Consulting Fees Formula

I am frequently asked, 'How do I set my fee as a consultant?' Most new consultants are uncertain how to calculate daily rates based upon their desired level of financial comfort. This worksheet is designed to give the reader a financial basis for determining a daily or hourly consulting fee. Discussions about competition and market prices are not included.

The consultant needs to find a point of reference that is meaningful to the consultant... not the client. Generally, I suggest that one should first consider the one’s personal financial need.  Most young consultants usually can express this need in terms of an annual salary. This figure provides a meaningful guide for establishing specific expectations about annual living costs and recreational margins that are needed to support a life style.

1) Begin by filling in the following blanks:

I would be comfortable at____. I would be very comfortable at____. My ambitious financial goals would be met at a yearly rate of_____________.

2) Next, use the yearly rate to calculate your hourly or daily rate.

The yearly rate should be multiplied by 1.25 to achieve a loaded or overhead rate. This value is divided by 220 workdays per year to achieve the daily rate. Dividing this rate by 8 provides an hourly rate.

Total rate = Yearly rate *1.25 (overhead rate).

Daily rate = Total rate / 220 workdays.

Hourly rate = Daily rate / 8 hours.

Example: Financial comfort level = $60,000/year (yearly rate)Total rate = $60, 000 * 1.25 = $75,000.Daily rate = $75,000 / 220 = $340.Hourly rate = $340/8 = 42.5.

Overhead rate - This value is quite conservative (the reader may wish to change it). The loaded or overhead figure is the amount required to provide insurance (health and life), social security (14% for self employed), some savings or retirement benefits, and possibly travel insurance. [FYI: Investing early in Roth or related IRAs results in remarkable gains from the compound interest.] This rate should be adjusted if the young consultant has office or equipment costs. Sometimes an adjustment is made for special travel expenses not well covered in the tax code, e.g., excessive driving expenses. Of course, unusual travel such as airfare should be a part of all negotiations with clients. Nearly all situations of consulting cover air travel housing and related expenses as an addition to the daily rate. Once in awhile the client will bundle travel and the fee in a combined fee. This is usually done to bypass the extra burden of internal controls;

therefore, the offer is often generous. The consultant needs to be aware of the normal travel costs in such a negotiation.

Workday figure - The 220 workday figure is derived by multiplying 20 workdays per month times 11. The 12th month is omitted to provide a month of vacation. These are suggestions in case one is negotiating a year-long contract.

Personal Consulting Fee Calculator:

Fill in the shaded cells in the following worksheet to calculate your personal consulting fees: