This is your starting hourly rate. If you feel it's too low, turn it up. When you become a consultant and during the upgrade or restart, you will need to set the consulting rates. Consulting pay and fees can be calculated in a variety of ways.
Here's some information to help you determine how much clients should pay a consultant (however, some clients are still likely to receive a penalty in consultant fees). With this in mind, you can determine typical consultant rates: what companies pay consultants for their hours, days, projects, and expert opinions. Keep in mind that your personal experiences and background may influence how you set your rate. To set fees, some consultants simply take the hourly wage (plus benefits) they would earn if they worked for someone else and then double or triple it.
If you're doing this, you'll probably find that tripling your hourly wage is the best option. Some consultants opt for a triple rate because of what they call the rule of thirds: one third goes to real salary, one third to expenses and one third to administration, low utilization and bad debts. It's a pretty simple math, which is also one of the reasons why it's popular. If you prefer help, use our hourly rate calculator for this step.
It all comes down to what the market is going to endure and what your competitors are doing. If you stand in line charging the same as everyone else, you are indicating that you are a worthy (qualified) consultant who plays fairly. You also make sure you get the base rate for consulting in your market. Preparing for interviews? Get RocketBlocks Now that we have a mental model for thinking about the industry and some of the trends that affect it, let's analyze the results of a consulting firm.
Most often, the result is a series of data-based recommendations that focus on the problem at hand. The delivery of this product consists mainly of a presentation or, in many cases, a series of presentations (p. ex. In addition, backup data and data assets (p.
However, it's important to note that the key product is the recommendation itself, not the data assets. Ultimately, data assets are just supporting arguments, essentially products of the work they did to arrive at the recommendation. There is a great variation here, since it depends both on the company itself and on the nature of the work. However, in most cases, consulting firms usually work at their customers' facilities for most of the week to be available to collect data, interview stakeholders, make presentations to stakeholders, and so on.
Companies such as McKinsey and BCG typically staff teams at the customer's facility four days a week, usually Monday through Thursday, and then bring the teams to the head office on Fridays. Bain is an exception and, in most cases, tries to keep consultants working outside its central office, unless it is necessary to travel to research about clients or to make a presentation for them.
To help bring the above description to life, let's look at a specific hypothetical case example and examine what the unitary economy of the consulting firm is like.
. As in a case interview, you may find yourself analyzing the profitability of a company's product, let's analyze the revenue and cost structure of a consulting contract so that we can understand it at a deeper level.This is the same thing you would do in a case interview, except that, for example, instead of analyzing the profitability of a high-end furniture company, we will analyze the unit economy of a consulting firm. Let's say that a large consumer electronics company hires McKinsey to help it assess whether it should enter the online advertising space through its presence on digital devices. Based on initial conversations with the client, the firm undertakes to address the case, assigns a period of 12 weeks and agrees on delivery and a flexible framework for the type of analysis and research that the firm will carry out throughout the case. For the type of sample participation described above, the revenue side is likely to be the simple part.
Customers will agree in advance with the consulting company on the price of the contract and what the result will be (p. This type of model is called a fixed rate, since, regardless of the result, the customer will pay the agreed rate for the work. While the fixed rate is a common pricing model used in consulting, it's worth noting that there are a few other alternative models that appear. If all the data mentioned above are put together, this is the approximate unit economy of a case.
First of all, once a fixed rate or a milestone rate is agreed with the customer, the company has only one lever to boost its own profitability, and that is to reduce costs. Since the vast majority of the cost is labor, this often comes down to reducing the labor involved. If you've ever wondered why consultants work so hard, you now have a fundamental structural key to solving the puzzle. Not only is work a challenge, but the schedule and economy can also be challenging.
Partners are encouraged to generate revenues and benefits to the company, so once the price has been set, it makes sense to try to equip the teams in the smallest possible way and, at the same time, offer quality work. This structural dynamic has many interesting second-order effects. For example, many partners like to equip their teams with truly experienced analysts. Why? Senior analysts are already trained (therefore, they are senior) and are significantly cheaper than an associate.
For the partner, it's a win-win, as you get high-quality work at a discount. In general, the real price of consulting contracts is a closely guarded secret. Even in the firms themselves, prices are managed by senior staff and younger associates and consultants are not aware of all the details. On the customer side, it's a similar situation.
Usually, only top management, such as directors, vice-presidents, and C-level executives, know all the details and costs. Below, you can see several workflows that McKinsey has planned, the number of consulting staff assigned to each one, the duration of the hiring, and the total cost. Where do you fit in? The next key question is where do you fit into this picture. Let's start by looking at the entry points into the consulting business, the salaries available to you, and what your career progression might look like.
