How,You,Set,Consulting,Fees,am business, insurance How Do You Set Consulting Fees?

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How Do You Set Consulting Fees?by J. Stephen PopeOne of the most frequent questions I receivefrom those who are trying to start or growtheir own consulting business is: "How andwhat do you charge clients for your consultingservices?"The ways of billing clients are numerous.There are hourly rates, by-the-job fixed rates,contingency or performance arrangements,flat fee plus expenses, daily fee plus expenses,and many other methods of charging for yourconsulting services. Which one is best?Let us consider some ways of billing for yourtime.1. Hourly or Daily RateMany consultants charge by the hour or day.To establish an hourly or daily rate, they tryto calculate the number of billable hours in ayear. Many hours will be spent marketing and inadministrative and other functions, so thistime is not chargeable to the client. As well,vacation time, holidays, sick days, and so on,can not be directly billed to the client.Consultants, like other businesses, must chargeenough to cover their overhead expenses and alsoearn a profit. If a consultant wants to earntwenty-five dollars per hour of working time,he (or she) might have to charge one hundreddollars per hour to the client. This assumesone half billable hours and fifty percentoverhead and profit.Your hourly or daily rate may be limited bywhat your competition charges, especially ifyou have not positioned yourself as differentfrom them.2. Fixed or Flat RateSome consultants charge by the job or a flat rate.For example, a tax consultant might charge threehundred dollars to prepare a tax return foryou and your spouse, including an unaudited income statement for your business from informationsupplied by you. If the consultant takes only onehour to do this, he grosses three hundred dollarsper hour. If, though, the tax consultantmiscalculates the time required, he could taketwenty hours to complete the job and make onlyfifteen dollars per hour.Of course, consultants can also make a profit onthe labour of their employees or subcontractors.Many consultants claim to make more on a flat ratethan on a hourly basis. Advantages include beingable to give a quote to the client up front andless disputes on price (as the total bill wasagreed upon in advance). To protect yourself on flat rate assignments,always limit the scope of your engagement tosomething that you can calculate easily.For example, if you are asked to give a quote for setting up a website for a business, youmight break this project into smaller assignments.First, you could give a quote for preliminaryresearch and recommendations. Estimate the timerequired to meet with the client, learn abouthis business and goals, develop strategies and abudget, and prepare recommendations on how toproceed. Then, give the client a quote (perhapsin the form of a one page letter agreement orproposal). Upon acceptance of the offer by theclient in writing, you may proceed with thisphase of the project.Some consultants collect one-half of their feeup front and half upon assignment completion foreach phase of the consulting project.If the client doesn't like your recommendations,at least you get paid for the work you did.Perhaps you can charge him to preparealternative suggestions.If your website project was not broken intosmaller steps or assignments, you could findthat you spent way more time on the projectthan anticipated. Also, you might not find out until you presentyour bill for the whole project that your clientwon't pay, either because he is not satisfiedwith the results or because he is unable orunwilling to pay.Breaking down a project into smaller assignmentshelps you estimate more accurately and limitsyour financial exposure.3. Contingency or Performance ArrangementsSometimes clients will ask you to become theirpartner. If you do, you are no longer anobjective consultant.What if your client asks you to do managementconsulting for twenty-five percent of the netprofits? Will there even be any profit by thetime he writes off his car, home office,entertainment, travel, wages to self andfamily members, and other expenses? On the other hand, if you are a marketingconsultant that is absolutely certainthat you can increase a client's sales, youmay feel confident charging a fee based on theincreased sales volume of the client. Are yousure your client will co-operate with you inthe attaining of this goal?Some consultants charge a flat rate plus apercentage of ownership or profits for theirservices.Fees based on contingency or performancearrangements are risky. Most consultants arebetter off charging a fair price for theirservices and leaving the risk of the client'sbusiness to the client. 4. Value Based FeesSometimes consultants can justify fees based ontheir value to the client. For example, if yousave a client one million dollars in taxes, yourfee may be higher than normal to reflect thevalue of the services rendered.You might pay an accountant or lawyer a fee offifteen hundred dollars based on time for certaintax related services. What would you be willingto pay to legally save an extra million dollars in taxes? Ten thousand dollars, one hundred thousand dollars, or more?Can you apply this information to your ownconsulting practice? Is there some particularlyvaluable service that you can render that wouldjustify premium rates?However and whatever you charge, be sure that your fee is a good value for your clientand also compensates you fairly.For further Information and resources aboutconsulting, visit:http://www.yenommarketinginc.com/consulting.html*********************RESOURCE BOX*********************J. Stephen Pope, President of Pope Consulting Inc.,http://www.popeconsultinginc.com/ has been helping clients to earn maximum business profits for over twenty years.For more valuable Work at Home Business Ideas, visit: http://www.yenommarketinginc.com/Subscribe Free to Moneymaking Business! at: http://www.yenommarketinginc.com/subscry.html ************************************************* Article Tags: Consultants Charge