Strategic CIO
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12/10/2013
11:00 AM
Deron Lespoir
Deron Lespoir
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Consulting Fees: How Much Are You Worth?

The art of naming your price is a skill all IT consultants should master. Here are six things to consider before taking your next gig.

Setting an hourly rate is part art and part skill. Set it too high and you risk pricing yourself out of an opportunity; set it too low and you risk miscalculating your worth and losing out on a lot of money. Your goal is to land in the "Goldilocks Zone."

It's common to forfeit a sound business strategy in favor of the highest rate. I've been guilty of this, too. Here are six tips that every IT consultant should consider when determining how much to charge for a project.

[ Toying with leaving consulting for a full-time job? Read more: IT Consultants: Is Full-Time Work For You? ]

1. How strong is the team?
Determine whether there are enough people to complete the project well and on time. A sufficiently staffed team is a good indicator that the client is familiar with the costs of executing a successful implementation. 

After you fully understand the scope of the project, think about whether the current headcount is adequate. When working with a skeleton crew, expect increased pressure, long workdays, and occasional weekends. Don't count on overtime; it's usually tedious to get approved.

2. Know the leadership.
Identify the implementation partner. Does the client have an external change management team? Is there an external project manager? This is very important. I have found that a project is 10 times more likely to succeed with experienced, dedicated resources. Anticipate that employees who are assigned to your project might be pulled away for conflicting commitments and unanticipated needs. Once this starts, it tends to be self-perpetuating.

3. Consider the client's location.
Although you can typically expect to get competitive rates from companies located on the East and West Coasts, hourly rates in the South -- Texas and Florida, for example -- tend to be 10% to 18% lower, I've found.

4. Understand the reimbursement policy.
Find out if you will be responsible for your own expenses or if the client has a reimbursement program. It can be difficult to make money on the road. As a general rule of thumb, add $25 to your hourly rate if an employer asks for your all-inclusive rate, which covers expenses such as flights and hotels.

5. What's the onsite-to-offsite ratio?
How many days are you required to be on site? This is a key variable in maximizing your actual compensation. We all know that whenever you leave your house, you start to lose money.

I once took a 36% rate cut to work from home and was truly astonished when I saw how much faster my bank account grew compared to when I was working at the higher rate but commuting. Always remember the benefits of working from home. 

6. Know your role.
Will you be leading and managing the work of others, or will you be working as part of the team? More responsibility means more money. Although you might not be a team leader, consider your scope of work. Is it possible that you will be asked to perform tasks outside your scope of work? Is a project plan and schedule in place? Is the work properly focused, sharply conceived, and tied to smart and doable deadlines?

Set your fee based on all these variables. Treat repeat clients differently than those you try to land for a one-shot project. Some projects might enhance your reputation, bring you favorable exposure among new audiences, or lead to a long-term or high-volume relationship.

As Charles W. Eliot said long ago, "All business proceeds on beliefs, or judgments of probabilities, and not on certainties." Trust your instincts, probe deeply before you make your wagers, and remember that unless you take chances, you might miss out on invaluable experiences and rewards.

The use of cloud technology is booming, often offering the only way to meet customers', employees', and partners' rapidly rising requirements. But IT pros are rightly nervous about a lack of visibility into the security of data in the cloud. This Dark Reading report, Integrating Vulnerability Management Into The Application Development Process, puts the risk in context and offers recommendations for products and practices that can increase insight -- and enterprise security. (Free registration required.)