Examples of responses from former consultants from McKinsey, BCG and Bain. In addition to high-quality technical descriptions and personalized expert advice. Consulting fees and prices can be structured in a variety of ways. However, as with most companies that offer services, the number one challenge is to price their offerings.
Pricing products is easier than pricing services because, with products, you can easily track production costs. However, with services, determining the value of what constitutes your service (time, staff, and experience) is highly subjective. This is why different consultants use different techniques to ensure that their services are properly priced. In the process, consultants consider all the factors needed to ensure that they don't charge more or less.
Otherwise, the risk of losing customers due to pricing remains a constant possibility. According to a study conducted by Consulting Success, the following statistics show how most consultants structure the pricing of their consulting services:. Most of these consulting firms consider their fee structure to be a vital competitive asset that they rarely disclose to people who are not clients, making it difficult to reference the referral rates of other consultants. The largest group of consultants that make up the market are the self-employed or the independent, and they tend to charge based on what they think they are worth, especially since their rates do not usually have a limit, especially for those in the private sector.
Hourly charging is a time-based arrangement. You only charge for the number of hours worked. How do consultants determine their hourly rate? Often, when consultants are paid by the hour, they base their salary on what they receive from the company they used to work for or where they continue to work by the hour, with a small profit margin. According to the SBA, the hourly rate is obtained by dividing the previous wage by 52 weeks of work and then dividing that number by 40 or the number of regular working hours in a week.
Next, consultants should consult with their competitors to ensure that the profit margin does not exceed 25 percent. New consultants charge less to build a portfolio, so you can expect to get great deals working with one. Although rates may vary mainly by location, among other factors. The daily rate is basically obtained from the hourly rate of a consultant multiplied by the number of hours per day that a consultant is expected to be available to work.
Most consultants prefer to charge this way, since clients are usually used to hiring services on a daily basis to avoid limitations in the scope of work, which usually happens if you charge by the hour. Clients are often more comfortable with an hourly or daily rate because they can assess the need for consulting services from time to time without the complications of most long-term agreements. Customers may not be actively involved in all of these stages, but they are certainly part of the consultant's work, so they are needed to estimate the costs of the project. A reliable consultant will assure you that there will be no hidden fees from start to finish.
There are cases where the services of a consultant are needed on an ongoing basis. In such cases, a retention agreement is more appropriate. Some examples of consultants who provide services on a recurring basis are legal consultants, IT consultants, and even financial consultants. You pay an advance fee in advance to ensure that your consultant is available any time you need advice or assistance.
Advance rates are normally calculated the same way as project fees, but if you hire a consultant with a monthly advance, you can get a discount on the fee. Monthly advances guarantee the consultant a regular flow of income without having to spend additional sales and marketing costs to get a project with you. You can take advantage of this type of offer once you've put a consultant to the test after a month or two, or once you've covered the full scope of the project. That said, some consultants are only available for advance agreements; since this is an initial investment to explore the business and its needs, a long-term commitment may be necessary.
The best option you have is to pay based on the value that the consultant brings to your business, not just the time you dedicate to it or the materials you give it. Finding the right solution for your business can be extremely difficult, as navigating the consulting landscape is a challenge when you don't have a reliable reference or a sufficient budget for one of the industry's top gurus. See my extensive guide on how to find and evaluate a consultant to help you expand your business. Let's take a closer look at each of these factors in the following sections.
The market rate refers to the average market price or what customers typically pay for certain products or services. While this does not serve as a mandatory limit for your prices, determining the market rate is crucial for structuring consulting fees. Lower quantities tend to suggest longer iterations, that is,. Set aside at least several days for a training plan, training course, or monthly consulting advance.
Or work with small companies in consulting and implementation roles, that is,. Marketing campaigns, help with hiring, general high-level strategy. As stated above, the type of relationship would determine the rate, since the longer the plan, the higher the final amount, the less time spent on discovery or pre-sale, and better long-term financial planning. Some of my colleagues sell one-time consulting calls and then sell their other services through their agencies or partners.
Others have a minimum limit of “one day” or some other arbitrary amount of work that they consider a minimum requirement to perform a job. This can include other factors, such as having to travel to work or doing video training for internal departments. According to The B2B Marketer, there are usually two types of consulting hiring, which are the project and the service. The type of consulting contracting project is not usually recurring, while the type of service is recurring.
