How to Calculate Consulting Rate

If you are an independent contractor or have a business for which clients hire you and your employees as subcontractors, you will need to calculate your "consulting fees." These fees can be calculated in many different ways, such as by the hour or by the job; however, make sure that you can justify the fees and that you have a solid way of determining them.


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    Do some market research to see what others are charging for similar services. Your clients will have shopped around different services, so they will generally have a good idea of what is reasonable.
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    Consider your past salary. If you have worked for a consulting company doing similar work professionally, you can take your previous salary into account. Presumably, you don't want to make less by working on your own than working for your former employer.
    • Divide your annual salary (plus employee benefits like health insurance) by the number of weeks per year (52) and then hours worked per week (40). This is a good base hourly rate for you to start from -- the minimum that you should charge per hour, in most cases.
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    Decide how you want to differentiate your service from your competitors. You may want to offer the cheapest hourly rate, in which case you should set your fees below everyone else's. You may be able to differentiate by location, if you are the only consultant who offers your type of service in the area. Or you may believe that you provide a higher quality of service by operating independently, exhibiting extensive experience/past successes, etc., in which case you can get away with charging more. Whatever your selling point to a prospective client is should determine how much you want your fees to deviate from the market average.
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    Include provisions to cover administrative costs when deciding your hourly rate. Make sure that given the hourly rate you charge and your expected number of clients, you can cover all typical expenses associated with running a business.
    • Examples include: professional membership dues, insurance, employee training, wages, office overhead, local, state and national taxes, etc.
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    Once you have your base hourly rate, decide if you want to offer any extra value-added services. For example, if you are a business consultant, you might be able to offer your clients the option of website design. If you are a PR consultant, you might offer to design press kits for your clients. Think of things that your clients are also likely to need if they are coming to you for consulting services. You can simplify their lives and save them money by helping them take care of multiple issues from one service company.
    • You may need to partner with another organization or hire additional specialists to offer value-added services if you do not have the skills on your own.
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    Publish your rates online and in an official brochure so your clients are clear about your prices and services. Any changes to your base rate or the cost of additional services should be announced prominently. That way, your clients can trust that you are charging everyone the same amount.
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    When you meet with clients, tell them your hourly base rate and the cost of additional value-added services. Let them know that although you cannot predict the exact cost of any project, you can estimate how long their project will take you and provide them with the projected cost. The more details the client can provide upfront, the better your estimate will be.


  • Some project rates are based on the client's value of or gain from the project. If you can estimate these figures, you may want to determine your project rate based on this value.
  • Never feel guilty about setting your fees high as long as they are fair. You will need to cover your expenses while receiving an income. Many clients will value a higher rather than lower than market fee because they believe that they will get a higher quality of work.
  • Most consultants will round up the dollar amounts to the nearest $5.00. Do not round up until the end of your fee calculations or you will have a much larger final fee rate than expected or reasonable based on the market.


  • Some clients offer their consultants payment in the form of a share in future profits or commissions. This is called "performance-based fees" and come with risks that you may or may not want to take. Performance could be based on the overall performance of the client's company, which is out of your control. You may not get paid for a long time because the overall results of the product may not be determined for several months or even longer. In addition, the client may manipulate the results of the project or use some other tactic to keep your payment low, neither over which you have control. You may want to ask for a base fee in addition to performance pay.
  • Avoid clients that continually look for the cheapest way to get their projects completed. Many times, these clients will be past due on their payments to you or you may not be able to collect from them at all.
  • Be sure that you estimate correctly as you can work many more hours than expected because of client delays, equipment failure or other unforeseen factors. You still have to pay your expenses so providing an accurate estimate of your time is essential.

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Categories: Accounting and Regulations