Consultant Fees – What to Charge?

Consultants, new and old, often struggle with the questions:  “How much is my time and expertise worth?” or “How much do I bill my clients?”

Because there is no best answer, consider these ideas as you think about your fees.

#1 – Look at your client's needs. Why is a client considering using an outside consultant when they have employees?   The most common reasons include: a.) The need for an outside or objective opinion – employees are less inclined or comfortable giving honest feedback they think their organization really needs to hear for fear of getting fired or labeled with a negative reputation. As an independent consultant, you may be better positioned to provide a “real” and much needed viewpoint of your client’s needs. b.) What is the background of this need?  Is it a safety issue or a critical need that has been ignored because no one has the time or experience to handle it?  Are they losing business or money as a result of this need? c.) In the long run, you are less expensive.  Many new consultants have difficulty understanding this, and hesitate to charge enough when they know an employee salary may be far less.  But keep this in mind when comparing apples (employees) to oranges (your fees):

• Employee Hourly rate
• Fringe benefits such as insurance, healthcare, taxes, etc. – 35% Overhead costs such as computer, phone, office space, materials, etc. Annual Salary commitment (businesses don’t

#2 – The benefits of the Short Term use of a consultant.

• Client pays a fee, with none of the additional fixed costs associated with an employee.
• You are dedicated to a main objective, so often the client gets the project completed quicker and for less money overall.
• You bring the needed expertise in a specific area that no other person on their team can.
• You are more motivated to get job done on time and budget because your work is your reputation.

By meeting the client’s needs and having an attitude to under-promise and over-deliver, you are likely to get future business, as well as referrals, from your client.  No employee has that kind of motivation.

#3 – Who is your competition?

If you can learn your competition’s rates and what they offer, how does that compare to you?  Are you able to provide more services, offer better customer service, bring more expertise and/or have a commitment to complete the project under budget or on time?   If your competitors provide more than you, you may have to compete with a lower rate.  Obviously, if you offer more with proven results to back up that claim, you can justify a higher rate.

Feedback from other consultants: If you bill a higher rate, you may be surprised to find that you get better clients and more referrals.   Often the higher rate causes your clients to be very specific with you regarding needs and outcomes saving you both time and money.  Clients who are willing to pay a higher rate usually referral like-minded clients who are willing to pay a higher rate.

Many successful consultants are moving to the concept of Value Billing.

Option #1:  Fee Per Project

Establish an amount the client will pay based on the project and create milestones at which payments will be made.  Many times, a project can be divided into phases where payment is made at the end of each phase. This gives you added motivation to get the job done quicker.   You get paid the same whether it takes you 5 hours or 10 hours to get the job done.  Finishing ahead of schedule makes the client happy, and frees you for another project.  The downside is when projects take longer than expected, you are still paid the same amount.  So milestones, timeframes and what you expect from the client must be clearly outlined.   Failure to perform by the client must be discussed, with payment on their part should this occur.

Option #2:  Fee Based on Results

Are you willing to put your reputation and fee on the line?  If you are confident that you can produce a positive measurable outcome that the client cannot attain without your assistance, consider taking a percentage of the measurable outcome.  The client pays based on performance and outcomes, and only pays if the project is successful.  Client’s have more confidence in the consultant when the consultant has something invested – their fee.  It takes the relationship from one of client/consultant to more of a partnership. Our experience has been that this is an easier sale when the client is uncertain if the project can be successful, or in the case of a new consultant, when the reputation and past history are unknown. 

To Your Success!