The services provided by consultants are linked to some expectations in terms of return on investment. Professional business consultants typically focus on strategy and direction, managing the work of larger departments, analyzing metrics and the existing roadmap, identifying opportunities for monetization or automation, and supporting company retention rates. Working “on a large scale” and impacting a larger number of people or directly supporting a company's revenue objectives usually generates much more, which also justifies a high consulting rate. While this isn't set in stone, high-priced consultants often offer external opportunities and benefits that low-cost consultants charge more (or simply don't offer).
Sometimes, it can be an invitation to a mastermind, a business event you organize (or a conference), a private Slack community, a free promotion at events, and many other factors included in a larger package. Consultants who offer low prices often lack these types of additional benefits, so clients will end up looking for their own community or investing more in networks through their own initiatives that have not yet been proven to work. If you think that a consultant has something to offer besides their expert advice, which is of great value, consider this when deciding which consultant to work with. This is especially true for consultants who don't offer full-time consulting (at least they charge by the hour) but who run agencies, a course program, invest in other businesses, etc.
This income comparison also aligns with the hourly rate they decide. At DevRix we offer a large number of consulting and support services, which means that we need team members to collaborate together, meetings within the team (Slack or Hangouts), implementations for customers, launching new versions, monitoring maintenance and uptime, etc. Since we serve customers in 17 different time zones in a team of more than 50 people, that's important. Experience in a niche market can be truly invaluable when choosing a business consultant to partner with.
For example, while working with companies in marketing, technology, hiring, management, and general business strategy, I receive frequent inquiries from SaaS companies or companies eager to enter the WordPress space. I have been leading a team of more than 50 people for a decade creating WordPress projects on a large scale and I am very familiar with the market, its leaders, the main companies and suppliers, the developers of plugins and themes, the evolution of the platform, how companies can succeed, the media open to public relations opportunities and much more. My extensive experience in this field, combined with my experience as a speaker at WordCamps, can be much more valuable to companies that don't understand space. Several hours of my time would amount to more than a decade of working almost full time in this environment, and this can literally save months for a company that is navigating space.
That said, consultants are valuable professionals, and their conditions are often clear. Underestimating consulting fees for a one-off project (or a couple of calls) sends the wrong message and can affect the quality of the service, even if you receive a discounted rate. However, in the case of long-term projects, there may be some room for negotiation. Some of my clients allocate annual budgets and plan their consulting sessions accordingly.
Concluding an annual contract with a fixed number of hours per month is a good justification for introducing a discount for work. In addition, in the case of larger contracts (such as training courses or similar), it may also be an option to purchase a large number of hours at a lower price. The consulting industry is growing rapidly and there are many consultants from small businesses and small niche firms that work fast and can work directly with growing companies. Some companies stagnate at some point and need external advice to continue growing.
With hundreds of millions of companies in the market, common ground is being discovered in different segments: services versus. What works for a 20-person tech store won't work for Target or Walmart. Smaller companies are still trying to discover the most cost-effective and repeatable channels that generate revenue; think about business development and generating leads. Large corporations tend to hire specialized consultants for areas of expertise outside their own comfort zone.
Think about integrating a specific technology or implementing an innovative marketing channel. Digital transformation is an important aspect for many people who have positioned themselves mainly locally, including printing and billboards as marketing tools. In addition, the world's best athletes and many Fortune 500 CEOs work with coaches and mentors. Make sure you know the issues your company is facing before hiring a consultant.
Have a budget and realize that a good consultant can grow your business and change your life, but a bad one can simply waste time and money. Mario Peshev is a global business advisor for SMEs who has been named the next Tony Robbins and the best tactical strategist in existence, apart from Neil Patel. Peshev was born in Bulgaria and gained diverse management experience through his training work in Europe, North America and the Arab world. With more than 10,000 hours of consulting and training for organizations such as SAP, VMware and CERN, he has been helping hundreds of SMEs to grow at different stages of the business lifecycle.
I'm active on several social media platforms, so if you want to connect with me, feel free to send me a friend request or follow me. I'm always happy to connect with like-minded people. Clients may perceive you as a high-level person in the consulting market or self-employed, and may decide to settle for an alternative with less experience but more affordable. That's the beauty of consulting and freelance work: you can play with numbers to make them work for you.
Timely calls tend to be more expensive, since there are back and forth and the total amount is not very interesting for most consultants. If you're offering a 1-hour consulting session, consider the amount of preparation work needed and whether your client will be able to submit any follow-up questions after the consultation. You charge based on what matters most to your client, %3 times the results and the results you'll create for them. Consulting Success's consulting fee calculator provides a great starting point to help you calculate how much to charge to earn the amount of money you want each day, month and year.
The above tips, along with the processes below, should help you decide how much you will charge for your consulting services and in formulating a pricing guide for consulting firms. .
