How to Set your Fees as a Consultant

How much to charge? It’s an exciting question and at the same time, daunting, especially for consultants first starting out. After all, you wouldn’t want to price yourself out of the market or charge too low such that your business is not breaking even. Let us help you navigate through this seemingly complex topic and recommend some options.

Many consultants are deep subject-matter experts, but less familiar with the consulting process. Before you get too far into the business, get a firm grasp of the fundamentals of consulting, including how to:

• Qualify each project to determine your ability to win the work and earn a profit. These two don’t always go hand-in-hand.
• Scope projects so you and the client know what work will be done and the anticipated results. Your profit can evaporate if you have an ambiguous statement of the project scope.
• Find the pricing strategy that’s fair to clients and protects your bottom line. Pricing services is as much an art as a science, and there are at least fifteen different pricing strategies you can use.
• Prepare proposals that make the most of this time-consuming activity. Make sure you’re talking to the decision-maker and that the project has funding.
• Deliver flawless work and communicate effectively with your client.

Do those five things well and you’ll have more client work than you can handle.

If you’re new to the business, interview consultants on how they handle these aspects of the business; read books, articles and reports by leading thinkers in the field; and consider joining one of the many professional associations for consultants. You can save years of learning things the hard way.

Set your Fees

This is the section of the kit that HR Consultants often seek out first to answer the question “How much money can I make”?  Unfortunately, we won’t be able to give you a concrete answer because there are so many variables.  Your fees depend on your experience, skill set, and where you’re located. If you live in an area with a low cost of living, your fees may need to reflect your surroundings. If you’ve got 20 years of experience in executive compensation or any specialized skill, you’ll have a niche market and can expect to charge a higher rate – although specialization may also mean less demand for that specialization and less clients.

The truth is that there’s no science to setting your fees. The right answer is “what the market will bear”.  That doesn’t sound very helpful since that means you have to try and err until you get it right. You don’t want to come in too high, or you won’t get the gig.  Conversely, if you charge too little, you’ll be kicking yourself throughout the gig.

Determining your Hourly Rate

Your hourly rate is at the core of setting your fees, regardless of the ultimate fee structure you choose.

You may want a profit, but your client is comparing you with hiring an employee.  Get the contractor rate spreadsheet. 

Fee Structure

Once you’ve determined your hourly rate, you can use that rate to create different fee structures.

Fixed fee/ Flat rate

This fee structure provides your prospective client with a set fee to meet and execute on a defined deliverable.

Pros

• It’s easier to sell your services when the pricing is predictable.
• You’ll have predictable income.

Cons

• You take on all the risk.
• Renegotiating additional fees at a later date is difficult once you realize that your proposal was significantly under-priced. 

When to Use it

• When you’re experienced in delivering the type of service and are familiar with all contingencies. For example, implementing an employee handbook with 25 topics is predictable. As is an employee survey. Creating job descriptions for all employees is not predictable since you’ll be at the mercy of your client and their staff availability.
• When the needs and requirements are very well defined.

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Monthly retainer

Pros

• Reoccurring billings are highly predictable for both you and your clients.
• Clients are reassured that you’ll be there when you’re needed.
• No upfront work or number crunching for either party to created a detailed scope of work.

Cons

• You’ll have to diligently track your time.  Clients often don’t understand how much time is spent on a task and expect a lot more during a month than is reasonable.

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Charging by the hour/Day

This is the most common fee structure for HR Consultants and is ideal for consultants who are just starting out.

Pros

You’re paid for each hour you work.

Cons

Clients don’t like an open ended contract.

When to Use it

This type of fee structure makes sense when requirements are not well defined and the client doesn’t know what they don’t know.

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Advances

You may negotiate an advance up front. If your contract dictates that your billings are monthly, and your client decides not to pay you, you will have worked an entire month without getting paid.

An advance ensures that your work is always covered by compensation and it’s deducted on your last billing with the client. Think of it as a rental damage deposit paid by the tenant! It’s used when your client is a start up or self-funded and there’s a risk that the client may run out of money.