How to Figure Out Your Consulting Bill Rate

How to Figure Out Your Consulting Bill Rate

Dear Liz, 

I have a quick question. I know a consultant who is going to do some work designing a company’s program for high-potential employees. The consultant has talent but not much experience. What hourly rate would you consider low, fair, too high? Can you ballpark this for me?

- Louis

Although the question is brief, a helpful answer is not. Pricing consulting services is notoriously difficult, particularly for self-employed consultants. You need to consider the real and perceived value of your services, expertise, and experience, as well as geography and market conditions. Several factors need to be considered:

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How Tax Reform Affects Independent Consultants

How Tax Reform Affects Independent Consultants

Everyone has questions about the sweeping tax reform that became law at the end of last year. As a coach and champion for independent consultants, I went on a fact-finding mission to answer two important questions: 

  1. Are self-employed consultants still better off being paid on a 1099 tax basis as a business or on a W-2 tax basis through a third party?
  2. Is there a tax advantage to how independent consultants structure their businesses — as a sole proprietor, LLC, S corp or C corp?

Here’s what I learned after too many hours of research and talking with two CPAs and a lawyer. (Disclaimer: I am neither an accountant nor a tax lawyer, so I’m not qualified to give tax or legal advice. I’m simply trying to help self-employed consultants understand how the changes in tax law may affect them, so they — you — can have a more productive conversation with your tax professional.)

Key Findings

A. The answer to my first question is yes. It’s still better to be paid on a 1099 tax basis because you can still take business-owner tax deductions, possibly in addition to the new 20% deduction (more on that below), and you can still take advantage of better retirement options like a SEP-IRA to lower your taxable income. (See “Friends Don’t Let Friends W-2”TM for more information.)

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20 Qualities of a Consulting Rock Star

20 Qualities of a Consulting Rock Star

As we close out the year, I’m reprising one of my most commented on LinkedIn articles. First published January 12, 2015, it’s just as relevant today as it was then. I’ve also expanded the original list of qualities from 19 to an even 20, and updated a few other things based the LinkedIn comments. Here’s to a prosperous 2018!

Let’s face it, not all consultants are created equal. Some can seemingly do anything with grace, style, and ease while others struggle to make anything happen. Over the last 20 years I’ve interacted with probably a thousand management consultants, from local independent practitioners to global “big four” advisors. Some are rock stars and some never will be, regardless of their education or what consulting firm they work for.

In a nutshell, a consulting rock star is someone who loves helping clients succeed, does whatever it takes to do so, keeps their word, effectively manages expectations, and produces A-quality work. They make the right things happen. They are smart, professional yet personable, excellent listeners with self-confidence, and possess deep expertise yet little-to-no ego. Bottom line, they are emotionally intelligent and engender trust through their character and competencies.

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How Diligent Biz Dev Led to a Six-Figure Consulting Project

How Diligent Biz Dev Led to a Six-Figure Consulting Project

Recently I helped a consultant land a $420,000 consulting contract. That’s not a typo. It’s an 11-month project for one consultant: $320k in consulting fees and another $100k for travel expenses. I’ve excluded my company’s agency fee in these numbers; the actual budget was a bit larger.

Clearly this was a big win for the consultant. The client was pleased too since a global consulting firm working with his company quoted $660,000 for the same project. (See my related article, “Quote Your Rate with Confidence.”)

A project this big doesn’t just fall out of the sky. Why did the client contact me for help? The short answer: business development. The long answer: diligent business development that built a relationship over time. Rather than any one particular thing I did, it was simple actions over the course of five years. Those actions cultivated a trusting relationship with the client and, as a result, he was comfortable reaching out to me for help.

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See Something, Say Something: 3 Three-Word Tips

See Something, Say Something: 3 Three-Word Tips

As consultants, it’s our job to help our clients solve problems and operate at their best. Sometimes this is easy, particularly when the needed correction is related to a process or operational improvement. For example, “You can decrease your product return rate by moving the quality checks upstream in the process.” Frequently, however, the advice is harder to deliver because it’s more personal, like when a business leader needs to change a behavior or a team member is acting inappropriately. In these situations, we may think about saying something, but it’s too awkward so we don’t. We wimp out and, in doing so, we do a disservice to the company that hired us. We’re not being our best.

Over the years I’ve discovered three, three-word tricks to make delivering difficult observations and advice easier — and more effective.

