| In my business I speak to a lot of consultants - | | | | understands what needs to be done and wants the |
| some new and some that have been around more | | | | consultant (or expert) to do it. |
| than a few years. One of the questions we get | | | | · Consultancy Fees here are almost always day rate |
| asked a lot though is how much should my | | | | or even charged per hour but can include |
| consultancy fees be and how should I charge? There | | | | performance bonuses. These consultants often |
| are a number of ways to look at this and here are a | | | | supplement the client's staffing requirements as |
| few pointers, ideally you need to understand: | | | | required. |
| · Your Billable Minimum | | | | · Many generic IT Consultants and Interim |
| · The Type Of Consultancy Engagement | | | | Management Roles (where there is more |
| · The 5 Different Methods For Calculating Fees | | | | competition) sit in this bracket. |
| YOUR BILLABLE MINIMUM | | | | The "Collaborative" Consultant |
| Step 1. What are your costs? | | | | · Where there is an interdependent relationship and |
| Your consultancy fees have to cover your operating | | | | control of the project is shared. Management works |
| costs (in this instance I'm talking about the general | | | | closely with the consultant. |
| business expenses excluding your salary) plus an | | | | · Because the success of the project is deeply |
| income for you. All Consultancy businesses should | | | | linked to the client's ability to contribute and influence |
| know how much and what types of costs are likely | | | | the project, risks and benefits should also be shared. |
| to be incurred within a year. For a consultant, office | | | | This means that a lower day rate may be more |
| and non expense related travel costs are usually the | | | | appropriate with higher performance based element |
| highest and can easily be 10-30% of income. | | | | to the consultancy fees. |
| Step 2. What revenue do you need to generate? | | | | 5 DIFFERENT METHODS FOR CALCULATING FEES |
| This cost together with your earning expectations | | | | There are 5 different methods for calculating |
| make up your forecast revenue. Say for example | | | | Consultancy Fees. |
| this is £120,000, £20,000 costs and £100,000 | | | | 1. Time based |
| income. | | | | 2. Fixed fee & Success based |
| Step 3. How much time do you have spare after | | | | 3. Contingency or Performance based |
| admin? | | | | 4. Demand based |
| It may be that you are spending 16 hours a week on | | | | 5. Mix of the above |
| non-billable or administrative work. This will give you | | | | 1. Time based |
| 3-4 days per week to earn depending on how many | | | | · This puts the risk squarely on the client, great for |
| hours you work. This translates to 144 to 192 billable | | | | the consultant not so great for the client, in fact the |
| days per annum (assuming 48 weeks worked a | | | | worse you do the more you get paid! |
| year). If we assume 192 days this means that on | | | | · Most suitable for a "Pair of Hands" consultancy |
| average you need to earn £625 per day to hit your | | | | projects |
| target. If you only work 144 days then this rises to | | | | 2.Fixed Fees & Success Based |
| £833 per day on average to hit your revenue and | | | | · Fixed fees are generally used where the value |
| earning target. Having an understanding of this figure | | | | added is high but equally the risk to both parties may |
| will help you determine what fee structure you need. | | | | be high |
| In this example you need to earn a minimum of | | | | · A fixed fee will often be negotiated as part of a |
| £625 a day. | | | | tender |
| THE TYPE OF ENGAGEMENT | | | | · Success based fixed fee - as above but is only |
| Peter Block has one of the best definitions of the | | | | paid out if agreed metrics are met, high risk for the |
| three different types of consultancy engagements | | | | consultant and so needs a higher fee to compensate |
| (see below). What we have found though is that the | | | | for this. |
| different types of engagements often drive different | | | | 3. Contingency or Performance Based |
| types of consultancy fees. | | | | · Two decades ago it was mainly tariff analysts |
| The "Expert" Consultant | | | | that used these types of fees. After some years of |
| · The Consultant is more autonomous and control | | | | certain consultants not meeting targets, more and |
| sits firmly with the consultant. In effect the client has | | | | more often fees are expected to be charged in |
| handed over control of the project to the consultant. | | | | direct proportion to the benefits achieved. |
| · There is a problem and the consultant provides | | | | 4. Demand Based |
| the solution. My suggestion is that payment here | | | | · Demand based fees are the easiest to calculate - |
| should be on a fixed fee plus performance based | | | | they are either based on a multiplier of what it would |
| basis however often this defaults back to day rate | | | | cost the client to pay a salary (anywhere from |
| due to competition. The more specialised the area | | | | 150-300%). |
| and the higher the value added, the more you can | | | | · Or they are based on what the competition are |
| charge. | | | | charging. |
| · A good example of an expert consultant is a | | | | 5.A Mix Of All Of The Above |
| Specialised Trainer or Specialist IT Consultant. | | | | · The reality is a mix of any two of the above |
| The "Pair of Hands" Consultant | | | | approaches will often work well to balance the risk to |
| · Where control sits firmly with the client. The client | | | | both the client and you the consultant. |