Set fees for Consulting business


Setting consulting fees and hourly rates for new consultant can be a difficult process. If you set the hourly rate too high, you will not get the business, set hourly rate for low and you will not make money.

There are several factors that determine the correct hourly rate for flat consulting fee. The most important is simply, how much do you need? There is a formula to set this rate you’ll be surprised how close result parallels what others charge.

X = hour advice ratio

To find x

X = y + H + M + P + F

How do we find X ?

First we need to define a few constants. We’ll start with our base rate is Y.

= A is the salary you want

B = the number of hours you can bill for one year.

to define the policy rate (Y) A / B

So for example, if you desire salary $ 80,000 a year and you can bill 1500 hours as an IT consultant you are left e ratio of $ 53 per hour. This is not the base rate, you are still the only calculation.

Next we have to add a self-employment tax. This is a tax for Social Security and Medicare for self-employed or small business owners. This rate is 15.3% Add this to the $ 53 (53 * 0.153)

Now we have the basic hourly rate (Y) 61 $.

At this point, many independent consultants set rate and hang a shingle. This is why many of them are out of business within a year or two. You must consider all the other things you have to pay your employer on your behalf, and money to grow your business.

H = Health insurance costs

First and expensive health insurance. If you have a family of four you can count on at least $ 500 a month. Health insurance for self-employed can be very expensive. Check with some brokers get the best price and then divide the total annual cost of the number of hours you will Bill. Take a rate of $ 500 per month, or $ 6,000 per year in 1500 hours rate will need to raise about $ 4 per hour to cover health insurance.

M = Marketing and sales expenses

For an independent consultant business is only as strong as the next your participation. We recommend a minimum of 5% of first-year estimated sales to keep the pump primed. $ 2.6 was our hourly rate of these salaries.

P = Professional fees.

This is the cost for your accountant, attorney fees, voicemail, and other monthly or quarterly fees’ you have to pay for the year. We will use the form of $ 2,400 in this example, so P = $ 1.6 ($ 2400/1500 hours)

F = fudge factor.

fudge factor is the small things that are going to come up at any time. Stamps to mail out bills, one-time expenses for accounting software (QuickBooks or Microsoft Money) and dozens of other things that pop up from time to time. As your business grows F factor will have other costs like rent and expenses for employees outside accounts, extracted and divided by the number of employees and number of hours worked. For now just use next. If you have the beginning of $ 200 a month is not unreasonable. F = $ 1.6

Now we can find out X

X = $ 61 + $ 4 + 2.6 + 1.6 $ + $ 1.6

Or hour consulting rate of $ 71


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