Setting (and sticking) to your rates can be one of the most difficult parts of running your own consulting business.
Of course, sticking to your rates is a lot easier when you set them based on solid research. Among the factors you’ll need to consider are your own personal skillset and the going market rates within your industry.
First, though, you’ll need to know your baseline salary goals and business expenses. Then, you can determine the salary you want to grow into, and choose the best pricing model to get there.
Let’s dig in.
1. Calculate Your Needs
If you’re ready to make the leap to consulting full time, but you’d like to maintain your current cost of living, you need to determine the cost of doing business. To do that, the colloquial advice is to charge roughly three times what your current hourly rate is.
Why so much higher? That higher rate fills in the gaps of a true consulting schedule (it may feel like you’re working 60 hours with administrative tasks, hustling, and networking, but you won’t be billing a solid 40 anymore). You’ll also need to account for additional expenses your employer previously covered, like healthcare, vacation days, sick time, and a 401k plan.
That’s just the baseline. Next, you need to consider the cost of running your business. Will you need to rent office space to meet with clients, or will you be running your business from home? Are there professional membership organizations you’ll need to pay for? Any technical certifications to increase your value and skills? Don’t forget software and mileage costs.
Once you know how much you’re making now, and everything you’ll need to pay for, you’ll have a good idea how much you need to charge in order to maintain a certain quality of life and get your business off the ground.
But that’s just the starting point. To attract better clients and grow your business, you need to value yourself properly. Remember that your consulting rates aren’t just your price of doing business; they’re a representation of the value you bring to clients. Price your services too low, and you’re underselling your talent and experience.
2. Calculate Your Value
Now, it’s time to mix a bit of art with science. Typically, your value as a consultant depends on three things:
- The market rates for your industry
- Your experience and the scope of services you offer
- What your competitors are charging
Finding the market rates for your industry
Just like a regular job, the rates people are willing to pay for various skill sets can vary widely, from a few dozen to a few hundred dollars per hour. Here’s what we found:
- Marketing consultants charge between $25 to $300 per hour, with $100 being the average. SEO specialists may be on the higher end of that range, while social media consultants are on the lower end, with brand strategists falling somewhere in the middle.
- HR consultants charge between $95 to $190 per hour, with $140 being the average.
- Tax consultants charge around $200 per hour.
- Web designers charge around $30 to $80 per hour, with $75 being the average. Alternately, they might charge a flat project rate of $500 to $5,000 per website.
- Management consultants charge between $100 to $350 per hour.
- UX consultants charge between $25 to $190 per hour, with $70 being the average.
If you’re working with clients locally, know that where you live can also affect how much you can charge. Clients in big cities and coastal areas often have bigger budgets and are willing to pay more. If you’re providing remote services, set your rates based on your client’s location, not your own.
Assessing your experience and services
Once you’ve familiarized yourself with the going market rates, consider where you fall within those ranges. Do you have expertise on par with a specialist, with a few working years behind you? You may want to charge a lower rate until you’ve worked with more clients. If, on the other hand, you’ve been working for five or more years, and have a wealth of industry-specific experience and happy client testimonials, you can charge on the higher end.
Then, consider everything you’re bringing to the table. This includes tangible qualities like the specific services you’re providing, your level of expertise, and any industry certifications or awards that verify that expertise. It also includes intangible qualities like your flexibility, adaptability to your client’s needs, responsiveness, and ability to meet deadlines. These can all enhance or detract from your overall value.
Discovering what your competitors are charging
Once you have the industry rates and a firm feel for your own worth based on your knowledge and experience, you can further adjust your rates by looking to your competition.
Why compare yourself to the competition? Chances are that you’re not the first consultant your client has hired. Businesses are in the practice of regularly engaging contractors and consultants, so they’ll have some awareness of the going rates—and they’ll perceive your value based on where you fall within that range.
When looking at your competitors, be realistic. Don’t compare yourself to the industry thought leaders who were featured in Forbes (unless you’re one of them!). At the same time, don’t undercut yourself simply because you’re new at this.
Search the websites of people offering similar services to yours. These folks should have a comparable level of expertise, industry tenure, and be targeting clients similar to yourself. Are your rates in line with theirs? You can also attend networking groups to get this intel.
3. Decide on Your Pricing Model
At last, you know how much you want to make. Now, it’s a matter of figuring out how to get that money from clients. Congratulations! It’s time to figure out your pricing model.
According to a survey of over 25,000 consultants, project-based rates are the most popular—although a decent number of consultants also charge by the hour, by the day, or on a monthly retainer basis. We review each of these below.
How to calculate your hourly consulting rate
If your consulting services will involve a lot of client meetings and phone calls, it can make sense to charge for your time on an hourly basis as opposed to a project-based rate. Even if you do end up charging by the project, it’s helpful to know what your “goal” hourly rate is so you can price out statements of work.
To determine your goal hourly rate, start by considering your ideal salary. Let’s say it’s $80,000. Divide that by 52 (for the number of weeks in a year), and again by 40 (assuming a normal workweek). That brings us to $38.50 or so.
Now, it’s very unlikely that you’ll actually bill 40 hours a week, especially in the beginning stages of your consulting business. Plus, you need to account for sick time, vacation days, healthcare, and other overhead expenses. So, you’ll want to double, or even triple that, to get a better idea of your goal hourly rate (which would be somewhere between $77 and $115, in this example).
How to calculate your project rates
Some people get a bit squeamish at the idea of telling a client their hourly rate. In these cases, it can be easier (and smarter) to give someone a project rate.
Clients prefer project rates because they like having a defined amount that they can expect to spend. Consultants like project rates because if you calculate them correctly, you can earn a lot more money than you would with a traditional hourly rate. For instance, if you know a certain project takes seven hours, you can charge a set rate that’s closer to the cost of ten hours, and then earn three hours worth of profit.
Of course, the reverse can be true as well. Let’s say you’re a new graphic designer and quoted a rate based on the amount of time it would take you to create an infographic for a client. Then it turned out the client wanted to have several kickoff calls discussing the infographic before you could actually get started on the project. The project suddenly becomes a lot less profitable.
To maximize the profitability of your consulting projects, create a clear outline of the various tasks included within a project, and estimate the amount of time it will take you to complete each one. Add up the total, multiply it by your hourly rate, and tack on an extra 15% to 20% to account for unexpected items (like an extra revision or follow up meeting). You can also add a clause to your contract stating that this project rate is based on the items outlined in the statement of work. Anything that comes up that’s out of scope will either be renegotiated or charged at your hourly rate.
As you work with more clients, keep track of how long it really does take you to perform these various tasks, so you can get better at setting these rates moving forward.
Calculating a monthly retainer
Retainers are yet another option. Consultants love these because they’re a set amount of money you can rely on each month, and clients appreciate knowing that they’ve reserved your time on an ongoing basis. However, clients can be wary of agreeing to a monthly retainer before they’ve seen your work. After working with a client on a few projects or at a set hourly rate for a few months, you can present a retainer as a more valuable option moving forward. By that point, you’ll have a better idea of their monthly needs, and they’ll trust you and your work.
Retainers also make sense for certain types of work more than others, such as a graphic designer who agrees to deliver a set number of graphics each month, or an IT consultant who provides website monitoring services.
Regardless of which pricing model you choose, be confident in your rates and know that the client doesn’t care about the “time” it takes you to complete a project. They care about the business result. Evaluate the value of that end result, and charge accordingly.
Setting your rates is a major milestone in getting your consulting business off the ground. Take the next step towards building your business by protecting it with small business insurance.