Charging the right amount is critical to the success of your business, but this isn’t as straightforward as it might seem. Here’s how to get off on the right financial footing:

Why Getting Your Rates Right Is So Important

Of all the decisions you make in your consulting business, setting your rates is the most important and the one that’s easiest to get wrong. It isn’t just about making a profit: it is also about sending a signal about the type of firm you are, the kinds of clients you want to work with, and where you stand in relation to other firms. It’s also easy to get wrong. You may underestimate the costs of running a business, or you could overestimate the number of days or hours you’ll be billing clients. Getting your rates wrong will damage your business and reputation.

What We’ll Cover

• Why Getting Your Rates Right Is So Important

• Why A Consulting Year Is Only Three or Four Months …

• Costs and Taxes

• How To Calculate Your Rates

  • Bruno

  • Jenny

  • Reviewing Your Rates

• How To Use the Two Sets of Rates

• The Golden Rule

• Rates Versus Pricing

• Other Pricing Structures

  • Hourly Rates

  • Fixed Pricing

• You’re Worth It

Why A Consulting Year Is Only Three or Four Months Long

Before you calculate your rates, we need to clarify a few things about the reality of being an independent consultant.

• You won’t be on a paid engagement every day.

• Winning work takes a lot of time.

• Projects you win may require un-billable admin time to get off the ground (e.g., calls or writing proposals) or to wrap up.

• What you charge is not what you are going to take home

This means that what you charge for each day of work has to make up for all the other days you don’t work. You also have to cover expenses, taxes, health insurance, and any additional costs. This means a $1,000 day rate does not equate to an annual income of $365,000. This is an easy mistake to make and, even though you can change your rates, getting off to a lousy start will sour the experience of running your own firm and may make it untenable.

Let’s start by thinking about the number of days you are likely to work annually. This will fluctuate, but we can use the following numbers for our rate calculations.