What to charge for your consulting services

What to Charge for your Consulting Services

Early on in your thoughts about consulting, you need to figure out what you should/can charge for your services. There are really two distinct questions here: What can I charge? and What do I need to charge?

1. What can I charge?

This is really the more important question, since the hourly rate you can charge depends on the value you can deliver to clients. If you charge to high, very few, if any, clients will pay for your services. Charge too low, and you will (eventually) be overwhelmed with clients (taking advantage of a great deal). This is capitalism at its best.

The best way to figure out what to charge, is to survey the market. Find other consultants with similar skills and experience, who are doing the same thing you want to do - and look at their rates. Make sure you are comparing apples-to-apples. If your business is location specific, choose an area with similar cost-of-living, and laws.

In my case the market for web programmers was all over the map. Developers from overseas (India, Russia, etc.) were charging $10-15 / hour, while U.S. based rates ranged from $45 - $100. I originally thought I could get $85 / hour, but after some experientation, ended up at $65 / hour. Web programming is a competitive business - and can be done from any location. I found that for the quality / service I was providing, $65 was a good niche.

My example should serve as a warning - don't make overly rosy predictions about your hourly rate! Be realistic, and conservative, especially if this will be your only source of income.

2. What do I need to charge?

You have to eat, and pay the bills, right? So you need to figure out if you can live on the rate you determined from question 1 above.

Here's a formula to get you started:

Yearly Revenue = 1,000 x {your hourly rate}

• Total hours available per year: 2,000 (40/week, x 50 weeks)
• Billable hours per year: 1,000

I know what you are thinking: "Only 1000 hours billable! That's only half my time! I'm going to bill at least 1,500 hours a year." No, you're not. Unless you are working more than 40 hours a week, or have enough clients already to keep you working all the time. The reality is that you will spend a lot of time getting customers (sales calls, quotes, emails, etc.), time on office work, slack time, etc. Oh, and don't forget clients who don't pay, pay late, or nickel and dime extra hours out of you. Believe me, you want to estimate conservatively on this calculation.

Here's another formula to consider. To replace your salaried income (if you currently have one), you need to account for more than your salary. Benefits (vacation, health care, 401k, etc.) all need to be considered, along with the costs of running your business (advertising, office, phone, internet, etc.).

Required revenues = {current salary} x 2

That's right - you should assume that you need to make double your current income in order to maintain the equivalent lifestyle as a consultant. Of course, this is just a rule of thumb, but I've found it to be pretty accurate.

This is your reality check! If the numbers are too low for your budget, them either (a) figure out how to charge more per hour, or (b) don't quit your day job.