Setting your Consultancy Rates

Setting your Consultancy Rates

Article by Melinda Diebel

It is important when setting your consultancy rates that you do some market research and see what similar services are billing. The market rate will be your jumping off point. This rate should be adjusted for any extra value added services that you have applied to your services.

Consultant fees are based on the time, skill, expertise and knowledge required to complete each engagement. Each engagement is unique – which makes it hard to predict the total cost of a job. Therefore many consultants will set an hourly rate and fee estimate based on the nature of the project/job, the data available, and the overall organization make-up. If the client can provide organized data then they can minimize their fees.

Contractor fees are typically billed by the hour. The hourly rate may change based the unique characteristics of each job such as the nature of the work and the skills and experience of the individuals preparing the work.

The hourly rate should also include provisions to cover costs such as: professional memberships and dues, professional liability insurance, professional development fees and courses, professional library of software and research materials, wages, office overhead, and the like. Consultant fees are also subject to goods and services taxes such as GST (Canada, Australia and New Zealand) and VAT (EU and India).

Unless agreed upon previously, the invoice for services rendered is generally due upon delivery.

In addition to the hourly fees some invoices will include disbursements such as: long distance phone and fax charges, courier charges, travel costs or other professional fees (fees invoiced from other consultants).

When doing your rate calculation keep in mind that many items normally covered by employers are the responsibility of the consultant. Some component costs of a consultant’s billing rate are:

1. Salaries of professional staff, secretaries, drafters, and technical aids;

2. Sick leave, vacation, and holiday pay;

3. Office and drafting supplies;

4. Printing and copying;

5. Travel (auto and other);

6. Postage, freight, overnight delivery services;

7. Telephone and telegraph;

8. Equipment purchase and/or rental;

9. Office rent;

10. Building and property maintenance;

11. Utilities;

12. Legal services;

13. Accounting services;

14. Technical publications;

15. Newspaper and magazine subscriptions;

16. Professional dues;

17. Attendance at seminars and conferences;

18. Group insurance;

19. Insurance (unemployment, workmen’s compensation, liability, fire, theft, etc.);

20. Pension expenses;

21. Taxes and licenses;

22. Business promotion; and

23. Subcontractors.

It is also important to remember that you bring unique talents and added flexibility to the table and that this should be acknowledged financially. There are many benefits to the employers of hiring a consultant such as:

Cost Savings: It is generally much cheaper and easier to hire a contractor who can start right away rather than training a permanent member of staff. It can be a cost effective way of bringing in new skills and imparting it to existing employees. This is due to the fact that contractors charge a flat rate plus GST or VAT and do not give rise to the same payroll and administrative charges that employees do.

Ease of Hiring: Recruiting for a permanent member of staff takes longer (typically greater than 4 weeks) and often leads to hiring costs such as agency fees and job posting costs. Further, consultants are invaluable in situations where it is not possible to hire a full-time staff member due to hiring freezes, budget restrictions and other operational or financial constraints.

Flexibility: Contractors are generally more flexible with their working situation and are typically more willing to take on part-time roles, off-hours projects, short workweeks, telecommuting, working in different locations and traveling for roles.

Increased Employer Rights: Consultants know that they provide crucial expertise and high quality services and they prove this by being prepared to stake their quality reputation by having no employment rights at all. There are no termination notice requirements and severance costs associated with contractors at the end of a contract and if they perform badly during the contract – they can be immediately let go.

Access to a Variety of Skills: Contracting firms often have a variety of experts – this allows them to provide a wide variety of services and bring invaluable expertise to the jobs worked by their consultants.

Skills and Specialties: There are many skills and specialties that can only be found in the contract market. Contractors are renowned for being innovative problem-solvers and experts at their work. Consultants are also expert project managers and can guide a company in its planning, budgeting and implementation phases. Further, consultants are used to working within set timelines and project scopes and can be instrumental in keeping projects on time and within the set guidelines. Consultants can also provide critical training and mentoring of your employees.

Project Work: There is an increased benefit to hiring contractors specifically for project work as they can get up and running quickly and can kick start projects. Further, if the project needs an expert in a particular field, not someone who has general knowledge across a range of subjects they are invaluable. Also, often projects require short-term resources, and do not provide enough work to justify a full time position. Contractors are also able to add a level of independence, objectivity and credibility to projects.

About the Author

Melinda is an experienced CHARTERED ACCOUNTANT with over a decade of experience acquired in a series of demanding roles within the business, IT, assurance and accounting arenas. Melinda qualified as a CA with the Institute of Chartered Accountants of Ontario in 2003. She is also a freelance writer and creator of the popular http://www.great-home-based-businesses.com website.

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