Tips for setting consultant fees
No matter what type of consulting business you operate, deciding how much to charge clients can be a balancing act. If you set your consulting fees too high, you risk pricing yourself out of the market. If your rates are too low, clients might undervalue your knowledge and skills and hire a competitor. Either way, your business will suffer if your fees don’t hit the sweet spot, and you may have trouble turning a profit or even keeping your practice afloat.
While there is no right or wrong answer when it comes to setting consulting fees, consider the following tips to help you make a more informed decision so that you can continue to win new clients and grow your business.
Common consulting fee structures
First, think about how you want to bill clients. The three most common consulting fee structures are:
- Hourly rates
- Project-based fees
- Monthly retainers
If you’re new to the consulting business, your first instinct might be to choose one billing method for all clients and projects to minimize invoicing headaches. But consulting experts advise taking a more flexible approach to your pay rate based on the situation.
For example, if you’re working on a project with shifting priorities and moving timelines, it makes sense to charge by the hour. When a client offers you a job with a more specific scope and predetermined milestones and outcomes, you might choose to bill them for the entire project. And if the scope of work entails being available on an as-needed or immediate basis, consider charging the client a monthly retainer. While working on a retainer is frequently more demanding, it provides a regular source of income.
Strategies for setting consulting rates
Experts recommend considering three factors when determining the actual dollar amount that you will charge clients:
Your competitors’ rates
Research what other consultants in your industry and area charge their clients by the hour and use that as a measure for setting your own fees. You can likely find some information about competitors’ consulting rates online or through your LinkedIn connections, but networking at industry events could also be worthwhile.
Your historic rates or salary
If you’ve been in business for a while, use the consulting fees that you have charged past clients as a general guideline and perhaps modestly increase them periodically. If your consulting practice is relatively new, use your former salary as a general gauge of how much you should charge per hour or project.
Your specific expertise
Consultants who have established a successful track record working on particular types of projects or in specific industries may be able to up their rates based on their added value. For example, if you are a marketing consultant who specializes in helping telecommunications businesses execute hyperlocal advertising campaigns, you can potentially justify charging a higher rate when you are hired to work on a similar project.
Consider your expenses when setting consulting rates
Remember that as a self-employed small business owner, your consulting fees need to cover more than just your salary. Expenses to think about when establishing your rates include:
General expenses: Even if you’re working remotely most of the time, you’ll need to pay for internet service, and if your computer or mobile phone dies, you’ll have to replace it out of your own pocket. If your consulting business is large enough to require office space, there will be monthly rental payments.
Travel expenses: Although some clients might reimburse you for travel expenses, there’s no guarantee that they will. If you expect clients to pay for work-related travel costs, specify that in your contract.
HR expenses: Whether your consulting business has full-time employees or you need to frequently hire contractors to help with specific projects, you will need to pay them for their work.
Healthcare costs: Experienced consultants may have grown accustomed to paying for their own medical insurance, but newcomers to the field might not consider how much healthcare premiums can impact their bottom line.
Business insurance: Like any business, consultants should purchase insurance to protect themselves. Consultants typically acquire general liability insurance to cover injuries to clients or damage to their property and professional liability insurance to account for work mistakes or missed deadlines that could lead to lawsuits. In some cases, consultants might also need workers’ compensation and commercial auto insurance policies.
Compare consulting business insurance quotes from trusted carriers with Insureon
To protect your consulting business, complete Insureon’s easy online application today to compare insurance quotes from top-rated U.S. carriers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.