Career Readiness — Part 1: How to Set your Consulting Rate
Numerous factors influence organizational staffing decisions. To drive its strategic outcomes, an organization may hire internal staff or outsource deliverables to external hires (freelancers, independent consultants, firms).
And, due to COVID-19 implications, professionals are reinventing their career paths as consultants or business owners. If this is applicable to you then the following could be useful to you as you set your consulting rate.
4 Tips to Set and Justify your Rate
- Loaded Rate: The consulting assignment would normally not include the benefits (PTO, health insurance, etc.) provided in full-time employment. And, unlike a full-time employee, your only point of negotiation is your rate. To calculate your loaded rate, simply add 15–30% to the full-time compensation for similar positions. Alternatively, you can use one of many online resources to calculate this rate.
- Level of Effort: Generally, level of effort (LOE) describes the anticipated number of days/hours per assignment. As a consultant, what you are being asked to consult on “may be of a higher level of difficulty than your former job, and if so it would merit higher compensation.”
- Market Rate: According to my mentor, “other consultants doing the same tasks may be getting more.” Explore if you can find out if this is the case. Your professional network (and sites like Glassdoor.com and Indeed.com for US markets) can offer you this data to help you make an informed decision.
- Your Existing (Established) Rate: “Your own compensation record for consultancies” is a justifiable reference point to set future rates. This is applicable for daily or hourly rates but is particularly relevant for per-project (fixed) pricing.
Per-Project Rates. Per-project pricing could be determined by either you or the client. To negotiate and/or determine your per-project rate, tracking your time for each assignment (time blocking on Google Calendar or a simple Excel spreadsheet are excellent, cost-free tools to use).
This evidence-based approach will enable you to (a) determine how much time you spent on similar projects (your LOE), and (b) enable you to set an informed and justifiable per-project rate, based on your knowledge of your own working style and level of effort required to complete a specific project.
Leverage. While the above considerations can help in setting a rate as well as negotiating it effectively, “it is always important to have a ‘best alternative,’ that is another job or consultancy that you are prepared to take if the employer [client] can’t meet your lowest demand.”
COVID-19 Negotiation Considerations
In the global development industry, “independent consultants appear to be hardest hit, making up 43% of those who report having lost their job, saying the contracts they usually rely on have been canceled or are hard to come by.”
On the one hand some companies may elect to hire freelancers to lower their operating costs. On the other hand, consultants/freelancers may not have much negotiation room or leverage when negotiating a new consulting opportunity. And, depending on your goals and objectives, you may decide to ask for what you deserve and then accept a lower amount if it is better than other offers.
Another consideration is whether the opportunity you are offered is a survival gig. If you find yourself in such a predicament and decide to move forward with the lower offer, then consider approaching this outcome with an abundance mind-set:
- Will accepting a lower offer in an area in which you have limited or no experience possibly act as a stepping stone for you?
- Will working with this client open the door to additional opportunities for you? And, consequently enable you to negotiate a higher rate on a future assignment either with this client or future clients?
Ultimately, this calls for reflection on your part.
Negotiate to Effectively Manage your Career
As a freelancer/consultant, you are offering your services (time, skills, and expertise) and may present your rates as hourly, daily, retainer, or per project. And negotiating your compensation is an important step to take when effectively managing your career.
A successful rate negotiation is one that results in an optimal result for the two parties involved: the client and the consultant. When aligned, and combined with a successful assignment, it often results in a fruitful and long-term professional relationship.
For consultants, an established rate can potentially help you succeed in gaining equitable or competitive pay when/if returning to full-time employment.
Disclaimer: Unless otherwise stated/referenced, the above opinions and recommendations are my own and do not reflect those of my former or current organizational affiliates. The above content is for information purposes only; I am not liable for any decisions made or actions taken as a result of using this content. Please rely on your discretion and research when making personal/professional/or any other decisions.