How Much To Charge For Consulting

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Leeland's picture

Standing there asking people for money is not an easy thing to do. Even more important is figuring out how much to charge. A lot of people feel guilty and charge far less then they should. Further you always feel like "man if I charge more I wont get hired." Well take it from me there is an upper limit, but it is higher then you probably think. I have personally seen consultants with only a few years experience charge $250 / hour and get large contracts, while really smart people charging only $50 / hour are always on the verge of starving.

So what is a fair rate for full-time consultants? Well there is a pretty simple standard formula for hourly rate which is "(current annual salary * 2) / 1000".

Then number break down like this.

  • As a consultants you will have unexpected additional costs than a salaried employee. For example there is "self employment tax" which is an additional 15% on top of what you already have to pay in income tax. You also have to pay all the state employer taxes on yourself. Then of course you have to provide your buy your own benefits (I suggest putting 25% off the top in an IRA or other investment plan for yourself and then taking another 30% and putting that in a high interest savings account to cover taxes). Don't forget insurances your medical, dental, auto, home insurance are not to be skipped and also very important is umbrella or professional liability insurance (if something goes wrong you will need it). So to maintain your current standard of living, expect to have to bill double your current annual salary.
  • You will need to cover sick time, vacation time, marketing time and of course time for project over runs. So you will not be able to call all 2000 working hours a year billable (especially when you're just starting out). Most consulting books will say the billable hour range is between 1200-1500 billing hours per year. Trust me and be conservative use the lower end of this formula.
  • You also have office expenses, paper, business cards, invoicing materials and other professional services such as a CPA to review your books and give you advice on how to keep track of your budgets to make tax preparation easier.
  • Adjust you salary to the level you want. If think you should be earning more adjust the expected salary to match what people in your profession and local area are making. Try checking out the online consulting sites and job board sites to get an idea of the salary ranges in your area.

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