As
mentioned in a previous article, there is a perfectly logical
mathematical way to establish fees for your consulting practice.
Here it is in a nutshell:
1. Start
with your previous annual base salary from your corporate
days. For the purposes of this example, we'll use $75,000.
If you're just entering this field, or you feel you were
not paid properly in the corporate world, then choose a
salary based on averages for the work you will be doing.
Be sure to adjust up or down according to your skills and
abilities.
2. Next
figure out what your overhead expenses will be. Overhead
includes standard business
expenses such as office rent,
marketing, utilities, taxes, insurance, supplies, etc. We'll
assume $40,000 for the purpose of this example.
Now,
if you plan to work 5 days per week, 52 weeks per year,
you would take the total of your cost + overhead and divide
by 260 days:
$75,000
(Your cost sample)
+ $40,000
(Overhead cost sample)
----------
$115,000
(Total Cost)
/ 260
(Work Days)
----------
$442.31
(Daily Rate)
Now unfortunately,
this would cover all costs but would not give you any room
for making a profit.
To correct that problem, choose a profit percentage, or
markup. How much you choose to
mark
up your services is entirely up to you. The most common
range is said to be 15% - 30% however I have seen markups
as high as 50% - 80%. So choose what you are most
comfortable with
and use that -- you can always change it later. For our
sample, we'll go with 30% profit markup
on the existing daily rate.
Daily
Rate: $442.31 (Figured above)
Profit:
$132.69 (30% of daily rate)
---------------------
Adjusted
daily rate: $575.00
Now believe
it or not, we're not done yet! This daily rate factors in
your profit, however it also assumes
you will work every weekday of the entire year. This is
unrealistic -- you will have slow times,
you will want vacations and you may get sick. So you must
factor these probabilities in as well.
Here's how you do that:
We'll
use basic estimates for this example, but you'll likely
want to figure your own number of holiday
and vacation days later.
Holidays
- 12
Vacation
- 10
Cushion
Time - 10 (Emergencies and surprises)
Administrative
time - 1 day every other week (You have to take care of
the paperwork, right?)
Business Development - 30% of your time (You have to promote
and market the business, right?)
Downtime - 25% (You can adjust this as you become more established)
Now,
using the above estimates, we're down to working a total
of 106 days per year. This will of course increase as your
business becomes established, however it is considered the
"safe" way of estimating prices and costs during
the first year at least.
So here
is our new formula:
$75,000
(Your cost)
+ $40,000
(Overhead cost)
----------
$115,000
(Total Cost)
/ 106
(Realistic Work Days)
----------
$1084.91
(Daily Rate)
+ $325.47
(30% profit)
----------
$1410.38
(Profitable, logical and safe daily rate)
Seem
high to you? :) Don't feel bad, many new consultants are
amazed at the going rates. Believe it or not though, the
average daily rate for a consultant is anywhere from $1000
- $2000. Established consultants can get close to that per
hour.
Many
new consultants are uncomfortable with these fees though.
If you are as well, then
remember
that the above numbers are for example purposes only. Change
the base rate, change the profit margin percentage and lower
your overhead costs -- these will all lower the daily rate
to a level that you feel more comfortable with.
Keep
in mind however: don't allow yourself to accept slave wages
for specialized skills, expertise and services. If you do,
you will become very resentful of all the work you do for
clients and burnout will be inevitable. If you're good at
what you do, you should be paid well for it. Don't sell
yourself short.
©
2001, Kathy Burns All Rights Reserved.
Kathy
is a freelance writer of many years. Her specialties include
small or home office, information technology and handheld
devices. Visit her web site at
http://www.electronicperceptions.com
to browse and read her other publications!
