When it comes to setting your hourly rate as a consultant, it can be difficult to determine the value of your services. Pricing products is easier than services because, with products, you can easily track production costs. However, in the case of services, determining the value of what constitutes your service (time, staff, and experience) is very subjective. This is why different consultants employ different techniques to ensure that their services are properly priced.
In the process, consultants consider all the factors necessary to ensure that they don't overcharge or undercharge. So how much do consultants earn? According to a study conducted by Consulting Success, the largest group of consultants that make up the market are those who work for themselves or are independent and, in general, they charge according to what they consider they are worth, especially since their rates are not usually limited, especially for those in the private sector.
Hourly billingis a time-based agreement. You only charge for the number of hours worked.
How do consultants determine your hourly rate? Often, when consultants are paid by the hour, they base their salary on the amount they received from the company they used to work for or where they continue to work by the hour, with a small profit margin. According to the SBA, the hourly rate is calculated by dividing the previous wage by 52 work weeks and then dividing that number by 40, or the number of regular working hours in a week. Next, consultants should check with their competitors to ensure that the profit margin does not exceed 25-30 percent. New consultants charge less to create a portfolio, so expect to get great deals when working with them.
Although rates may vary mainly by location, among other factors.
The daily rateis basically derived from a consultant's hourly rate multiplied by the number of hours per day that a consultant is expected to be available to work. Most consultants prefer to charge this way, since clients are usually used to hiring services on a daily basis to avoid limitations on the scope of work, which usually happens if you charge by the hour. Customers are often more comfortable with an hourly or daily rate because they can evaluate the need for consulting services from time to time without the complications of most long-term agreements. Customers may not be actively involved in all of those stages, but they are certainly part of the consultant's job, so they are needed to estimate project costs. A reliable consultant will assure you that there will be no hidden charges from start to finish. There are cases where the services of a consultant are needed on an ongoing basis.
In those cases, a retention agreement is more appropriate. Some examples of consultants who provide services on a recurring basis are legal consultants, IT consultants, and even financial consultants. You pay a retention fee in advance to ensure that your consultant is available any time you need advice or assistance. Retention fees are usually calculated the same way as project rates, but putting a consultant on a monthly advance can give you a reduced rate.
Monthly advances guarantee the consultant a regular flow of income without having to spend on additional sales and marketing costs to secure a project with you. You can take advantage of this type of agreement once you've put a consultant to the test after a month or two, or once you've covered the full scope of the project. That said, some consultants are only available for hiring agreements; since the initial investment exists to explore the business and its needs, a long-term commitment may be necessary. The best option you have is to pay based on the value that your consultant brings to your business rather than just based on time or materials provided. This is why fractional CEOs often collect monthly advances; distributing their time in ways that are most meaningful for their company. Finding the right option for your business can be extremely difficult as navigating through consulting landscape is challenging when you don't have reliable references or sufficient budget for leading industry gurus.
Let's take a closer look at each of these factors in more detail: The market rate refers to average market price or what customers usually pay for certain products or services. While this doesn't serve as mandatory limit for your pricing; determining market rate is crucial for structuring consulting fees. Lower amounts usually suggest longer iterations; that is; set aside at least several days for training plan; training course; or monthly consulting advance; or work with small businesses in consulting and implementation capacity; that is; marketing campaigns; help with hiring; general high-level strategy etc. As stated above; type of relationship would determine rate; since longer plan would result in greater final amount; less time spent on discovery or pre-sales; and better long-term financial planning.
Some of my colleagues sell one-time consulting calls and then sell other additional services through their agencies or partners while others have minimum limit of “one day” or some other arbitrary amount of work which they consider minimum requirement to get job done. This may include other factors such as travel or video training courses for internal departments. According to The B2B Marketer; there are generally two types...