Calculate Consulting Fees - Step-by-step
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
- Estimate your working hours per year
- Estimate your billable hours per year
- Estimate your collection rate
- Calculate your consulting fee excluding expenses
- Estimate your business expenses
- 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
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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