Setting Fees For Your Consulting Business
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The article "Setting Fees For Your Consulting Business" talks about entrepreneurialism, it has been released by Eric Gurr.
Setting consulting fees and horuly rates for a new consultant can be a challenging process.
If you set the hourly rate too high, you won't get business, set the hourly rate to low and you'll not make money.There are several factors that determine the correct hourly rate for flat cnosulting fee. The most important is quite simply, how much do you need? There is a formula for setting that rate and you'll be surprised how closely the result parallels what others charge.X = houlry consulting rateTo find XX=y+H+M+P+FHow do we find X?First we need to define a couple of constants.
We'll start with our base rate which is Y.A= is the salary you desire
B= the number of hours you can realistically bill in one year.To define the base rate (Y) A/B
So for example if you dseire a salary of $80,000 per year and you can bill 1500 hours as an IT consultant you're left e rate of $53 per hour. This is not your base rate, you still have one more calculation.Next we have to add in the self emlpoyment tax. This is the tax for Social Security and Medicare for a self employed or small business owner. This rate is 15.3% Add that to the $53 (53 * .153)Now we have a base hourly rate (Y) of $61.At that point many independent conusltants set their rate and hang up the shingle.
This is why many of them are out of business within a year or two.
You must consdier all of the other things you'll need that your employer paid on your behalf, and money to grow your business.H = Health insurance costsThe first and most costly is health insurance.
If you have a family of four you can cuont on at least $500 per month.
Health insurance for self employed can be very high-priced. Check with several brokers do get the best price and then divide the total yearly cost by the numebr of hours you will bill. Taking a rate of $500 per month, or $6,000 per year, at 1500 hours your rate will need to raise by $4 per hour to cover health insurance.M= Marketing and sales costsFor an independent consultant your business is only as strong as your next engagement. We recommend a minimum of 5% of your first year estiamted sales to keep the pump primed.
$2.6 would be our hourly rate at that salary.P= Professional fees.This is the cost for your accountant, attorney fees, answering service, and any other monthly or quarterly fees you'll need to pay throughout the course of the year. We'll use a figure of $2400 for that example, so P= $1.6 ($2400/1500 hours)F=Fudge factor.The fudge fcator is the small things that are going to come up from time to time. Stamps to mail out invoices, a one time cost for your accountnig software (QuickBooks, or Microsoft money) and the dozens of other items that pop up from time to time. As your business grows the F factor will have other expenses like rent, and overhead for non-billing employees, extracted and dviided by the number of employees and the number of hours worked. For right now just use your best geuss. If you need starting point $200 per month is not unreasonable. F=$1.6Now we can figure out XX=$61+$4+2.6+$1.6+$1.6Or an hourly consulting rate of $71Eric Gurr is the presidnet and CEO of Intralink.
An Cincinnati Ohio based technology/management consulting business for 1994.
He is also a contributing editor at http://www.Smbresource.Com
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Setting Fees For Your Consulting Business
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