice."

Bohr agrees to send the invoice. A few days later, the company's owner opens a new invoice.

INVOICE
Drawing X on the side of your machine                             $       1
Knowing where to put the X                                             $ 9,999
-----------------------------------------------------------------------------------------------
Total                                                                             $10,000

 
4. Setting consulting fees based on performance

Some clients offer consultants a share of future revenue, profits or commissions, pushing the consultant to a pay for performance model. Others offer the client a commission. Still others offer pay based on the results of the consultant's work. Consulting fees based on performance pose several risks. For example, the company's performance in other areas may affect the area in which you you are measured. It may take months or more to see the results of the work, meaning that the consultant will not see any revenue for a long period, effectively giving the company an interest-free loan. The company may not cooperate with you in implementing your full recommendations, compromising your ability to reach the potential you projected. Moreover, you may have a hard time checking to see whether the client has manipulated results. Can you be sure that your results are being reported accurately?  Most importantly, you shift the focus from high quality planning to short-term gains. If you essentially become a partner by sharing in the client's risk, you lose your objectivity. At the very least, seek a base rate plus performance pay or share of ownership. Sticking to contingency and performance-based fees opens a can of worms.

5. Setting consultant fees strategically using real-life data

This strategy involves several steps:

Setting a consulting fee based on working days

In this calculation, you base your charges on working days per year.

52 weeks in a year

Allow six weeks for vacation, stat holidays and sick time.

= 46 weeks

46 weeks x 40 hours = 1840 hours a year

 
Determining your billable hours as part of your consulting rate

As noted above, you have 1840 working hours available each year. However, what percent of your time will be spent on work that brings in money, as opposed to work that helps you find clients but for which you aren't actually paid?

 100% possible hours

- 20% spent on administration, running errands, paperwork, etc

- 20% spent on marketing, networking events, website management, etc

- 10% spent on other non-billable work
------------

  50% spent actually working for pay

1840 hours x 50% utiliization rate = 920 billable hours

 
Considering bad debt rate as part of your consulting fee

Despite your best intentions, not all your clients will pay you. Some will take weeks or months to pay, but a small percentage will never pay the bill. So consider this in setting your fees.

 Collection rate: 97%

 920 hours x 95% = 874 hours

 
Rate of Pay as Basis for Consulting Fees

How much would you earn if you were paid a salary at a company?

$60,000 base salary + $15,000 in benefits = $75,000 salary

 
Salary / Billable Hours = Hourly Consulting Fee

$75,000 salary / 874 billable hours = $85.81

 
Overhead rates for consultants

If you've got the kind of consulting business that entails pure profit, you might not have to worry about overhead. But most consultants need to allow for:

•  rent or mortgage interest
• utilities
• maintenance and upkeep
• property taxes
• Internet
• telephone
• cell phone
• office gadgets
  
• Internet connection
• laptop or desktop computer
• printer
  
• shipping and postage
• printer toner/ink
• home office supplies
• paper
• stationery
• business cards
  
• accounting (if you don't do your own)
• legal services (in some cases)
• office furniture -- desk, armoire, chair, shelves, bookcase, filing cabinet, lighting, etc.
• business licenses and permits
• insurance -- health, life, disability, liability, etc
• car -- insurance, maintenance, gas, lease
• advertising and marketing
• subscriptions
• professional associations
• meals and entertainment for professional purposes
• continuing education
• professional meetings, conferences and tradeshows
• cleaning supplies and cleaning services
• other

Divide the total cost of your overhead by your billable hours:

$5,000 overhead / 874 hours = $5.72

$5.72 overhead + $85.81 fee = $91.53 fee

 
Profit margin and consulting fees

 As a consultant, you're taking a risk and running a business. So it's reasonable to expect a profit margin on your fees. Consultants usually mark up their fees by 10% to 33%.

 $91.53 + 25% mark up = $114.41

Since consultants tend to round to the nearest $5, our example results in $115 per hour rate.

 6. Charging what everyone else charges for consulting

This last tip may seem silly, but sometimes it really does make sense to charge what everyone else charges for consulting. It comes down to what the market will bear and what your competitors are doing. If you fall in line by charging the same as everyone else, you're signalling that you're a worthy (qualified) consultant who plays fairly. You're also making sure you get the base line rate for consulting in your market.

Final thoughts about setting fees

No matter what way you set your consulting fees, be sure to use a consulting contract and agreement for consulting services.

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 competitors' activities.

Like this article? Get more than 60 pages on making money as a consultant! Check out my Consulting Fees: A Guide for Independent Consultants.

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"Setting consulting fee rates" from Become a Consultant Blog at ConsultantJournal.com.

What do you charge for travel time? When you need to go out of town to see clients, you need to consider your fees for travel time. Billing travel time recently came up at Metafilter, where someone asked what consultants charge for travel time. 

You won’t find much information about billing travel time online. This ancient thread at TECHWRL on consultant rates for travel time is one of the very few online resources, save for an engineering discussion on consulting billing for travel days and this per-day billing  piece.

 Why the hush on consulting rates for travel? Most consultants like to keep their practices under wraps, so their competitors will be less able to underbid them. They also prefer not to let their clients and prospective clients catch on to their bills!

 
So how do you go about billing clients for your travel time? Consider these points:
 

• What will the market bear? A senior engineering consultant may be in better position to negotiate than a junior freelance writer.
• What your competition is doing? If everyone in your field charges 50% for travel time, you may not be able to break away without being punished by competitors (or sending clients to your lower-priced competitors).
• What’s your relationship with the client like? If you’re trying to win a new client, you might be a little more flexible than usual. In comparison, you might be willing to cut a long-time client a deal.
• Can you do work for the client while you’re traveling? If you can do other work for the client while you’re in transit, you can point this out, putting yourself in a better position to negotiate for full pay.
• Can you do work for other clients? Accepting 50% or 75% for travel time might not be so bad if you can bill other clients for time you spend working on the plane, at the airport, or in restaurants.
• What’s the minimum you’ll accept? Always go into negotiations knowing the very minimum you’re willing to accept. That way, you’ll know when to walk away – and when you’re getting more than you bargained for.

 How do you set consulting rates for travel time? Drop me a line.

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"Billing travel time charges" from Become a Consultant Blog at ConsultantJournal.com.