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Using Online Platforms to Boost Your Billings

Using Online Platforms to Boost Your Billings

Independent consultants face the constant challenge of finding their next project. My last article discussed working with consulting agencies to supplement your business development efforts. This article offers tips for finding work through online platforms or marketplaces like Catalant, SpareHire, and TalMix. 

Consulting agencies and online platforms are similar in that they exist to bring consultants and clients together, but they go about it in different ways and charge different fees. Agencies involve people in the matching process and, typically, to oversee projects and “manage the client relationship.” (I roll my eyes at the last phrase because good consultants can do this on their own.) Agencies usually charge about 30-35%, which nearly always comes out of your pay. Online platforms, on the other hand, charge 20-25%, which may or may not come out of your pay, and they don’t involve people as middlemen. Instead they rely on their technology to match consultants to client projects. 

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Supplementing Your Pipeline with Consulting Agencies

Supplementing Your Pipeline with Consulting Agencies

Perhaps the hardest thing for an independent consultant is not knowing where your next project is coming from, or when. While nurturing your own network is usually the best way to find work (see tips in my article), many consultants also supplement their business development efforts by affiliating with agencies and, increasingly, online platforms or marketplaces. This article summarizes the pros and cons of these options, gives you questions for starting your research, and introduces you to some of the better-known consulting agencies. 

First, let’s clarify what I mean by “consulting agency.”  

By “agency” I mean a company that matches independent consultants with client projects, like a talent agency. An agency is different than a consulting firm because agencies usually place one person at a time, and they assume consultants are bringing their own methodology and tools. Agencies don’t dictate the approach or oversee the work like a consulting firm does, although sometimes they require status reports or check-ins. To me, consulting agencies and consulting firms are both different than staffing agencies that provide tactical staff augmentation services, not consultants who diagnose and solve problems. This article is about affiliating with consulting agencies, not consulting firms or staffing agencies. 

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Quote Your Consulting Billing Rate with Confidence

Quote Your Consulting Billing Rate with Confidence

It takes practice to quote your consulting billing rate with confidence. The tactics in this article will help if you bill by the hour or by the day. There are other ways to bill for your talent and expertise but those will be covered in another article.

Benchmark so you know your rate is reasonable. There are lots of ways to do this. Talk with other consultants, do a web search on typical management consulting rates in your city or state, and/or try converting your employee salary to an hourly rate. Warning: this last calculation will be quite low since it doesn’t include profit, expenses, or the time it takes to run your business; try increasing this number by 40- 50%.

It also helps to have an idea of what consulting firms charge for consultants of similar background and expertise. Although rate information is a closely guarded secret, based on my 20 years in the industry here are very rough ballpark numbers for “management consulting” (not IT consulting, project management, training development, etc.).

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Contractor, Consultant, or Both: It Matters!

Contractor, Consultant, or Both: It Matters!

With the rise of the free agent nation and gig economy, there’s rampant confusion around the terms contractor, consultant, and independent contractor. If you are a self-employed consultant, you don’t want to be a contractor but do want to be an independent contractor. This article explains why.

Contractor or Consultant

How you perceive yourself matters because it influences how others perceive you. This affects how much money you can charge for your services and expertise.

Let me give you an example. Recently I met a sharp, professional woman with about 15 years of experience as a project manager and change management specialist. For the last few years, she’s been designing and implementing change management efforts for multinational companies. She’s been working through various agencies as a contractor and making anywhere from $90 to $110 an hour. Last week I recommended her to a client as a consultant with a pay rate of $135 an hour. This means that for a three-month, full-time project she’ll make about $12,000 more as a consultant. Annually, she’ll probably make $30,000 to $40,000 more as a self-employed consultant than as a contractor. (It’s hard to estimate because of unpaid time between projects.)

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Why Friends Don't Let Friends W-2

Why Friends Don't Let Friends W-2

As an independent consultant, does it matter how I get paid?”

Absolutely! In the U.S., being paid on a 1099 tax basis as a business instead of on a W-2 tax basis like a temp worker makes a huge difference to your profitability for two key reasons:

  1.  You pay less tax.
  2.  You save more for retirement.

Here’s how I figured this out.

Several years ago, as an independent consultant I did my taxes two ways using TurboTax® software. The first used my legitimate tax return that showed I was paid on a 1099 basis. In other words, I had received 1099 tax statements from my clients for that tax year; I did not have any W-2 tax statements. On this tax return, I took standard business deductions (for example, for my home office, supplies, and mileage), and I factored in my retirement contribution to my SEP IRA (Simplified Employee Pension).

