Metro Marketing Group Chicago Offers Flexibility in Charging Fees
1-Hourly salary-based wage as basis for consulting fees
To set fees, some consultants simply take the hourly wage (plus benefits) that they would earn when working on salary 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. It’s pretty easy math, which is also a reason it’s popular. (If you prefer some help, use our hourly rate calculator for this step.)
Let’s say you make $60k a year plus benefits and you get four weeks of paid leave.
($60,000 salary + $15,000 benefits) / (48 weeks * 40 hours) = $75,000 / 1920 = $39.06
If you double this and round up to the nearest multiple of $5 or $10, your consulting rate should be about $80 an hour. ($39.06 x 2 = $78.12, rounded to $80.)
If you triple this, your consulting fee should be about $120 an hour. (Or $39.06 x 3 = $117.18, rounded to $120 per hour.)
I recommend rounding up to the nearest $5 or $10 multiple, because a $78/hr or $117 fee looks odd. And while that may work for certain big box discount stores, it’s probably not the approach that will work for independent consulting.
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.Using a daily 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
They estimate the number of hours they expect to spend on a project, and then multiply by their hourly rate.
2- Some consultants set their rates by the project
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
Knowing the value of your work can go a long way in helping you establish your fees.
3-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 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.
