One of the most challenging parts of running a consulting business is setting your rates.
Whether you’re new to the game or you’ve been offering consulting services for decades, the freedom of valuing your time however you see fit can feel overwhelming.
Set your rate too low and you’ll be selling yourself short, but set your rate too high and potential clients might think you’ve lost your mind.
Setting the perfect consulting rates is all about finding that balance between appropriately valuing your time while also asking for a price the clients you want to work with will be willing to pay.
But how do you know when you’re asking the right price?
The truth is, there is no clear answer. Because rates depend on so many different factors, such as your work area or your years of experience, consulting rates can vary dramatically. You’ll need to put in a little work to discover what price is right for you.
Let’s take a look at some of the biggest factors that should go into setting your consulting rates, and how you can ensure you’re charging a fair price for your time.
To make it even easier, we’ve developed a Consulting Rate Calculator spreadsheet to take care of the heavy lifting and all the calculations for you. Fill it out as we go through each step:
1. Get a feel for your market.
Regardless of the city, industry, or types of clients you serve, you want to start by getting a feel for what other consultants in your area are charging. The best way to do this is to ask.
Connect with your network and see what rates they charge for certain projects. If you don’t have any direct contacts, engage in LinkedIn or Facebook groups for consultants in your area. You can also take a look at surveys or studies conducted on consultants or freelancers in your industry:
You may also want to check out some other consultants’ websites. Some consultants openly post their rates.
If you only serve a particular region, focus your rate research on just that area. However, if you can offer services to clients regardless of physical location, collect responses from consultants from all over.
Keep in mind that not everyone will be willing to share their rate details with you––and that’s okay. While some consultants still view the money conversation as taboo, many others will be happy to help you better understand what an “acceptable” asking fee is.
The goal at this step is to just familiarize yourself with what similar consultants are charging. This will give you an idea of where your rate range should fall.
2. Gauge your relative value.
The next step involves taking a hard, objective look at where you fall in relation to other consultants in your field.
Start to create a comprehensive image of your consulting worth by answering the following questions:
- How many years of experience do I have in my industry?
- What clients have I worked with in the past?
- What additional certifications or pieces of training can I get that might encourage clients to pay more?
- Where can I add additional value to my clients?
- What unique perspective can I bring to consulting conversations?
It’s important during this phase to not sell yourself short, but also to stay realistic.
If you fail to give yourself credit for your accomplishments, you may end up charging too little for your services. Likewise, if you over-inflate your experience or value, you may end up asking for more than you’re worth––which could make it difficult to find clients.
Consider how your responses compare to other consultants in your area. Are you more or less qualified? Do you provide more unique value? Are you lacking any certifications that other consultants seem to have?
Assign yourself a value number, ranging from 1 to 10. A “1” would be a newbie to the consulting world and a “10” would be an absolute expert.
Set this number aside. We’ll come back to it later.
3. Determine your business expenses.
Running a consulting business may not require a lot of tools, software, or equipment, but it’s still far from cheap. You’re going to have certain business expenses you’ll need to cover through your rates.
Make a list of each business expense––no matter how small.
Start with the big things. Here are some questions to ask yourself:
- Do I have an office or coworking space where I need to pay rent?
- What utilities do I need to pay for my office or work, such as a phone, electric, or internet bill?
- Do I have a health insurance premium?
- Are there any employees or contractors that I work with frequently, such as an accountant?
- Do travel expenses for meeting clients come out of pocket?
- What costs do I have related to conventions or events I need to attend?
In the “Expenses” tab of your Consulting Rate Calculator spreadsheet, list all of your expenses in Column A and their monthly costs in Column B. If you pay certain expenses annually, just divide that yearly cost by 12 to find your monthly expense.
Now take a look at some smaller expenses, such as software or tools you use to keep your consulting business running smoothly. Here are some more questions to consider:
- Am I using accounting or invoicing software to manage my payments?
- Do I have a CRM to keep clients organized?
- What are my marketing and advertising expenses?
- Do I have expenses for stationery or a website, such as business cards or my business domain?
Add these costs to your Consulting Rate Calculator spreadsheet. It'll calculate your total monthly cost for you.
This will give you a full idea of how much money you’re spending each month. At the very least, your rate will need to cover your monthly expenses.
4. Find your hourly rate.
As a consultant, you have free range over how you charge your customers. You can charge by the hour, by the project, or even by monthly retainer.
However, regardless of how you end up choosing to charge the client, it’s easiest to start with an hourly rate. Once you’ve determined what you’d like to make each hour, you can do some quick calculations to find the rate you should charge regardless of fee type (but more on that later).
