Emily felt embarrassed pitching her new client for work. ‘If only I had confidence about what to charge’, she thought. ‘I need a ‘Consulting Fee Calculator’ to help me feel less awkward’.
When I started out as a freelance consultant, I had to get over a few internal gremlins. Firstly, there was no security. Effectively I had become a 100% commission only sales person. This was a significant shift in thinking, and I had to ‘feel the fear and do it anyway’ if I was to build up a sustainable practice. The next hurdle was getting to grips with everything it takes to run a small business; from VAT, to corporation tax, to working out how much to take as salary versus dividends. This required a bit of upfront time investment, but wasn’t actually too bad. Gremlin number three was centred around whether to have a value proposition or not. Some people advise that the best approach is to simply talk to everyone and then see what needs doing and do it, whilst others advocate having a niche, or even a micro-niche, and promoting your services within it. That took me a little while longer to resolve, but eventually I found the balance that works for me.
The last gremlin was about how much to charge customers. Even if you charge for a project, you will build your costs up based on an assumption of the time it will take to complete the task, so everything boils down to ‘what should I charge per day’ in the end.
I have since discovered that I am not alone. Many successful consultants struggled with this at the beginning, and those newbies I talk to on a regular basis find this one of the most difficult things of all. Somehow, a feeling creeps in that what you can do for them is not that hard for you, so you feel a slight embarrassment in asking for what seems like a lot of money. When you are starting out, you are just grateful that anyone should want your services too, so you feel that a lower price is a good thing. After all, you don’t want to appear to be money grabbing, taking the piss, or the worst possible scenario, be priced too high so that they don’t go ahead with you. The thing is though, when you are new at it, you don’t really know what is too high. And it’s probably only you that thinks you will appear money grabbing.
The best way to get over these fears, so that you have confidence in pricing for a project, is to think logically about it. I am very surprised at how few new consultants put together a spreadsheet with all their costs, the number of days billing they are likely to have per year, and the amount they are used to earning. Being a self employed consultant is just the same as running a business – you need a plan. A plan for your business, including business development/marketing, targets per month, and above all, a cost model.
I constructed the calculator below so that anyone struggling with this topic can model a number of variables, and project what their minimum day rate needs to be. Explanations for the cells are below the calculator.
I hope this is useful and helpful.
- Input cells are green. Change them and the totals will automatically recalculate.
- The green cells are pre-populated with numbers so that there is something to start with. It should not be inferred that these numbers are correct. Add in the numbers you will realistically need in your business.
- Before you became a consultant/freelancer you would have earned a salary (plus bonus maybe) from your employer. What was it gross? Or what would you like it to have been?
- For your country, add in the number of days that are public holidays when no-one is working. In the UK it is 8, but in other countries this will be different.
- How many days will you take as vacation during the year? 25 days (or 5 weeks) has been added as this is standard in the UK. You may want to take more, or fewer. Change it to reflect what you’d like it to be.
- The number of potential working days a year is calculated for you
- The day rate equivalent for every possible working day is calculated for you
- How many days per month do you think you will reasonably bill?
- Being a freelancer/consultant means you need to constantly generate new leads for new projects. How many days per month will you devote to business development?
- You are running a business, so will need a few days a month on admin, proposal writing, chasing invoices, writing blog posts, marketing, etc. How many days a month will you devote to this?
- This will calculate the number of days per month and year you will be working. Business development days and practice management are both working days on which you should be paying yourself.
- Make sure that the two orange cells have the same number in them. If not, adjust your billable, business development and practice management days so they match the total available working days total above.
- Now add in the estimated costs of managing your business
- When you were working for an employer, it is likely they were contributing to your pension, and providing you with medical insurances. You deserve to be contributing in the same way to these. Change the pension percent to whatever you want it to be and the total contribution will automatically update.
- Practice management and business development totals are calculated automatically based on the number of days you specified above, multiplied by the day rate equivalent above.
- If you were running any other type of business, you would think in terms of the business making a profit after it has paid all of its costs. There is no reason why you should not do this as a freelancer/consultant. After all, by nature, this type of work can be very lumpy, and retaining funds within the business is sensible to smooth out the peaks and troughs of cash flow.
- If you work directly with customers then the Day Rate is calculated for you
- If you work through an agency, or umbrella company and they take a percentage of your billings, then add the percentage of the total that they take
- The final number is the day rate you need to charge a customer through the agency
- This calculator is for example only, to help in your planning, and does not constitute any form of advice, nor does it negate your need to seek any specific advice from your accountant