How much to charge an ex-employer?

July 4, 2006 10:45 AM

How much should I charge as a consultancy rate to my ex-employer?

I've recently resigned (amicably) from a full-time job to become self employed. My old boss has raised the possibility of my coming in from time to time to help out, whilst I get my own business up and running and the extra cash will certainly be helpful. My quesetion: should I just charge my old salary divided by 365? What sort of mark-up could/should I add on in consideration of my changed circumstances?

Oh, I'm in the UK.

posted by dogsbody to Work & Money (11 answers total)

Work out the hourly rate you made when you were an employee. Double that for your "friend rate" as a consultant. Triple it for everyone else.
posted by solid-one-love at 10:58 AM on July 4, 2006

Well, not divided by 365 because you didn't work weekends. 260 is more like it. Then double it because you're a consultant.
posted by jon_kill at 11:00 AM on July 4, 2006

definitely not your old salary / 365! As you're setting up your own business, make now the time to work out what you want to be earning per hour - this needs to cover the salary you want to earn plus any extra you feel you need - holiday pay, a cushion in case you become ill, for example. You should also have an eye on what other people in your field charge - perhaps ring one or two pretending to be a potential customer and ask for a quote?

Good luck!
posted by altolinguistic at 11:00 AM on July 4, 2006

The rule of thumb in the US is double your hourly equivalent salary. Ie: if you made $10,000 a year, that'd be about $10 / hour.
posted by Nelson at 11:01 AM on July 4, 2006

dogsbody, it might be deliberate but do you know that the link to your website is b0rked in your profile?
posted by ceri richard at 11:03 AM on July 4, 2006

ceri, it's a slash problem: should be '//' and not '\\'

dogsbody, I had a similar experience, however, I knew what they paid to other consultants. This allowed me to charge them a full consultancy fee without feeling bad and business is, well, business.

As a rule, I decided that I wanted to work 40 weeks per year (I like my holidays), and a five day week, so I'd be working 200 days per year. Or for a 35 hour week, that's 1400 hours per year.

I worked out how much I needed to earn to cover my business outgoings (bills, loans, rent etc.), then added to that my personal outgoings (bills, loans, rent etc.).

I then divided that figure by 1400 to get a basic hourly rate that would allow me to break even.

I then doubled that rate to get my minimum hourly rate. Not very scientific but hey, it works.

In addition, whenever a client asks about rates just ask how much they've budgeted for the project. You usually find that they're willing to pay more than you expect!

Oh, and have you thought about allowing people to buy some of your work online?
posted by Nugget at 11:35 AM on July 4, 2006

Response by poster: Thanks for the highlights on the schoolgirl errors (365 days includes the weekends [doh], slashes go this way // not that way // [double doh]). I must look like the most desperate n00b!

I should point out that my old job was completely different from my new artistic venture (office-based and very dull). I don't think, they'll be needing that much (a few days a month at most).

Nugget - I started trading in my own right on Saturday (July 1st) so the website is barely more than a glorified gallery right now. Hopefully, I'll be able to upgrade it over the coming months to do some e-commerce-tastic stuff!
posted by dogsbody at 11:51 AM on July 4, 2006

dogsbody - nice shots of James Marsters. He looks so much older to me with dark hair. What play was that?
posted by FlamingBore at 12:54 PM on July 4, 2006 [1 favorite]

Remember to charge quite a bit more for taxes if nothing else. You should expect to pay about 30% off the top for income as a consultant / contractor.
posted by Riemann at 1:14 PM on July 4, 2006

Response by poster: Thanks all for your comments. My instinct was that I would be justified in charging more than my equivalent when I was employed (no matter how dodgy my maths was). Thank you for pointing out the various justifications for this.

Thanks also, to Nugget & FlamingBore for comments on my website - didn't really feel it was appropriate to PepsiBlue-ise a post on finance into my new commercial venture. Please feel free to email me, however, if you have any more comments.

Thanks all

Dogs
posted by dogsbody at 2:10 PM on July 4, 2006

Have you looked at some of the past consulting fee posts? See here, here, and an answer I gave here. My profile also has a link to an article I wrote on setting consulting fees.

That being said, I generally recommend averaging a multiple of your usual (hourly) salary rate, the going rate in your field, and a real-life analysis of what you need to charge. They're probably all in the same ballpark.

Also, I tend to provide a slight discount for clients I like. If you like your old employer, they add credibility, they provide steady work or otherwise fill a need, it's reasonable to discount a little bit. Yeah, it isn't a scientific way to set your rates, but, really, I can't say enough about the value of clients who meet your needs in some way. Also, if you didn't have to incur a lot of costs to win this client, you're not really losing money by discounting a wee bit. Can you turn them into a credible reference or something? But just a little discount -- don't give it all away.
posted by acoutu at 2:49 PM on July 4, 2006