To find your hourly rate, think about the take-home amount you’d like to make each year. This is your cash-in-hand, after paying all your business expenses, taxes, and contributing to any retirement goals you may have.
Try to be realistic. Sure, we’d all like to bring in hundreds of thousands of dollars, but you need to make your yearly goal something achievable.
If you’re not sure where to start, look at how much you’d make in a traditional job. What kind of salary would you expect if you worked in-house or at an agency?
Under the “Hourly Rate Calculator” page of your spreadsheet, fill this number into the C2 cell, next to “Yearly Salary Expectation.” The spreadsheet will use this number to calculate your Monthly Salary Expectation.
Now you need to identify the number of hours you’re going to work each month. Keep in mind that you should only be counting billable hours. You can’t charge certain tasks, such as bookkeeping or prospecting, to a client, so you don’t want to include them in determining your hourly rate.
If you’re going to work “full-time,” or 40 hours a week and four weeks each month, you’ll be working 160 hours each month. However, if you spend 5 hours a week on non-billable tasks, you’ll want to determine your hourly rate out of 140 hours.
Add your number of monthly billable hours to the C4 cell. This will automatically calculate your pre-expense, pre-tax hourly rate for you. In other words, this is the hourly amount you can expect in your pocket.
Let’s walk through an example:
Say you want to make $50,000 a year after expenses and taxes. Dividing that by 12, our spreadsheet determines that you’d need to make $4,166.67 a month. If you have 140 billable hours a month, your hourly take home rate would be $29.76.
(However, this is not your hourly rate. We’re just getting started.)
Next, you need to determine your hourly rate including any business expenses you may have.
The Consulting Rate Calculator should automatically pull your total monthly expense cost from the “Expenses” page to the “Hourly Rate Calculator” page. This number will appear in the F2 cell.
The spreadsheet will then divide this number by your number of billable hours per month to find your hourly expenses.
Here’s an example:
If you have $800 of expenses each month and you have 140 billable hours, your hourly expenses would be $5.71.
Now we’re going to add this to your take-home hourly rate, bringing your pre-tax hourly rate to $35.48. You should see this number automatically calculated in the I2 cell of your spreadsheet.
But we’re still not done yet. We still have to factor in taxes.
Taxes are always tricky, especially as a consultant. The total amount you’ll need to pay will depend on your business deductions, where you live, and what tax bracket you fall into. However, if you’re self-employed, you’ll need to account for an additional Self-Employment Tax.
There are a number of calculators available online that help you find how much you should expect to pay in taxes. However, these calculators use your net income––meaning they don’t become useful until after you’ve already been paid.
You’ll need to factor in taxes before setting your hourly rate to ensure you’re asking for enough money to cover all your expenses and still give you the cash-in-pocket you need.
It’s always best to be overly cautious than to not charge enough and end up having to pay taxes out of pocket. We’d recommend factoring an additional 40% to cover your taxes.
The Consulting Rate Calculator spreadsheet should automatically do the math for you. In cell I3, you should find your post-tax hourly rate.
If you want to calculate your rate by hand, here’s the formula you want to use:
Post-Tax Hourly Rate = (Pre-Tax Hourly Rate x 100)/60
Let’s walk through our example:
If our hourly rate before taxes is $35.48, our formula would be:
Post-Tax Hourly Rate = (35.48 x 100)/60
After doing the math, we find that our Post-Tax Hourly Rate is $59.13.
Your hourly rate, after factoring in taxes and expenses, would be $59.13.
If you’re happy with this number, you’re all set. However, you may still be leaving money on the table––especially if your monthly expenses are low. This rate should be seen as your lowest acceptable hourly rate.
Head back to your initial research on the market and check out where you fall in relation to other consultants in your industry. Theoretically, the most expensive consultants would be the most expensive while cheaper professionals may be newbies to the industry.
Use the “value” number you calculated in Step 3 to compare.
So, say you valued your consulting services at a 7, but your prices are more comparable to someone offering less value. This isn’t a sign that you calculated your rate wrong––you just have the opportunity to raise your rates and make some more cash.
Add on to your rate until it more closely reflects other consultants at your expertise level. In our example, if comparable consultants were charging $75, you can charge the same.
However, if negotiations should happen with a client, you’ll know just how low you can go without digging into your own pocket.
On the other hand, if you find that your rate is much higher than other consultants offering a similar value-level, your expectations may be too high. Take a look at your expenses and monthly take-home rate to see if you’re being realistic or if there are areas you can cut costs.