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thuky
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thuky,
User Rank: Apprentice
12/12/2013 | 8:00:51 AM
Travel expenses additional
I always let the client know that travel is additional and will be charged per actuals.  I generally use the local Starwood hotel so I can have some of the facilities I would have at home - such as a gym and in-house restaurant.  I have never had a problem with this approach.  As the expenses are separated from the compensation I find I can live a decent lifestyle on the road.
Sacalpha1
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Sacalpha1,
User Rank: Strategist
12/12/2013 | 1:34:01 AM
Re: reimbursement
I have to agree with the other post on here about travel expenses.  $25 per hour for travel expenses is very low unless you working 60+ hour weeks is part of the arrangement.  I have estimated expenses as an hourly component in a number of locations around the northeast, midwest, and south.  The lowest rate I have ever calculated was $35 per hour and $40 to $50 per hour is the most common range.  Please don't publish rates that have not been properly researched.  If you are going to publish something, then it's much better to use a range.  Some idiot will qoute your article or ones like yours as the reason they won't pay reasonable expense rates.
Deron Lespoir
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Deron Lespoir,
User Rank: Apprentice
12/10/2013 | 5:35:25 PM
Re: reimbursement
Estimating travel expenses will certainly vary from project to project. The intention behind setting a dollar value is really a tool to help you see your rate in parts and not as a whole. Similar to Lawyers and Mechanics, I consider my base rate (labor) + the complexity of the project (see number 1, 2 and 6 in the article) + Location or Travel related expenses (see numbers 3, 4 and 5 in the article) = my rate.
Kristin Burnham
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Kristin Burnham,
User Rank: Author
12/10/2013 | 1:48:25 PM
Re: Supply and Demand too
That's a good tip, too. Consider how in-demand the skill set is before you set your rate. And I love the Bitcoin reference.
Somedude8
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Somedude8,
User Rank: Ninja
12/10/2013 | 1:08:44 PM
Supply and Demand too
If a super specialized skill is needed, or some very unusual set of skills, and you happen to have it, you can get a much higher rate than for say, a PHP developer.

I mostly work in a fairly niche language, and see supply and demand cause big swings in market availability and rates, due to the smaller talent pool and smaller demand. The rate I can get today may be half what I can get in 3 months, or double. Kind of like Bitcoins! Well, not that crazy.
pelmech
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pelmech,
User Rank: Apprentice
12/10/2013 | 12:56:34 PM
reimbursement
I try to work from home when I can but travel is a large part of my consulting and I think the $25 per hour for reimbursement for a 40 hour week is low.

For travel with a rental car and airfare, $1600-$2000 per week is an average for my current assignment and that is staying at inexpensive hotels and only a per diem rate for the 4 days on site, not the travel day included.

 
pelmech
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pelmech,
User Rank: Apprentice
12/10/2013 | 12:56:27 PM
reimbursement
I try to work from home when I can but travel is a large part of my consulting and I think the $25 per hour for reimbursement for a 40 hour week is low.

For travel with a rental car and airfare, $1600-$2000 per week is an average for my current assignment and that is staying at inexpensive hotels and only a per diem rate for the 4 days on site, not the travel day included.

 
Whoopty
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Whoopty,
User Rank: Ninja
12/10/2013 | 12:25:44 PM
Re: Onsite vs. Offsite
I've always worked from home so have never considered cutting my rate, but if someone wanted me to commute I'd certaiinly be putting my fees up to compensate for the fuel and time involved - potentially some mental anguish costs if I had to deal with traffic too.
Deron Lespoir
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Deron Lespoir,
User Rank: Apprentice
12/10/2013 | 11:49:25 AM
Re: Rate Comparison
In IT, a trainer typically commands a higher rate since they tend to wear many hats. Instructional & Curriculum Designer, Technical Writer, Systems tester, Administrator, Project Manager and Trainer, can all be part of a trainers job.
anon4747734229
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anon4747734229,
User Rank: Apprentice
12/10/2013 | 11:40:20 AM
Rate Comparison
I didn't know you could have repeat clients. Is this a norm? Thanks!

Separately, stating my rate has always been pretty challenging for me. I know there are some seasoned consultants who have this to a science. I'm guess this also depends on the type of work you are doing. In general, does anyone know which rate is higher, instructional designer, trainer or technical writer? Thanks!
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