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How to Determine Your Consulting Rate
If you’re a freelance consultant, calculating consulting fees can be one of the most challenging aspects of your business.
You want to charge enough money for your time and expertise but not too much that it stops you from getting consulting clients.
Many consultants are unsure how much they should charge for their services. For example, you may ask yourself, “How do I set my consulting fees?” or “How much does a consultant make per hour?”
The answer depends on many factors.
This article will help you find the correct consulting rate that works best for you. Use this information as a starting point to determine appropriate rates based on your consulting type, experience level, and industry.
The appropriate consulting rate can vary depending on geographic location and other market conditions. So use this information as a guide when setting your consulting rate.
How Much Do Freelance Consultants Make?
It’s hard to figure out your consulting rates because you can charge whatever you want. So the amount of money you make depends on you.
That’s one of the best and scariest parts of working for yourself. You’re in control.
Remember, how much income you can earn will depend on many important variables:
- Education
- Certifications
- Expertise
- Unique Skills
- Years of Experience
- Type of Consulting
- Target Market
But you want an answer to how much consultants make. I get it.
The answer will help you determine if consulting is worth the effort and will help you calculate your rate, which makes sense.
So, let’s give you that data.
According to Salary.com, the average freelance consultant makes $70,137 as of October 29, 2021.
However, the range is between $54,141 and $115,416.
From my experience, this is low. As a consultant, you could quickly sign a 3-month project for $50-$75K.
I’m not kidding. My first project as a consultant lasted 3-months for $70K. But in 2016, I had no idea how to run my consulting business. Much less how to determine a price for a project.
Rest assured, if you work hard, you can make a lot of money, be in total control, and work flexible hours. That’s why calculating consulting fees is a critical skill to learn.
Consulting Fee Structures
Hourly Rate
An hourly consulting rate is a fixed fee based on the number of hours you work on the project. An hourly rate might be appropriate when the project is short-term and you don’t know the exact scope.
For example: A client hires you “to support digital marketing during a product launch.” In this scenario, you don’t know what you are doing or how many hours you will work per week. You could write blogs, update social media, or do keyword searches for SEO. If you work ten hours the first week and your hourly rate is $200, you’ll charge $2,000.
Daily Rate
Many consultants charge a daily rate. At the end of a project, they charge the client for the number of days it took to complete a project.
As with the hourly rate above, you may not know the full scope of the project or how many days it will take you to complete.
For example: Let’s say a company hires you as a project manager for a digital transformation. And it takes 30 working days to finish, and your daily rate is $1,000, then you’ll charge $30,000.
(Some consultants also have weekly or monthly rates)
Project Based Consulting Fee
If you use an hourly or daily rate, your clients might be unsure how much money they’ll owe at the end of the job – you won’t know either.
Calculating a project fee eliminates uncertainty. Your clients know will know the price of the project upfront.
A project-based consulting fee is determined by agreeing upon the project scope, analyzing the deliverables, determining the time to complete the project, and accounting for expenses.
For example: A client hires you to do a complete competitive analysis of five companies. You’ve developed a scope to research the market, use software to analyze the GTM strategies of the companies, interview customers and former employees, etc. The project will take two months to complete.
So, you charge the company $60,000 for the research, analysis, and deliverables.
Value Based Pricing
Value based pricing is a strategy focused on the value your consulting services create from your consulting services. It’s a complicated and technical pricing strategy. And best suited for experienced consultants.
You’re not charging for your time. And you’re not charging based on the deliverables as in a project-based fee.
You price your services based on the value of the results you produce for your client.
For example: A capital equipment company wants to hire you to optimize their go-to-market strategy. Your new strategy will generate at least two more $100K deals per month. So, your client’s incremental value would be $2.4M per year because of your services.
Now, you decide to develop a value based price of 10% of $2.4M or $240,000.
Now, it’s more complicated than the simple example above. And it certainly looks like a lot more money than the other pricing strategies, but it’s a lot harder and more complex. Unless you can PROVE the incremental value and your client agrees, value-based pricing is complicated to pull off.
Most consultants that use value-based pricing have experience and previously established trust.
Calculating Consulting Fees: Step by Step Process
A wise man once told me, “Plan right to left. Then, execute left to right.” So, we’re going to reverse engineer your rate.
But remember, not all consultants are created equal. Everyone has unique expertise and experience.
