Navigating your fees as a consultant can be a real challenge. You want to charge what you’re worth, but you also don’t want to lose potential clients. This article presents a two-step process to setting your consulting fees to 1.) determine the value of your services to your clients and 2.) calculate the appropriate fees for your prospects and clients.

Setting Consulting Fees – The Obligatory Disclaimer

First, we must include a legal disclaimer regarding our information about setting consulting fees. The content in this post is for informational purposes only and does not constitute legal advice. Consultants and business owners must be aware of the legal boundaries about sharing or aligning prices or fees between consultants or businesses.

Legal Considerations in Setting Consulting Fees

The general principles of antitrust law, particularly the prohibition of price-fixing, apply to consulting firms. Collusion to set prices or other terms such as division of customers, territories or markets with competing consulting firms violates these laws. The Antitrust Division of the U.S. Department of Justice enforces federal antitrust and competition laws.

In keeping with antitrust law, IMC USA, a professional association for consultants, does not discuss specific fees in its materials or online or in-person programs.

Setting Consulting Fees as a Government Contractor

Consultants who work with government agencies may have to comply with additional laws and regulations. The Federal Acquisition Regulation (FAR) governs federal agencies that purchase services with taxpayer funds. Government contracts, grants and program funding for consulting services may be subject to scrutiny under the Procurement Collusion Strike Force (PCSF).

How to Set Your Consulting Fees

Setting fees is a complex task that routinely stumps businesses, including independent consultants, boutique consulting firms, as well as seasoned business owners. Here are some ways to find whether you’re pricing yourself out of the competition or selling yourself short.

Consulting Fee Competitive Analysis

Most businesses don’t advertise their consulting fees. But, it is possible to get some idea of competitive pricing. You might find pricing or rates on less sophisticated competitor websites. Industry trade associations often publish salary surveys that can provide a general range for your field. For government contracts, the awarded contract’s total price is a matter of public record.

If you work as a subcontractor, you may also gain insight into the fee structure and estimate the rates based on your compensation. When doing so, keep in mind that the prime contractor must cover its own overhead for marketing and administration.

Consulting Fee Strategy Tips

Aligning your fee structure with the customary practice in your field is a smart strategy. Fee structures include hourly, daily, project-based, or a retainer model.

While technical and engineering consultants often charge by the hour, many other consultants find success with project-based fees.

The most impactful strategy, however, is to sell your value and ROI, not your time. Take the time to understand your prospect’s needs and the value of the project’s outcomes.

Clients who engage consultants are often looking for expertise and a high return on their investment. A low rate can inadvertently signal inexperience. Justify a higher rate by pinpointing your competitive advantage: specialized expertise, extensive experience, advanced education, certifications and publications.

Five-Step Consulting Fee Calculation

When starting your consulting business, one way to establish a baseline for your fees is to use a multiple of your previous salary. A common approach is to multiply your prior salary by a value between 2 and 3 to cover operating expenses. These include marketing, overhead, taxes, and benefits. Alternatively, you can target your desired annual income and use a “three times” rule to calculate the approximate amount you’ll need to meet expenses. For example, to earn $50,000 a year, you’ll need to bill about $150,000.

Next, determine the number of days or hours per week you spend on billable work. Especially early in your business, a significant portion of your time will be spent on marketing your services. It is essential to track your time to understand the balance between billable work and non-billable tasks, such as marketing, administration, or attending conferences.

Then, from your total workdays, subtract vacation time and holidays to arrive at your annual billable days.

Now, divide your target annual salary by the total billable days to determine your daily labor rate. This will be your guide to generating proposals and engagements geared toward what your client needs, whether those are project-based, retainer, or time-based fees.

Finally, as you work with your clients, track your time. Use a time and billing tracker to consistently monitor whether you are earning enough to justify your efforts.

Consulting Fee Negotiation Tips

Now that you’ve calculated your fees, how do you present those fees and your value to clients?

During the discovery process with a prospective client, have a discussion about the level of effort and a range of costs.

If a client states there is not enough in the budget for your proposal, be prepared. Start with a comprehensive scope but have alternative options ready. Be prepared to present a proposal with a smaller scope and price to achieve the client’s most important objectives. Be sure to explain the cost-benefit trade-offs of a reduced scope, such as a less accurate assessment or less certainty about the outcome.

Another way to reduce costs is to identify tasks that can be performed by the client’s staff without compromising the quality of your work. In addition, you may find a way to reduce costs by subcontracting part of the project to a less expensive firm.

When structuring the project, consider providing value in each phase to reduce the client’s financial risk. Good performance on the first phase means you will likely proceed with the next. You can also price the initial phase and provide budgetary estimates for successive phases. Doing so allows you to finalize scope and pricing to lessons learned in phase one.

Finally, don’t waver if the prospect “flinches” at your price. As a professional consultant, it’s crucial to stand firm on your value to clients and reflect that value in your fees.

Call to Action – Become a Better Consultant

The IMC Academy offers courses on consulting that include essential topics for new and existing consultants, including the topic of how to set (or reset) your consulting fees. The IMC USA Academy foundation course is Mastering Management Consulting (MMC) that covers the essentials of core consulting competencies, ethical consulting, the consulting process and practice management. QuickStart is a course designed to help new consultants get up and started quickly and to help existing consultants reboot and expand their existing practice. Both courses offer students an opportunity to join a facilitated, monthly, virtual peer group – the Academy Community – with other consultants who are “on the same page” to share your experiences, ask questions and grow your business.

To learn more, contact Loraine Huchler, P.E., CMC®, FIMC, Chair, IMC USA Academy, at [email protected] or call 609-865-8151 (cell).

About the Author – Loraine Huchler, PE, CMC®, FIMC

A Certified Management Consultant, Loraine Huchler is a Past Chair of the IMC USA Board of Directors and the current Chair of the IMC USA Academy. She is the founder and president of MarTech Systems, Inc., a firm that assesses and manages risk in water-related utility systems. Prior to starting her consulting practice, Loraine worked as an internal consultant, providing value-added service to owners and operators of utility water systems in industrial, manufacturing, data centers, and large-scale comfort cooling and heating facilities (corporate and university campuses). She has a Bachelor of Science degree in Chemical Engineering from the University of Rochester. Loraine serves on the editorial advisory board for the American Institute of Chemical Engineers trade magazine. She has published and presented over 30 peer-reviewed technical papers and articles as well as a book, Operating Practices for Industrial Water Management, Influent Water Systems (Gulf Publishing, 2007). Learn more about Loraine at her website and on LinkedIn.