Consultant’s Fee Schedule


Setting your fees is one of the single most important business decisions you will make.

Hourly rates are misleading and easily disputed.

CalclulatorIf you are new to consulting you may be tempted to peg your fees on an hourly basis to the equivalent hourly rate of your previous salary. But is that all you are worth? Remember, business must turn a profit to be viable and whatever your previous employer was paying you was at best a third of what “they” thought you were worth to them!

In addition, in our experience, most middle level managers who have taken early retirement or who were “downsized” very likely were underutilized and underpaid to start with.

Just as you may be worried about a potential client expressing dismay at paying, say $250/hr., in our experience they are just as likely to question the value of retaining you if your fees are too low.

So, the reality is that hourly rates are an arbitrary number that is impacted by your overhead and other business expenses. Particularly if you’re dealing with small business owners, they are going to be suspicious of hours, no matter how low or high the rate.

Is there an alternative? Yes . . . several.

First is hourly.  Then there are retainers. Next is payment by project. Then there’s a combination of hourly and retainer or hourly and project. It can be confusing. Rather than make any recommendation at this point, let us tell you how we charge.

We like a flat fee with per diem expenses for travel & meals and reimbursement for any out-of-pocket expenses.

What’s the size of the problem?

Before establishing a flat fee, it’s important to know the value of the project and the scope of the solution that is expected, including all deliverables. If the problem is costing the company, say, $1.6 million per month, you should be able to charge $100,000 or more, assuming you can solve the problem.

If, however, the problem is only costing $20,000, you may want to walk away from it, telling the client that you don’t feel it would be cost effective for you to spend the amount of time and resources required. Offer to help them find a less expensive solution. (Don’t be surprised if they come back and insist you take it on . . . but, that gets us into another subject, sales and posturing for another day.)

Where the problem and/or scope of work are not clear, we offer to approach the challenge in three phases.

  1. The first phase, developing the Program Plan, might cost $5,000. This results in a report with a complete analysis of the problem and specific recommendations for the solution including budget projections. That might total something like $78,400. Also included in the Program Plan is a projection for the Third Phase, the Follow-up Report.
  2. The second phase is Execution, following the Program Plan as developed.
  3. The third phase is a Summary Report and Recommended Follow-Up Action Plan.

The client signs on to the program in phases, one phase at a time. If, for example, the result of Phase One is a report that outlines the execution phase, with a budget attached, the client is able to take the outline and decline any further involvement . . . or, if they so choose, take the outline of the report’s recommendations and execute themselves or contract with someone else to execute.

As for payment, it is important to get some money up front before beginning on Phase One. We typically get 50% of the agreed-upon fee at that time, and collect the rest when the Program Plan is delivered. If the client agrees to proceed with Phases Two and Three, which are likely to be a much larger sum, you may want to schedule payment based on certain milestones in the process.

I might point out that in over three decades using this approach, we have only had two occasions where the client failed to proceed after having received the Program Plan. Obviously, the way it is presented to clients is a key factor in the “Sales Process.”

I welcome your comments on fee setting.  It’s a big subject! In fact, if you have a burning question, let’s talk on the phone.  You can reach me via the Contact Us page.

Joseph Krueger

 

 

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