Calculate Consulting Fees - Step-by-step

Introduction

This is only one of many other approaches you can take to calculate your consulting fees. This method is a little more “adjusted” to the competitive situation in your industry compared to the other method i recently published at Hubpages.

You can get more free videos, reports and EXCEL worksheets for calculating consulting fees at Consulting Videos.com


One drawback with this method is that it doesn’t take your expected living standards into account.

I suggest you use both methods when you calculate consulting fees and finally use your intuition for the final decision.

This method consists of six simple steps

  1. Estimate your working hours per year
  2. Estimate your billable hours per year
  3. Estimate your collection rate
  4. Calculate your consulting fee excluding expenses
  5. Estimate your business expenses
  6. Add a mark-up fee

Let’s now start with the first step.

Step 1: Calculate your working hours per year

Let's make the following assumptions:

  • There are 52 weeks per year
  • You take 5 weeks' vacation
  • You take 7 days off for national holidays
  • You take 5 days off for sick leave
  • A normal workweek is 40 hours

Work hours per year are now: (52-5) x 40 - 7 x 8 - 5 x 8 = 1,784 hours per year based on the assumptions we just made.

Step 2: Estimate your billable hours

Not all of the 1,784 hours are billable because you need to spend time on administration, marketing and other non-billable work you can not include in your consulting fees.

Let us in this case assume you spend:

  • 30% of your time on marketing, networking and seminars etc.
  • 20% of your time on book keeping and other administrative work

Based on this assumption are now only 50% of the 1,784 hours billable so now only 1,784 x 0.5 = 892 billable hours remain.

Step 3: Estimate your collection rate

Not all your clients will pay your invoices for financial and other reasons so you have to take this somewhat nasty reality into account when you calculate your consulting fees.

Let's assume that 5% of your bills don't get paid. Your billable hours are now reduced to 892 x 0.95 = 847 hours per year.

Step 4: Calculate hourly rate excluding expenses

It’s now time to calculate your hourly rate excluding expense.

First you have to estimate what you would have earned per year IF you worked on a regular job doing same or similar work.

You can find this kind of information quite easily on the internet and it’s often free.

To start with you can go to http://www.salary.com/ and try to find the information you need.

It’s very important that you look at statistics that is applicable for the geographical area you plan to sell your services in.

Your yearly estimated salary should also include benefits you would get if you had a regular job.

The salary will, as a rule of thumb increase with approximately 30% when you include benefits. So if you can’t find any information about benefits you can use this “rule”.

Next you divide your estimated yearly salary including benefits with the billable hours you calculated earlier.

If we assume you would earn $78,000 per year including benefits you can divide this with 874 billable hours.

So your hourly consulting fee including benefits but excluding expenses is $92 per hour.

Step 5: Estimate your business expenses

In this step we will estimate your business expenses.

Typical examples of business expenses are:

  • Office rent
  • Phone
  • Computer
  • Travel
  • Stationary...

In this case you will assume that your yearly business expenses are $13,000 per year

If divide your yearly expenses with billable hours you will get $15 in expense cost per hour.

Now you just add the expense cost per hour to the hourly rate you calculated in step 4 and get an hourly rate including expenses to $107 per hour ($92 + $15).

Step 6: Add a markup fee

This is the final step of this method.

You are running a business and taking risks so it’s only fair you add a markup fee.

Typical markup fees are 10 to 40% and in this example we will assume a 20% markup fee.

Now you just add 20% to the hourly consulting fee you calculated in step 5 and you get $128 per hour ($107 x 1.2 = $128).

Finally you can round up your hourly consulting fee to $130 per hour.

Calculate Consulting Fees Video

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Comments 7 comments

betherickson profile image

betherickson 8 years ago from Minnesota

This is great! Thanks. Thumbs-up for you! :)


Edet 6 years ago

Thanks.Very simple and straightforward. Not complicated at all.


BMDAVIS 6 years ago

Thank you for this ... much appreciated


TheFartingGrandpa profile image

TheFartingGrandpa 5 years ago from Macatawa, Michigan

Very helpful nrjberg!


GracieLake profile image

GracieLake 5 years ago from Arizona

This is an excellent breakdown of the process to figure fees. Thanks for the clear explanation.


Duchess OBlunt 3 years ago

Interesting process you have described. You would have to be one heck of an expert to charge those fees.


nrjberg profile image

nrjberg 3 years ago Author

Thank for your comment Duchess OBlunt. The truth is that there are experts out there (including me) that are charging many times more than i calculated in the above example.

Most people think that "what is expensive must be good" and "What is cheap must be bad". So just by raising prices clients start thinking you must be really good because you charge a high price. Combine that (somewhat irrational) belief with a unique service/product that can't be compared apples to apples with your competitors offerings and you got something very valuable.

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