As a consultant, how much should I charge?
July 10, 2017 1:19 PM Subscribe
Slight twist on a relatively common question. I'm a professional consultant, and while I still have a day job with benefits, I charge $500/hr. for my consulting time. Currently, I am doing about 40 hours/year of consulting with the hope of increasing that number as I approach retirement from the day job.
My problem is that my expertise is rare (not a lot of competition) but due to 25+ years of experience, I'm very, very good and efficient at what I do. That is to say that what used to take me 4 hours of billing will now take 30-60 minutes to complete. How do I incorporate *experience* into my billing structure without getting short changed? My clients are typically attorneys and are used to hourly billing; I don't think they'd be too receptive to per case billing (e.g., $5000/case or similar). Any ideas?
My problem is that my expertise is rare (not a lot of competition) but due to 25+ years of experience, I'm very, very good and efficient at what I do. That is to say that what used to take me 4 hours of billing will now take 30-60 minutes to complete. How do I incorporate *experience* into my billing structure without getting short changed? My clients are typically attorneys and are used to hourly billing; I don't think they'd be too receptive to per case billing (e.g., $5000/case or similar). Any ideas?
Obviously I have no idea whether sufficient demand for your service exists for you to ratchet up your consulting practice by several (maybe even tens?) orders of magnitude after you retire. But what if it can't? You can use your current efficiency to ready yourself to offer a broader menu of services at that point.
Think about how to use your current ability to bill for more time than a task takes you to expand your expertise and/or client base: it's a form of subsidization. So if task x takes you 1 hour but the market tolerates billing for 5, can you also offer clients service/task y, for which you may not be as efficient yet? For example, if task y takes your more efficient competitors 2 hours but takes you 4 hours, you could bill anywhere from 5 hours for both tasks x and y (fair to you, makes you look great relative to your competitors) to 7 hours (extra 2 hours of profit for you, on par with market expectations).
You would be forgoing profit today (being able to bill 5 hours for task x that only took you 1 hour) for expanding income potential tomorrow based on your newly acquired proficiency at task y. Moreover, you'd also be potentially staving off boredom or inoculating yourself from a radical change in the market or competitive landscape, just as your decision to make yourself available >40 hours/year changes matters for your competitors. In the long run, you'll reach par levels of efficiency with task y, then lather, rinse and repeat with task z.
posted by carmicha at 1:45 PM on July 10, 2017
Think about how to use your current ability to bill for more time than a task takes you to expand your expertise and/or client base: it's a form of subsidization. So if task x takes you 1 hour but the market tolerates billing for 5, can you also offer clients service/task y, for which you may not be as efficient yet? For example, if task y takes your more efficient competitors 2 hours but takes you 4 hours, you could bill anywhere from 5 hours for both tasks x and y (fair to you, makes you look great relative to your competitors) to 7 hours (extra 2 hours of profit for you, on par with market expectations).
You would be forgoing profit today (being able to bill 5 hours for task x that only took you 1 hour) for expanding income potential tomorrow based on your newly acquired proficiency at task y. Moreover, you'd also be potentially staving off boredom or inoculating yourself from a radical change in the market or competitive landscape, just as your decision to make yourself available >40 hours/year changes matters for your competitors. In the long run, you'll reach par levels of efficiency with task y, then lather, rinse and repeat with task z.
posted by carmicha at 1:45 PM on July 10, 2017
Post-retirement, is this going to be your main source of income, 'fruit-on-the-sideboard', or just a hobby? As a post-retirement contractor, it would help to know that (I'm 'fruit-on-the-sideboard'). If the first or second, ramping up from 40 hours may be difficult, but you already have $20k/pa so what you are aiming for may be achievable. If the last, does it really matter?
Over the years I have contracted in many consultants, and while rates are important, the determinant has been the ultimate price, and confidence that this represented value for money. On this basis, if I were you I would raise my rate, but ensure that the price (rate x hours) still undercut what the client would have to pay using someone else. To avoid frightening off a new client, offer an introductory discount (by whatever name) to first-time clients, if you think that might be necessary. I presume you will still be going to conferences, writing articles etc as marketing exercises?
Good luck!
posted by GeeEmm at 3:07 PM on July 10, 2017 [2 favorites]
Over the years I have contracted in many consultants, and while rates are important, the determinant has been the ultimate price, and confidence that this represented value for money. On this basis, if I were you I would raise my rate, but ensure that the price (rate x hours) still undercut what the client would have to pay using someone else. To avoid frightening off a new client, offer an introductory discount (by whatever name) to first-time clients, if you think that might be necessary. I presume you will still be going to conferences, writing articles etc as marketing exercises?
Good luck!
posted by GeeEmm at 3:07 PM on July 10, 2017 [2 favorites]
Meh. It's not about efficiency per se. Bill in quarter or half hour increments. A few emails adds 30 minutes billing. A phone call adds 30 minutes. Include initial discussions, during activity communications and anticipated wrap up and explanatory time. It's not a question of being unfair, but in billing for your overhead. If you feel squirelly about doing it so precisely then simply add 90 minutes to every job as a baseline "overhead" charge. So effectively if the basic job is 30 minutes and you add 90 overhead you now essentially have a 2 hour minimum which is very fair for professional services. Typical professional services consultants bill hour with a minimum project time of 4 or 8 hours in my experience. Source: im a full time consultant.
posted by chasles at 3:43 PM on July 10, 2017 [2 favorites]
posted by chasles at 3:43 PM on July 10, 2017 [2 favorites]
I'm an attorney. I agree that task-based or flat-fee billing is becoming more common. Attorneys are often pretty comfortable with capped fees as well. Consider keeping your hourly rate, but building in both minimum charges and maybe a capped maximum charge as well.
posted by craven_morhead at 8:18 AM on July 11, 2017 [1 favorite]
posted by craven_morhead at 8:18 AM on July 11, 2017 [1 favorite]
This thread is closed to new comments.
I'd rethink that assumption. While not widespread, per-project/service billing is becoming more common in law firms. It's also the perfect solution for your problem, and a common billing method for consultants.
posted by NotMyselfRightNow at 1:27 PM on July 10, 2017 [2 favorites]