One of the most challenging questions you are likely to face is to work out what you should charge clients.
As a consultant you have to remember the cost of being in business. When you are an employee, there are a whole range of benefits that you receive in addition to your salary. Generally you will receive contributions to a pension fund and you may be eligible for a bonus. You may be covered by the company’s insurance schemes, life insurance, death in service and private health cover. You will be paid for Bank Holidays and you will have a statutory entitlement to paid annual leave. If you are ill, then it is likely that you will be covered by a company policy. If you travel on business your employer will pay you a mileage allowance, train or airfares and for your meals along the way. When you are working on your laptop it will be on one that has been provided by the company and you will use stationery that has been given to you.
In your previous life you would have worked in an office and you may now need to find an office of your own. You may decide to join up with a group of others or to find collaborative work spaces that will give you a professional environment and a place where you will meet others and forge the connections that fuel business development. Working from a home office may sound appealing but it can be lonely and difficult to maintain motivation without the stimulus of the external world. If you decide that renting space is not for you, then joining a club that gives you access to offices can be an option to give you meeting venues during your business development phase.
All of this comes at a price and as a consultant it is now down to you. When you are on holiday you won’t be getting paid and you have to take responsibility for all of those other business costs, as well as the cost of running a business in terms of professional advice and support. Working out your day rate therefore requires a detailed budget that covers the specific details of what you need to spend before you invoice a single penny.
A suggested starting point could be:
- Insurances - professional indemnity, health, life, mortgage cover etc
- Pension contribution
- Office costs
- Office equipment
- Professional associations and memberships
- Website development and maintenance
- Professional advisers - accountant and solicitor
- Budget for business development
- Networking and entertainment
- Retraining / life long learning
Use this budget in a way that reflects how you will be building your consultancy business and decide on the number of days that you intend to work during the year, allocating unpaid days that will be for business development and administration. Taking into account all of these factors, you will see that the day rate you had first thought of may not be sufficient.
One rule of thumb that has been suggested to me is that you should take the your annual executive salary and then what you were paid in thousands will become your day rate in hundreds. For example, if you were paid £80,000 per annum, then your day rate will be £800 per day. Perhaps it would be interesting to do your detailed calculations and then see how they stack up against that very simple measure.
Approaching the day rate in this logical manner will show you what your minimum rate can be. After all, sometimes you may decide to take a contract because it is appealing or because it resonates with your values, not necessarily paying you what you are worth. Pro bono work has its place in everyone’s life and only you can decide what you can afford to give away. Charging fees is not an exact science. Sometime you will be able to charge only what the market will bear. The decision on whether or not to accept a project will always sit with you - one of the joys of running your own business!
8 September 2017