Setting appropriate fees can make or break your success as a consultant. You must cover your expenses while ensuring clients get their money’s worth from your services. Develop a formula for your consulting charges, but remain flexible to accommodate client needs.
Figure Overall Expenses
More expenses go into your overhead than just your working time. There is also time spent getting to and from meetings and clients’ offices, money spent on gas and wear and tear on your car. Also include the cost of your office overhead, from rent and utilities to Internet and phone service, bookkeeping and assistant wages.
Charge Hourly or By the Project
There are two main fee models for consulting. One is to build your overhead into compensation for your time and charge clients an hourly rate. According to Entrepreneur, many consultants figure how much their time is worth and then double or triple it to cover overhead. A second model is to charge by the project, which is more effective once you’ve gained enough experience to estimate how long a project will take you. Build in at least 10 percent wiggle room to cover unforeseen costs.
Build Bonuses Into Fee Structures
A third way consultants charge depends on performance results. While clients might prefer this method, payments based on commissions or on performance goals can be risky, according to Consultant Journal. For one thing, you have no control over other departments or activities within the client's company that can affect the outcome of your work. Worse, your completion of the project can stall if the company doesn’t cooperate with your suggestions. Too much of the outcome is out of your hands when you essentially become a partner with your client. As a fail-safe, build in a base pay to cover your time if you take a contingency offer.
Compare the Competition
To make the most from each consulting assignment and land the jobs you bid on, find out whom you’re bidding against and what the market will bear. If you’re much higher than your competitors, you’ll have a tougher time landing jobs. At the same time, if you underbid your competition, you might sell yourself short and compromise your reputation with the perception of providing lower quality. Stay within the range of the going rate, and go a little lower only when you really want the job and the lower profit margin is worth it in the long run.