Your consulting fee will be different than my consulting fee.
So, we will present you with a simple step-by-step process that you can use to calculate your consulting rate. Consider it a framework that you’ll adapt.
If you follow these steps, you’ll develop a rate that’s a fantastic starting point. However, if you want an advanced calculation, download the consulting fees calculator at the end of this article.
Step 1: Determine How Much Money You Want to Make
How much revenue do you want to make in a year? $100k? $250K? Take some time to think about it. Then, based on your expertise, experience, and target market, what is a realistic number?
Let’s use the round number, $200K.
Step 2: How Many Billable Hours Do You Want to Work Per Week?
As a consultant, you’ll wear many hats. At least 50% of your time won’t be billable hours. Instead, you’ll spend time networking, writing blogs, crunching finances, paying bills, etc.
So, let’s keep it simple again and say, 20 billable hours per week.
Step 3: How Many Weeks Do You Want to Work Per Year?
You’re in control. You get to decide how many vacation days you take per year. And you want to take vacation days! Self-care is critical as a freelance consultant.
Do you want to take 2-weeks or 3-weeks vacation? Wait, maybe 4-weeks?
We’re going to use 2-weeks for this example.
Step 4: Calculate Your Simple Consulting Rate
Now, you’ll calculate your rate.
First, divide how much you want to make by the number of billable hours per week:
- $200,000/20 = 10,000
Then, divide that number by the number of weeks you want to work:
- 10,000/50 = $200 rate
Now, you have your starting point for a consulting rate per hour, $200/hr.
But how can you use this new consulting rate?
If you have an hourly rate, you also have a daily rate.
$200 x 8 hours = $1600 daily rate.
And if you have both of those rates, you can also determine a project rate.
However, you’ll always have to consider nuances and variables when pricing your services.
Is this a new client? You might need to price your services to “land and expand.”
Is this a long-term project? Long-term projects provide consistent cash flow and reduce revenue variance. So, to win the project, you could consider slightly reducing your rate when calculating the project fee.
Plus, we discussed all the other variables: Education, experience, industry, etc.
You’ve found a good starting point when calculating this rate. However, if you want a more advanced calculation, you can download our calculator at the end of this article.
But let’s check our work.
Step 5: Triangulate Your Consulting Rate with the Top Consulting Firms
Now that you’ve calculated a starting point for your consulting fees let’s triangulate it.
Based on data, we can determine the compensation range of consultants from some of the top consulting firms in the U.S.
The average compensation range for a new undergraduate consultant at McKinsey, Boston Consulting Group, and Bain is between $108,000 to $116,000 per year.
So, that’s a consulting rate of $52 to $56 per hour.
And the average compensation range for an experienced/MBA consultant at the same companies is between $215,000 to $230,000.
So, that’s a consulting rate of $103 to $111 per hour.
Don’t panic!
You see, since these consultants are full-time employees, we must calculate their hourly rates using 40 hours per week.
For your calculation in Step, we used 20 hours per week. So, the $200 consulting rate above triangulates.
You want to make $200,000 per year working 20 billable hours per week. So, you need to charge $200 per hour.
The experienced/MBA consultant makes $215,000 annually, working 40 hours. That’s $103 per hour. However, if they wanted to make the same compensation, only working 20 hours, that’s $206 per hour.
Fantastic! We’ve triangulated the rate.
What’s next?
Remember, there’s no perfect one-size-fits-all way to calculate a consulting rate.
Instead, your rate will vary based on your expertise, experience, education, and industry.
You’ll also need to consider the nuances when pricing your consulting services. Those nuances could include a new client, the project’s duration, the value your services create for the client, and many more.
As you gain experience as a consultant, your consulting rate will also grow. And your pricing strategy will change. Mine certainly has.
But if you’re early in your career (0-5 years), using a consulting rate of $100 per hour to determine your daily rate or project fees should be good.
For mid-career professionals (5-10 years) with a graduate degree, consider using a consulting rate of around $200 per hour for your pricing.
And for more experienced consultants (10+ years), you’re likely in the $300+ per hour range to calculate your consulting fees.
This article shows you the steps to calculating consulting free to get a starting point. However, if you want a more advanced way to determine your rate, download our consulting fees calculator by filling in your information.
Our calculator considers your target profit, fixed and variable expenses, taxes, etc. Then, it gives you an actual consulting rate to reach your goals and cover expenses.
