If, as a consultant, you find you’re taking on more work than you can handle just to pay your bills, it may be time to raise your rates.
There comes a time in every consultant’s life when he needs to charge more money. Your rates should go up with inflation as well as your expenses. And it’s a good idea to keep an eye on what your competitors are charging so you can make sure you’re staying competitive. Charge much less than them and people think your services aren’t valuable; charge too much and they’ll go to a cheaper competitor simply based on price.
Knowing When to Raise
As a consultant, you may not work 40 hours a week, so you probably don’t get paid for every hour you work. There are billable and unbillable hours: billable hours are any you spend working on client work that you will be paid for, while unbillable hours are those you spend doing administrative work or looking for new clients. Ideally, you want to make enough working in fewer than 40 hours a week to pay your bills and leave you with a nice cushion.
If you’ve been scrambling, taking on more work than you can handle simply because you’re not making ends meet, you’re probably not charging enough. You may not feel like your services are worth more, but if you have experience in your area of consulting and your competitors are getting more for the same work, it’s time to increase your fees.
How Much Should I Raise Them?
First, take a look at a few things:
- How do you charge for your projects?
- What expenses go into the average project?
- How much time are you spending on a project?
There are several ways to charge for work you do as a consultant. You can charge an hourly rate and keep track of time spent. You can charge for work on the project and outline what that will entail and how long it will take you to complete. You can charge your client a monthly retainer based on a certain parameter of work you will do each month. You can even charge a daily rate.
Examine this to determine whether you’re using the best method to charge. For example, if you charge a retainer but your clients constantly add extra work to your workload, you’re being taken advantage of and not getting paid for the extra work. You might consider charging hourly for any additional work beyond what you agreed upon.
Sometimes consultants have expenses beyond their work; if you’re in PR, you have to pay for a client’s press release distribution. You may have to get a membership to a website to work on a client project. You also have office supplies, rent and utilities to pay. Calculate these expenses into your rate.
And if you’re not working on an hourly rate, you need to make sure you’re not underestimating the amount of time it takes you to complete a project. If you think a project will take two hours and you charge accordingly, but it takes you five instead, you’re wasting your time without getting paid.
Calculating Hourly Rate
If you’re not sure what you should charge per hour of work, first start with the salary you’d like to make each year. You probably want to make a bit more than you did at your last job, so add on to that number if you don’t know where to start. As an example, let’s say you want to make $80,000 a year.
Now think about profit. This is just a little extra for your hard work as a consultant. It’s typical to add 10-20% profit to the formula we’re about to look at.
How many billable hours do you want to work in a year? Remember to leave room for unbillable hours, sick time and vacation. For this example, let’s say you want to work 20 billable hours a week, which would be 1040 a year.
Let’s assume overhead costs of $20,000 a year for this equation:
Overhead costs + annual salary + profit = hourly rate
billable hours in a year
$20,000 + $80,000 + 10% = $105 per hour
So your hourly rate would be $105. Consultants get paid well because they are experienced in their fields, so don’t be shocked at how much you are worth!
Remember to update your consulting agreements with your new fees and quote them each time you speak to a potential client.