Posted: Fri 4th Apr 2014
When starting out as a consultant it is often difficult to know what you should charge. What are your services worth and what will your clients be prepared to pay? Your industry, your experience, your job function and your contacts will all have a bearing to play on the price you charge.
Here are my top 6 tips to help you determine your charge out rate, to ensure a successful and profitable business.
1. Check out your competitors.
Search in Google for consultants in your field of expertise. Use social media to ask opinions of those who are more experienced. Talk to any of your contacts who may have experience in hiring consultants.
2. Consider how much you need to live on.
A starting point may be the gross salary you were earning previously. Then ask yourself, realistically, how many chargeable days will you be working? You need to factor in downtime and don't forget the non-chargeable days doing networking, marketing, training and the administration in running your own business. Then you can determine your daily rate.
Knowing your daily rate means you can quote either for a specific project or a more long term regular full or part time consulting arrangement.
3. Bear in mind the other costs you will now have to pay.
No longer will your employer pay for your pension or health insurance. There is no holiday pay or sickness pay. There will also be the necessary costs of running the business which you will have to fund, such as PI insurance, accountancy fees, phone, hardware and software, office supplies, etc. And be aware that your company will need to pay 13.8% Employers NI on any salary that you take. All of these costs will need to be factored into your daily rate.
4. Be realistic.
How specialist are your skills and what value will you give to your client? These are key issues. Clients are very price aware and will have a budget in mind. You don't want to price yourself out of the market, but there is always room for negotiation. My advice would be: Don't start too low. Much harder to put your charges up but you can always agree to negotiate downwards.
5. Take into consideration other factors pertinent to a particular job.
Is this your first consultancy role? If so you may consider a 'special' rate. Other factors may affect the rate you charge, such as: Will you be required to travel excessively? How long is the job for? How regular is the work? What is the competition for the job? What else is on the horizon? And you may consider accepting a lower rate in return for something else in the future.
6. And finally - how are you going to charge your clients?
Are you going to charge on an hourly rate, a monthly retainer or a fixed price contract? An hourly rate is good for ad hoc projects and takes the burden off you if the project gets out of hand. Give the client a realistic estimation of how long a project will take at the outset and advise in writing if you are about to exceed the quoted hours.
If you give a fixed price quote for a project you need a highly detailed specification of the work involved. Take into consideration, when quoting, that there they will always be some unexpected issues that crop up. Again, if there are going to be additional costs, let your client know in advance. You don't want to get into an argument when you submit your invoice as to whether any 'extras' were or were not included in the price.
Once you have determined the basis and the amount you will be charging, you are in a strong position to start marketing your business and seeking out new clients.
Wendy Church, Consultancy Hub. Consultancy Hub offers training, business services and support for independent consultants.