Is It Time to Consider a Fixed Fee for Your Consulting Services?

Is It Time to Consider a Fixed Fee for Your Consulting Services?

Generally, the more experience you have as an independent consultant, the more likely you should move from billing by the hour to a fixed fee. At some point you’ll master your specialty and work much more efficiently than others. This means to earn what your services are truly worth, you’ll have to keep raising your hourly rates. But at some point, you’ll reach an invisible rate ceiling when clients think you’re too expensive, even if it takes you half the time to do the work.

When you reach this point, it’s time to start thinking about billing for your services by the project instead of by the hour or day. The idea is to price the project as if you’re going to do it from scratch, even though you know you’re going to adapt plans and materials from prior projects. By doing so, you’ll boost your income per hour.

Here’s an example…

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How and When to Raise Your Consulting Rate

How and When to Raise Your Consulting Rate

The easiest time to raise your rate is on the cusp of something new — a new year, a new project, a new client. With the new year just a few weeks away, now might be the time. This article offers ideas of how to do this, as well as some sample language to use when notifying your clients.

How to determine your new rate

Unfortunately, there’s no one-size-fits-all formula. Instead, I suggest triangulating on a rate that seems fair. Look at several different numbers and then decide. Here are four suggestions.

First, make a ballpark guess of what you think your new rate should be. For example, if your rate is now $150 an hour, what do you think is a logical next step? $175? $165? Jot it down.

Second, calculate a percentage increase. The amount might be 3% or 5% annually. Or maybe you need to make up for two or three years without a rate increase, and a 10% or 15% increase seems appropriate. Do the math a few different ways and see how these numbers play out. In my example of $150 hourly, a 5% annual increase works out to $157.50 for year one, $165 for year two, and $172.50 for year three. 

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What To Do If Your Client Doesn't Pay

What To Do If Your Client Doesn't Pay

It was bound to happen. After 15 years and hundreds of contracts, I finally had a client that didn’t pay, and didn’t pay, and didn’t pay. For six months there was one lame update after another. “We’re working on it,” or “We’ve switched to a new process.”

Yesterday, my bank finally received the wire transfer. Here’s my story, what I learned along the way, and steps you can take if you find yourself in the same situation.

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Website or No Website? Answers and Help for Independent Consultants

Website or No Website? Answers and Help for Independent Consultants

As a self-employed consultant do you really need a website?

I’m asked this a lot, particularly if a consultant gets most business from referrals or they contract through agencies or boutique firms. Besides, it’s highly unlikely that a prospective client is going to stumble upon your website and decide to hire you. Surely creating a website is a waste of time and money, right?

I used to say that if you had a really strong LinkedIn profile and you keep your network warm, you probably didn’t need a website. Indeed, I know dozens of independent consultants making six-figure incomes without one.

Now, however, my answer is, yes, absolutely, you need to have a business website. Here’s why:

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Take Steps Now to Protect Your Independent Status!

Take Steps Now to Protect Your Independent Status!

About two months ago, the California Supreme Court issued a unanimous decision in the case Dynamex Operations West Inc. v. Superior Court that is likely to result in it being harder to qualify as an independent contractor.

More than ever, it’s critical that you take steps now to maximum your chances of passing what is likely to become a stricter vendor compliance process. Otherwise, it’s very likely that companies will demand that you do the work as a W-2 employee hired through a staffing agency. (Related video, “Friends Don’t Let Friends W-2”*)

Although this court decision directly affects only California companies, other states are likely to follow suit and use this ruling as a reference.  At the very least, it’s likely to make employers in other States more cautious when hiring consultants as independent contractors.

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How I Became a Millionaire as an Independent Consultant

How I Became a Millionaire as an Independent Consultant

Recently I logged into my retirement accounts and was surprised (and pleased!) to see that I had crossed the million-dollar mark. I don’t consider myself rich. In fact, money is usually tight at the end of the month. Yet my bank account says I’m a millionaire.

How did I do this? How can other self-employed consultants become wealthy too? Reflecting on my years as an independent consultant, I’ve boiled it down to five keys to success. (Sidebar: People define success differently. To me, having a million bucks in retirement savings is only one part of my total wealth. I also have a comfortable home, I’m healthy, and I have terrific relationships with family and friends. But I digress.)

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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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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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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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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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What Legal Business Structure Do Consultants Need?

What Legal Business Structure Do Consultants Need?

This is one of the questions I get asked most frequently by independent management consultants. Unfortunately, it’s also one of the hardest to answer because every person’s situation is different and there are multiple factors to consider. While this article will help you think through the various factors, here is the short answer: 90% of the self-employed consultants I know are set up as either a sole proprietorship or a single-member LLC.

Why is this decision so important? Although it can be a boring subject, your business structure will have significant implications, including:

Taxes. Not only how much or how little you pay but also the ease or complexity of preparing your taxes.

Lawsuits. We live in an extremely litigious society and need to consider asset protection; this is why business insurance is also an important consideration.

Image. Potential clients will perceive you differently if you have “LLC” or “Inc.” as part of your business name. More about this below.

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One Easy Step to a Polished Professional Image

One Easy Step to a Polished Professional Image

When you're a self-employed management consultant, conveying a professional image is critical to maximizing pay and profit.

Consultants who present a professional image as a stand-alone business can charge more for their services. It’s all about perception. If you look like you are doing consulting on the side or between jobs, clients won’t take you as seriously as someone who is a dedicated professional.

You will pay less in taxes—possibly a lot less—if you take advantage of business-owner tax deductions and contribute to your own retirement plan. To do this you should be paid on a 1099 tax basis instead of on a W-2 basis like a temp worker. To understand why, watch the 70-second video, “Why Friends Don’t Let Friends W-2.”

To be paid on a 1099 or business-to-business basis, you will likely need to demonstrate that you are an established business. There are dozens of ways to do this, but let’s keep this simple and pinpoint just one: your email address.

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Independent Consultants: Excellence Begins Here

Independent Consultants: Excellence Begins Here

Have you ever dreamed about starting something and the idea just won’t go away?  You give yourself all sorts of reasons not to pursue it.

“I don’t have time.”

“Someone else has probably already done it.”

 “It’s too big. I’ll never be able to accomplish it.”

“I can’t commit to another thing!”

Or in my case, “I hate to write.”

But the idea still won’t go away.

Now, you start thinking about all the reasons you should do it. As you talk yourself into it, the idea spawns scores of related ideas, and you can’t not do it.

So here I am, launching this blogwhich will help you become a better management consultant and solopreneur.

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