5. Calculate your rate style.
As we mentioned, you have full control over how you choose to charge your clients. If you’d like to charge by the hour, your work is already done.
However, here’s how you can find your project rate or monthly retainer rate. Luckily, both are pretty simple.
Finding your per-project rate
Charging per project eliminates the need to watch the clock while you’re working and can give you some extra wiggle room if you finish a project early. It also prevents clients from pressing you to get things done faster or questioning time spent on a project.
Once you have your hourly rate determined, finding your project rate is pretty easy.
Calculate how many hours you believe a project will take you. Account for each step of the project, including initial phone calls to get started, any follow-ups or revisions, or any other hurdles that may come your way.
So, for example, if you believe a project would take you 10 hours to complete and your hourly rate is $50, your per-project rate would be $500.
However, you need to be careful when charging per project. A particularly picky client may ask for more revisions than usual or ask for more phone time than you typically provide.
If you’re going to charge by the project, make sure to clearly outline in your contract what that price includes. If you need to set limits to revisions or phone time, do so. You need to appropriately value your time.
Finding your monthly retainer rate:
Monthly retainers are great when you have standardized projects and expectations with your clients. If you’re doing the same work each month for a specific client, a monthly retainer can make it easy for you to budget both your time and money.
A monthly retainer is also a great option if a company wants to have you on-call for on-demand advice or help. They’re essentially pre-purchasing a certain amount of time each month.
Finding your monthly retainer is very similar to finding your per project rate, just at a larger scale.
Calculate all the work you’re expected to complete each month and multiply it by your hourly rate. Again, factor in any revisions, call time, or other tasks that may eat away your time.
If you expect to need to work 25 hours per month for a client at $50 per hour, your monthly retainer would be $1250.
However, monthly retainers aren’t recommended if your monthly expectations with a client are constantly changing. If your work isn’t consistent, you’re better off with an hourly or per-project rate.
Should I charge by ROI?
As a consultant, it’s not unlikely to be asked if you’d be willing to get paid in ROI. In other words, the company will pay you a portion of the results from the work you’ve done.
While some consultants may choose to go this route, we don’t recommend it––unless you’re receiving an acceptable up-front fee that doesn’t dip below your lowest hourly rate.
There are a number of challenges associated with an ROI-based payment structure.
First, payment can be extremely delayed. Depending on the work you’re doing, it could take months––even years––for an organization to truly realize the return on the investment. This means you could be waiting quite a bit of time before you ever see a dime.
Additionally, there is no promise you’ll even get paid in the first place. If the client doesn’t see much return on the investment, you may be out of luck.
You also have no control or insight into the ROI, meaning an untrustworthy client could downplay their return to pay you less than you deserve.
Overall, it’s best to opt for an alternative payment method. If a client is unwilling or unable, it might just be a project you want to skip over.
6. Track your rates in your CRM.
In an ideal world, all your consulting clients would pay the same rate and follow the same payment schedule.
Unfortunately, this rarely happens.
Your CRM is the perfect place to log your consulting rates. Make a note of the hourly rate and agreement you’ve made with your client and monitor the progress and value of that relationship over time:
Keeping this log will not only help you keep rates straight, but also help you identify when to raise rates and how you should approach the topic.
For example, some consultants choose to readdress their consulting rates each year. Logging the date you’ve established rates will allow you to check back and see when your annual anniversary is approaching so you can have that conversation.
It can also allow you to see if your projects or time spent on a project fits the amount you originally charged the client. If you agreed to a monthly retainer of ten hours per month but you’re actually spending closer to fifteen, you may want to address your contract.
Your CRM can also give you an accurate picture of the amount of time you spend on calls or in meetings with each client. If a client demands more phone time than others, you may want to increase their rate to cover that time.
Likewise, if certain clients are extremely easy to work with and you don’t have many notes or events in their CRM file, you may choose to keep a low rate.
Use the details within your CRM to explain rate changes to your clients. Being able to point back to specific projects, accomplishments, or events can help you establish credibility and support your argument––making it more likely your clients will agree to pay you more money.
Remember: Your consulting rates aren’t set in stone.
Finding the right consulting rates can take some trial and error. Almost every consultant has over- or under-charged for their time when trying to figure things out, so don’t stress about it too much.
You should also view your rates as dynamic. As you gain more experience, cost-of-living increases, or you just become more familiar with the clients you’re working with, raise your rates.
Make it a priority to go back and do this process again at least once a year.