The Million Dollar Question – What to Charge as a Consultant?

By: Gauri Vasudeva, 22/01/2015

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A lot of us who are new to working independently face the problem of not knowing exactly what to charge, and may often lose projects due to a too high fee level, or end up undercharging. This is also a very common query we get on our discovery and market-making platform for short-term, flexible skills (www.flexingit.com). We saw a gap here and to address that we thought of coming up with a solution that would ease the lives of our users by calculating an indicative fee range for a project. In order to understand the issues better, we conducted a survey with approximately 300 professionals to understand the expectations and pain points of independent consultants from different industries and skills ranging from advertising to consulting and accounting to marketing. We also conducted a similar survey with HR and hiring teams of 30 companies, to see how they approach the issue of determining compensation for independent consultants and project-based work.

So we asked professionals with some experience of freelancing and independent working how they computed the fee or compensation for a particular project. We were surprised with the overall results – only 10% had a fixed quote for each type of service they provide! 35% of the respondents said their fee levels were customised to the project, another 25% took the type of client into consideration before determining a number, and 10% relied on sources, like bids on global freelancing sites and colleagues. 20% of the respondents waited for the client to quote a budget and then negotiate. What was equally interesting was the response from the company side, where we learned that only 20% of the companies have standard slabs defined for bringing on consultants.The vast majority (80%) tailor the compensation for an independent consultant based on years of experience, nature of prior experience and how their skill/role maps into the organisation and its bands among other factors. There is clearly a gap here!

Calculating one’s fee as an independent professional or freelancer is tough without a well established norm or formula, especially in India where this segment of professionals is new. In the past, freelancers were more likely than not to be found in creative, design and information technology domains. While these domains continue to flourish, we are simultaneously witnessing a huge surge in individuals from mainstream professions taking up consulting or part-time assignments. In fact, professionals from core functions like strategy and business development, general management, marketing, sales, research, academia, human resource and finance together account for close to 70 percent of the independent talent pool based on some research we did last year.  (Read more here: http://www.flexingit.com/blog/new-segments-of-freelancers-emerging-20/)
Based on our survey findings, here are some considerations to keep in mind as you think through your professional fees for a consulting assignment.
  • Ensure clarity around overall income expectations vs simply for a project: The very first step for a professional exploring working independently is to be sure of what he/she wants to earn per year from the projects. This will be different if a person is working as a ‘full-time freelancer’ as against as a ‘moonlighter’ where the project based income is a supplementary source of income. As one defines these incomes or return levels, he/she needs to take into account higher marketing and business development expenses incurred as an independent consultant, uncertainty of working independently (utilisation risk!) and the absence of company-provided benefits. According to our survey, full time freelancers expected compensation that was  50- 100% higher than their existing salary or market rate as a salaried employee on an average, whereas moonlighter’s expectations ranged between 20 – 70%. The expectations were also commensurate with experience levels, with professionals with 0 – 5 years expecting 30 – 70% more as a consultant, those with 6 – 15 years expecting a delta of 50 – 100% and with 15+ years of experience expecting 100%+  more as a consultant.From the employer's perspective, we learnt that approx. 70% of the companies are willing to incur an additional cost of 25% on a consultant or contractor over a full time employee for the same project, given the savings on the parameters like training, professional development, seat and infrastructure cost, gratuity, provident fund, LTA etc.There is clearly a need to go deeper into such issues as this industry matures for companies to begin to account for other factors too i.e. greater risk, lower utilisation, etc.

 

 

 

  • Know the time, effort and costs involved in marketing and business development: Being an independent professional one has to account for the higher degree of effort, time and cost for marketing and business development. Getting a pipeline of work and the next set of proposals is up to you, and may need time spent at conferences, research into developing new content and expenses associated with meeting potential clients. Based on the survey, we found that approximately 50% of full-time independent consultants spent over 10% of their income on marketing and client development. It is therefore critical to know the expenses, and time, that go into indirect project work (admin issues, self development and marketing) so that the per-diem for billable hours can be adjusted appropriately. According to the survey results, full time consultants end up spending more time in these areas versus a moonlighter making it more important for them to think through these aspects.
 
  • Clarify how much and how you want to work on: Another core determinant of how to think about fee levels is how much you want to work given capacity available from other commitments i.e. your new venture, personal commitments, a creative passion. The how is equally important and can vary from a preference for locking in a core client with 30-50% capacity to ensure a certain base utilisation to wanting to do a series of short-burst projects one after the other. In the latter scenario, the utilisation risk is likely to be higher and hence should be adequately factored into the project costing. Timing is another consideration. While the majority of companies look for short-term skills when in need for very specific expertise., there is a steady chunk that needs add-on capacity at the end/beginning of a financial year and so certain times of the year may be busier that the rest!
 
  • Get your payment method right: There are multiple ways to charge for your work i.e. per hour or per day, per month, as a % of value delivered or work done, a flat lump sum fee for the project, among others. This has long been a topic of debate and so we asked employers 'On what compensation basis do you generally bring consultants and part time employees on board ?” 37% of the companies preferred to pay consultants on a monthly retainer, 30% had a preference for a flat amount based on the deliverables, with the remaining 33% going for a per hour or day fee.This clearly indicates that companies have a preference for certainly and predictability so this may be the easiest route as a younger professional.
 
Based on the survey findings as well as our research into this topic, we at Flexing It™ have created a calculator(http://www.flexingit.com/fee_calculator/) that will help indicate what a consultant/freelancer should charge for a project on a monthly/daily basis to achieve a certain target income. Our Fee Calculator aims at providing a starting point for how to think about professional fees for a project keeping in mind target annual income as well as the parameters highlighted above. Over time, we hope to add a benchmarking module to this so that consultants can see what others may have charged for projects in similar fields. Do test it out and give us your feedback to strengthen the algorithm even further. Also, in case you would like to participate in our survey on this subject you can do so here:

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