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.

Deron Lespoir, Managing Director & Principal, Ron Les

December 10, 2013

4 Min Read

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.

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About the Author(s)

Deron Lespoir

Managing Director & Principal, Ron Les

Deron Lespoir is the Managing Director and Principal at Ron Les, a training and instructional design firm that specializes in large-scale SAP implementations for public- and private-sector organizations. Lespoir's InformationWeek columns cover effective corporate training strategies for large-scale ERP implementations, project management, dynamic consulting, and small business marketing. 

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