Consulting fees, consulting fees…How do you set consulting fees?
One of the most important steps when first setting up as an independent consultant is making sure you charge the correct hourly rate for your services.
Hourly rates can vary quite significantly, even for independent consultants at a similar level, so it's important to make sure you strike the right balance between being paid what you're worth while trying not to price yourself out of the market.
Main strategies/considerations when setting your hourly rate:
Stay very flexible with your hourly rate. Do not make the mistake of having a universal hourly rate for all your projects. Having said this, it is quite important to have a base rate below which you are not willing to work.
Have a range
Every project, and definitely every client, is different with unique characteristics and complexities and therefore needs to be evaluated independently – excuse the pun. It is therefore important to work out what range you should charge for different projects and what factors can affect that range.
Setting your hourly rate
In order to calculate an accurate approximation of your hourly rate, take your most recent salary as a permanent employee, add in all benefits, and divide by 6,000 (number of working hours in a year). This provides you with a 'base hourly rate' on which you can add a 'freelancer charge' for operating independently. This charge can range from 30% all the way up to 160%. So if your 'base hourly rate', calculated using your most recent payslip as a permanent employee, is R1,200 and you apply 50% as a 'freelancer charge' – your hourly rate will be R1,800.
Speak to other independent consultants at a similar level about what they charge. This is especially useful when first starting out – as it's crucial you remain price competitive when going up against other independent consultants at a similar level.
Premium charges for specific sector knowledge
As the majority of clients like some kind of specific knowledge/skills when engaging an independent consultant for project work, it's important to understand what the price differential is between your 'generalist' rate and your 'sector specific' rate. In this regard, it is quite important to find a niche to specialize in and becoming known as the go-to independent consultant for that type of work. The fact that you have this specific skill/knowledge means you are able to charge a premium for your services.