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Shift Your Perspective to Make Business Development Easier

Shift Your Perspective to Make Business Development Easier

Most consultants I know struggle with business development, and it’s a top concern among those thinking about going independent. “I don’t know how to build a pipeline of leads” or “I’m not good at sales” are common refrains.

Most of us never had sales training so this concern is understandable, but reframing how we think about business development can turn concern into action. Read any definition of business development and you won’t find the word sales.

A shift in perspective can make a significant difference in how you approach something. For example, before you go parasailing the first time you might think, “I’m excited to try this!” or “Oh my god, I’m going to die!” You’ll have a lot more fun if you approach it with an “I’m excited” attitude instead of “I’m scared.”

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Two Reflection Exercises to Help You Work Smarter

Two Reflection Exercises to Help You Work Smarter

Everyone wants to work smarter, but when you’re self-employed finding time to work on your business, not just in it, is hard. You’re already so busy doing client work, where’s the time to make improvement? It’s even harder to step back and evaluate what you’re doing, not just how you’re doing it. Working smarter is about doing the right things, not just doing tasks more efficiently. 

But how do you know if you’re doing the right things? And what does “working smarter” really mean? Most businesses measure growth rate, client retention, revenue, and profit margin. However, as an independent consultant one thing is even more important—your own satisfaction and fulfillment, or literally your “internal rate of return.” You went out on your own for a reason—how is it working out?  

Below are two simple exercises to help you assess your internal rate of return and point you to working smarter. It’s best to do one or both either while you’re on vacation or just back from one, after you’ve cleared your brain a bit and caught your breath. Another option is to use your morning run or commute to think about these questions—no music, just listen to your thoughts. 

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Use Work Samples to Seal the Deal

Use Work Samples to Seal the Deal

Let’s face it, consulting often gets a bad rap. It’s perceived as nebulous, too theoretical, too touchy-feely. Plus, it's expensive. To combat this bias, use work samples and deliverables to show prospective clients how you do what you do. Demystify your process. This goes a long way toward removing uncertainty and skepticism. 

For 10 years as an independent change strategy consultant, I used this tactic to win several projects. Many clients don’t understand the difference between change management work and the more complex change strategy work. Most know that communications and training are involved but don’t understand how to achieve the buy-in of cross-functional stakeholders in a way tailored to their situation. 

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10 Minutes and $20 to Fine-Tune Your Image

10 Minutes and $20 to Fine-Tune Your Image

Consulting is a people business. Clients hire people who are smart, proficient, affable, and trustworthy. You probably perceive yourself this way, but do others? When people see your LinkedIn photo, what do they think of you?

Research from Cornell University shows that a first impression from an online photo usually persists. We make judgments when we see a photo, usually unconsciously, and these perceptions stay with us even after we’ve met the person. This lasting impact is formed in about a tenth of a second. Obviously having a really good, professional photo matters, but other things affect someone’s impression. It’s the background, the hair, the eyes, the smile, the posture—literally dozens of details. So how can you be sure that the photo you are using online conveys the qualities you want?

Thanks to Photofeeler, you no longer have to guess or rely on friends and family for feedback, who by the way will be biased because they know and presumably like you. Use the Photofeeler website to upload your photo(s) and get anonymous feedback on how competent, likable, and influential you appear. It’s easy, affordable, fun, and quite interesting.

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Setting Up a Foundation for Consulting Success

Setting Up a Foundation for Consulting Success

This article covers two sides of the same coin for independent consultants: how to set up your business for success and what expenses to track to pay less tax. They're interrelated. Let’s tackle the tax question first.

What do I need to keep track of so I pay less tax?

Here’s a short list of the most important things and some tips to make it easier.

  1. Have a dedicated credit card that you use only for business expenses. Use this card for anything you can think of related to your business, such as parking, tolls, cell phone, internet, office supplies, etc. Even if you work from home, what would you normally buy if you were in an actual office? These business expenses will be deducted from your gross earnings to lower your taxable income. If you can, pay your health insurance with this same card since it too will be tax deductible.

Tip: Download the credit card's year-end summary so you have a spending breakdown by category. Or you can download the transactions into a tool like Quicken each month and categorize the expenses there. (You’ll have to break them out by category on your tax return.)

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