Popular consensus of how last year went is not very positive, but here at EM Marketing, 2016 was our best year yet! Among many accomplishments, EM Marketing Owner Ken Chen and I met with nearly 200 marketers interested in working with us and making the change to consulting.
Consulting can be a big transition. There are many things to consider before you leave full-time work and become your own boss. One of the top questions we often receive from folks interested in consulting is: “How do I determine my marketing consulting rate? What factors do I need to consider?”
We tend to tell people that it’s a very personal choice. There are numerous factors that come into play — some will be of the utmost importance to you and completely irrelevant to another consultant. While quite true, it’s a vague and unfulfilling reply to such a meaty question, and it would be cruel of me to just leave you with that. I reached out to a handful of expert consultants in the EM Marketing Community to get their perspectives and compiled the key takeaways.
Option 1: Translate Annual Salary to Hourly Rate
Commonly, the first piece of advice new consultants often receive is to take their last salary and do simple math to bring it down to an hourly rate.
Example: $100,000 salary/52 weeks = $1,923.08 weekly/40 hours = $48.08 hourly
[or, simply $100,000/2,080 hours per year]
This calculation, though it can be a good starting point, is short-sighted for a number of reasons:
- It assumes you’ll be working 40 hours a week for the entire year — most contracts aren’t that steady, especially when you are first starting out.
- It doesn’t consider the benefits you were provided as a full-time employee (but no longer will be receiving as an independent consultant), such as company healthcare plans, and access to resources, and training.
- You should factor in consultant benefits, such as flexible hours and commute time, control over the projects you take on, and who you work with.
- Think critically about the marketable skills you have as a consultant vs. as a full-timer. Your impeccable ability to climb ladders will only work for construction contracting.
An iteration of the calculation adds in a 25-30% buffer to account for the irregularities and extra expenses that come with consulting. But, those factors above are just the tip of the iceberg when considering what rate you should be charging as an independent consultant.
Option 2: Home on the (Rate) Range
When either starting out fresh in the world of consulting or just enjoying the project variety that this lifestyle provides, having a flexible rate range is important. Perhaps you want to break out into a different industry? Or test your chops as the first marketer in a fast-paced start-up when you’ve only had experience at companies with 5,000+ employees? How do you go about pitching your rate for something like that compared to the kinds of projects you could do in your sleep? You can decide on a minimum rate you will charge for any project, and the upper end is closer to what you would ideally like to make.
The High End of the Range
Here are some questions to ask yourself when approaching a potential project:
- Is this project your “bread and butter?” Do you have a ton of relatable experience to bring to the table? Can you hit the ground running day one?
- Does this work require a ton of brain power/strategy?
- Does the work require knowledge of a particularly unique tool/skill that you possess?
If your answers to the above questions lean more towards yes, then you likely can charge on the high end of your rate range.
The Low End of the Range
On the flip side, here are questions to ask yourself when considering projects that fall on the lower end:
- Will you be learning a potentially marketable skill/tool that you can use for future projects? Will this look good on your resume/portfolio?
- Do you really like the company/project/team? Will it be fun? Is it something you’re passionate about?
- Do you need to put food on the table? More importantly, are we talking Top Ramen, or filet mignon?
Typically, if you’re getting more out of a project than you’d be putting in, you need to be realistic about your market value. Also consider that larger, more established companies often have bigger budgets and more wiggle room than start-ups or small businesses. With that being said, do some research on the overall job market and what other consultants are making for similar projects within your area.
Option 3: Flat Service Fees
Some consultants prefer to have one rate, take it or leave it. It’s not really the best move when you’re new to consulting and building your client base. Here are reasons why you’d want to consider having one flat fee:
- You are top dog in your area of expertise — a “specialty” consultant. Be brutally honest with yourself here.
- In conjunction with the above, you only want to do this kind of work and nothing else. Therefore, a flat rate is a no-brainer. Same fee for the same kind of work, always.
- You are basically a hot commodity and use a stick to beat away the overwhelming number of project offers you receive. Who are you? What is your secret??
- Compare the way you price your services to how your competition does. Some independent consultants do the same kind of work that an agency might provide, and agencies sometimes work on retainer or at bulk project rates.
On the note of a flat rate, clients sometimes work with an overall budget rather than an hourly rate, and may approach you with the large sum rather than an hourly number. If you’re in this situation, estimate how many hours you’ll be putting into the project, then see if their proposal matches your rate (or present them with your proposed sum). When estimating the time involved, be conservative, and keep “scope creep” in mind. If you need to come down, try to shave off some of the proposed work rather than on your actual rate.
The Bottom Line
Setting your rate ultimately is a learning process, as are a lot of things in the consulting world. The point is to start somewhere. With a good head on your shoulders, you’ll get the lay of the land pretty quickly. You can’t make a career as a consultant without being a quick learner.
You might find yourself wrestled down to a lower rate than you wanted for a particularly frugal client, only to realize in the middle of the project that the work is much more junior and “in the trenches” than you wanted to go. Like, seriously you’re elbow deep in the mud with a grenade in your right hand and the pin in your left… How did you get there?
The more consulting you do, the better you’ll know what type of work is right for you. You’ll understand what pay range is your sweet spot (give or take dips and booms in the economy), and what clients you mesh best with.
TL;DR — Useful Calculators
For the nerdy types out there who like number-crunching tools (me!), here are two useful tools our consultants provided to help you quickly and tangibly calculate some of what I just rambled on about:
1. For the whimsical yet slightly concerned: How much should I charge for design?
This calculator is geared for designers (as the title clearly indicates). It gives five relevant questions you should ask when considering a new project. It factors in the size of the client, your passion for the project, and how much — or little — the work will change your life. Yes, it’s kind of asking you to be your own palm reader, and then magically spits out a very specific number.
2. For the meticulous perfectionists: MBO Partners Bill Rate Calculator
This tool is a bit more robust and asks you your ideal salary, then factors in the hours you’d be putting in and other expenses. It will provide you with a Target Rate and a projected Profit Rate, as well as an itemized breakdown. Neat-o!