Calculating Your Hourly Rate for Consulting
We often get inquiries about what the ‘going rate’ is for consulting projects, and here’s our advice:
1. Figure out what your time is worth.
Hourly rate calculations usually assume 1800-2000 working hours/year. You can use this formula to back into an hourly rate based on your annual salary. For example, the hourly rate for someone earning $150K would be roughly $75-85.
If you’re moonlighting on a short-term assignment, this is a good metric. If we’re talking about full-time freelance as your only means of employment, you may choose to add 10-20% to offset benefits afforded to permanent employees. This assumes you’ll be covering your own healthcare costs, vacation time, etc. Ditto for any tax implications. In this scenario, hourly rate is $85-100.
2. How to bill for your time.
Depending on the project, it may be favorable to use a day rate or flat fee. Many employers find this a bit more palatable, but it depends on accurate scoping of the deliverables.
Before you suggest an hourly rate, find out what they have in mind so you can price yourself accordingly. If your rate seems out of whack given the deliverables, or what they’ve paid for similar assignments in the past, you may want to re-evaluate.
If there is a gap between what you’re comfortable charging, and what they’re willing to pay, consider what you can provide for the budget they’ve outlined. This could mean you peel off some of the less critical deliverables, or bring in lower-cost sub-contractors so you can achieve the margins you want.
3. Time and opportunity cost considerations.
The length and complexity of a project may also influence your pricing. Perhaps you’re willing to negotiate your rate a bit for the promise of 6 months’ worth of work. Or you may decide to charge a premium if the assignment is less predictable, and will cause you to forfeit other consulting opportunities. Likewise for intense, deadline-driven projects that require long hours, involve multiple stakeholders, etc. We call this hazard pay, LOL.
Finally, bear in mind that your rate will set the standard for future work you do together. For example, in a freelance-to-perm scenario, you want to make sure your freelance rate converts to an acceptable full-time salary.
Feel free to reach me at firstname.lastname@example.org with any of your freelance questions. We’re looking for a couple freelance digital project managers right now!