Consulting Fees: Do You Charge What You Should?

In my previous article, “Are You Really A Consultant?” I proposed that a consultant is someone who gets paid for providing advice. I assume that if one is getting paid, one is a professional; in other words, seeking to make a livelihood from one’s activities.

Many consultants start out working from home. They do so either for lifestyle choice, or to reduce their overhead. Their reasoning is simple; no need to pay rent for an office, no need to spend time commuting, no need for additional computers or phone systems, just buy a desk for the spare room and hang out a shingle; “Consultant”.

Now the first reality bite hits; “Who am I going to consult to? I need some clients.” So you join get some cards printed, join a networking group, maybe do a little website and some adverts and suddenly you have an enquiry. Someone wants to buy your expertise!

The next reality bite comes when they ask about your fee structure. How much to charge? The answer to this question will have a profound impact on the future of your business and this is where most new in business make their biggest mistake; they charge too little.

Instead of charging a commercial fee, they charge a domestic fee. Let me explain…

If you do a simple profit and loss statement for your business as part of your business plan, you would start by calculating how much profit you want from your business after all costs, wages and taxes. Next, as you’re the principal (and probably the only) consultant, you need a wage. That wage is probably the single biggest cost your business has to cover.

Consider now that your wage has to compensate you for all three roles you perform for your business, the roles of Finding, Minding and Grinding. Finding is the time you spend actively looking for clients, Minding is the time you spend looking after them and Grinding is the time you spend actually doing the work and the associated billing and collection activities.

You won’t be spending 100% of you time doing the work! In reality, you will be lucky to spend 50% doing the work, so your hourly fee must be sufficient to cover the rest of your time.

Some basic maths… Let’s assume you want to pay yourself $52,000 per year, $1,000 per week before tax. You’re charging 25 hours of your time to clients and you have $1,000 per week in overheads; car, phones, insurance, marketing etc., so you need to bill $3,000 per week in order to pay yourself $1,000.

But you’re only doing 25 hours of chargeable work so your fee needs to be $120 per hour ($3,000 / 25) simply to break even. You can’t afford to take a vacation and you won’t be making a profit and you won’t have much of a lifestyle because $1,000 before tax doesn’t buy much (at least not where I live!)

Far too many consultants charge less than this early in their careers. Then, as they get busier, they realise they can’t sustain the business, they can’t hire others to help and they haven’t the confidence to increase their fees either.

You must start out by charging a sustainable fee, one that shows you are confident and capable and that indicates you are serious about your business. Using the example above, at $160 to $200 per hour, you can afford to take a vacation, pay a bookkeeper, a virtual pa and still make a profit. Better still, you’ll have more time to do the work and you’ll probably be dealing with a higher calibre of client too!

James Yuille is a 35 year plus sales and marketing veteran based in Brisbane Australia He runs Mediaglue, a marketing services company. His book, “Are You Getting Enough?” is available at JamesYuille.com

Please Share This Article If You Enjoyed It:

  • Diane Bianchi

    Thanks. This is good data for me as I am just starting out as a consultant myself.

  • An excellent resource!

  • Tom Amonde

    good stuff for starters and those who had missteps. confidence is key here. clients tend to believe that those who charge a reasobly high fee will do a thorough job

  • Guy Outram

    A valuable insight, thank you. I also believe that charging too little may suggest the advice is not very valuable and your prospect will go elsewhere.

  • Good advice for the novice consultant. The article could use some editing though.

  • James Yuille

    Sorry Bart, how would you like to see it improved?

    • Thanks James…3rd paragraph: “So you join get some cards printed, join a networking group”…”Someone wants to but your expertise!”

  • Good reminder and reinforcement of the the basics we often overlook or never really applied. I am more of substance than form thank you for the more important aspects of your message .

  • SD Nurse Consulting & Assoc

    Great advice! Love these tips

  • My God…use a proofreader and your math stinks… (3000/12 is NOT 120)

    • Abe

      The math is wrong, because 1K of expenses and 1K of profit = 2K – not 3K. But your harshness is inappropriate, as your math of 3000/12 not being 120 is completely irrelavent to the article, and was never claimed to be true.

  • James Yuille

    You’re right Robert, it should be 3000 / 25! Perhaps Mike could edit that for me? (Thanks Mike)

  • This article has generated a lot of great discussion. James, thanks again for sharing!

  • Alex

    Where does the $3000 come from ? If you have $1000/week of expenses pay yourself $1000/week, that adds up to $2000/week.

  • Barry Glassman

    Excellent advice in general. I did not get “hung up” on the math part since I did the math on my own with my specific costs and needs. Everyone has different Health Insurance needs as just one specific. So, I appreciate the advice which is really to “do the math on your own and don’t be shy about charging what you are really worth and what you really need to earn.

  • Aselleabigo

    can someone tip us on what an initial consultancy fee should be ie registration or joining fee as that is often the first hurdle to ‘jump or skip’ as a beginner.

  • James Yuille

    Like the calculator Mike.

  • Mrmalloryperry

    Good advice. I really needed that because I’m a new owner of a business consultant company.

  • Dneff23

    Thanks for the article!! I am in the process of staring a consulting business, and this type of information is very useful for me at this time. Thanks again!!!

  • Great post! There’s some really good stuff here…….

    Kevin

  • Andrew

    Oh dear oh dear – some dodgy arithmetic here……..

    “Some basic maths… Let’s assume you want to pay yourself $52,000 per year, $1,000 per week before tax. You’re charging 25 hours of your time to clients and you have $1,000 per week in overheads; car, phones, insurance, marketing etc., so you need to bill $3,000 per week in order to pay yourself $1,000.”

    Since when did $1000 / week to pay yourself, plus $1000 / week in overheads, add up to $3000 !!!!!!!!!!???????

    • Hi Andrew – I think James responded to this and an update was made in the article if you look at previous comments.

  • I’m not following your basic math. $3000/wk nets you $1000 after $1000 in expenses?

    • Mark – James who wrote this post responded to this in the comments above.

  • Dr. Mita Dixit

    What we want to charge as consultants is just one angle. Another angle is how much fees the client thinks is worth paying and the third angle is what are his alternatives. I have quoted several times based on such calculations but hasn’t worked.

  • Guadalupe Pacheco

    Excellent advise on billing rates!
    Guadalupe Pacheco

  • Vinay

    “James who wrote this post responded to this in the comments above”
    You’ve written that twice and I don’t see any such response. Why don’t you just quote this (invisible) response in your answer?

  • Bwanika

    Finding, Minding and Grinding very fascinating

  • anastacio contreras cortes

    Basic ¨Consulting Rule of Three,¨ $3,000.00 dlls equals $1,000.00 for wages, $1,000.00 for business overhead and $1,000.00 profit. However this is not how I charge my Clients. I charge an annualized value add fee. If the annualized value of the project is $1,000,000.00, I charge 30% at least. Retainer, to keep reaping the benefits for several more years is another issue.