Consulting and Freelancing Fee Scheduling

Whenever starting out a new venture; whether it is to be on your lonesome or even with a bunch of mates, one of the most perplexing of all processes that must be dealt with and most carefully at that is how to establish a fee structure and what type of billing model and scale should be adopted.

Dominant Factors

With your future and income generating potential depending heavily upon you getting it right the pressure really is on. It does not matter what the field you have chosen is the basic process is still the same. So when it comes to establishing a freelance or consulting fee/billing schedule there will be a number of factors that you will need to evaluate. Some of these can be classified as major constricting or domineering factors that may or may not be closely linked to prevailing market conditions and other industry specific factorials including:

Industry Category – The type of industry that you wish to develop in and establish your particular business skills in will have a direct bearing that can often be limiting to any fee or billing structure and range you might need to conform with.

You may for instance be a computer and network security specialist who has a particular penchant for service industries and service industry personal and systems management and security. In this case the hospitality industry may be your window of opportunity.

Any other particular skills and expertise that your consulting capabilities may cover should not be simply put on the shelf and left to wither. It would be best if you could incorporate them into your overall business plan and billing structures even if just as added bonuses.

Every little bit helps when you are trying to sell yourself. This applies across the board regardless of whether your consulting expertise may be in PR, marketing, human resources, systems design and/or implementation, security, hospitality, construction or health etc.

Location – In many fields the location of both yourself and your potential customer-base can limiting factor yet in others it will be relatively a non-issue. For example a web designer can produce effectively whether at home or in an office but either way does not require that the web designer be permanently located at the customer’s premises for the duration of the job/contract.

Travel – Travel of course will also need to be factored into the billing schedule for most instances. Systems installation consultants may need to regularly visit remote and out of the way locations.

Time – The timing of the project both in its projected start and finished milestone dates as well as the relative time during that period of tenure for which you may be likely to be required to provide your consulting expertise are critical factors in setting a fee schedule.

If for example the possibility that the project may require you to drop all other jobs and come running quickly to attend to some crisis pronto will justify an increase in your fee rates. Don’t make the mistake of classifying and restricting these types of events to the mission critical processes only. In the eyes of those relying on your consulting expertise to get them through this project every minor aberration is a mission critical scenario. It’s just a matter of perspective.

Cost – The type of project being undertaken and its estimated overall cost will need to be taken into consideration when you are setting your project specific fee schedule. You don’t want to price yourself out of a job and yet you want to get as much of the green stuff as possible for every job. You must ensure that your billing is cost effective for both yourself and your client. This is an art that only experience can fine-tune.

Project Complexity – The complexity of the project that you’re tendering your consulting expertise for will be a factor that has considerable weight one adjusting a billing schedule. The more people involved that are not directly under your control; subcontractors for example, the more difficult your task will be and your billing structure will need to reflect this.

Experience – Your experience both in theoretical applications and actual on the job experience of the specific types of projects that you are tendering for will also have considerable bearing upon the way in which you structure you fee schedules.

Here are some tips to help you decide upon how to go about setting your fees. Just remember that with all of these tips flexibility is your best friend.

Time Dependant Rates – Charging an hourly or daily rate as a major scaling factor in fee scheduling is very important. It gives you a basis from which to establish profitability. No good spending too much time on a task as you may not be rewarded for your effort regardless of the intricacy or sophistication of the task.

To determine this you will need to figure out the number of total billable consulting hours per year. Do not include holidays, vacation or illness times as your clients are not paying you to be sick or away. Remember this is one of the drawbacks of working for yourself. Marketing and administrative time should not be included in this value. We will apply a factor that weights these elements in at a later stage.

Next determine your costs and pay close attention to “out of pocket” expenses that you know will be standard and most likely in most if not all instances regardless of the specifics of each instance (job). For example; if the running costs for an average consulting project can be factored at $65/hr then in order to make $50/per as a consultant you will need to bill the client at $115/hr.

Overheads – Overheads will vary from one type of consultancy to the next. In many instances you may find a core of overheads that will largely remain static from job to job. By this I mean that as a group their relative weightings and cost contributions will remain static relative to one another.

This group of overheads will rise and fall in cost in response to economic factors as a group. Identifying them will make your administrative functionalities more simplified than by treating them all individually. However it is important to identify them all individually as external factors may at any point change their relationships and you will need to make adjustments accordingly.

Competition and Marketplace Factors – Take the competition against which you will be competing into your calculations. They may or may not be limited to your local area or they may be on a more state, national, continental or global scale depending on your chosen field.

The first step is always to ascertain what the competition is charging and set your rates in line with the mean. This will allow you to lift or reduce your charges on a job by job basis without falling out of tune with the current market trends. Your experience and reputation will also play a role here. High reputation and great experience equals justification for higher but not exorbitantly so fees.

Flat Rates – For many jobs all of the above considerations will enable you to be able to set a flat rate for jobs requiring the same specific tasks. This not only makes your billing structure and administration far easier to manage but is most beneficial if a $500 job can be completed in less than hour.

Web designers for example can reuse much of the code and customize templates from other jobs to dramatically reduce the time required to complete many tasks. This is to their advantage. It is their experience that allows them to do this.

Unfortunately for startups this is something that will come as your workflow increases. You should however always be on the lookout for these types of reusability opportunities and in slack times you can always work to produce such items as templates that you can use on future jobs.

There will also be those times when the job takes considerably longer and thus your pay rate decreases. Spotting these types of jobs and adjusting your quote accordingly as another art that will only come with experience. Sometimes we just have to go through the school of hard knocks.

Regardless the biggest benefit of setting a flat rate for a job is that it dramatically reduces the most stressful and ugliest part of being your own boss and that is avoiding arguments when it comes time for the customer to pay. With a flat rate for the job set prior to commencement everybody knows where they stand with respect to the financial side of the transaction.

The client knows and agrees to pay for a specific job at a specific cost. The consultant or freelancer knows what income they will be getting. This is an area where the use of a signoff milestone is of great value as it indicates the client’s acceptance of all terms, conditions and costs prior to commencement of the job. It is now up to the consultant/freelancer to deliver and get paid.

I have found that flat rate scheduling is without a doubt the best way to go when it comes to dealing with new clients and many small companies. Larger organizations tend to require a more formal and in-depth billing structure and costs breakdown.

Productivity-Based Fee Structures – Many times it will be advantageous for you to base your billing structure with a productivity clause or scaling. For example if your marketing advice helps a company to sell 100,000 units of a product and that same company only sold 1,000 in the twelve months leading up to your involvement you have a very strong case to argue for getting paid more. Think the better the job you do in terms of delivering benefits for your customer the higher your fees should be.

Napoleonic Tactics and Work Breakdown Structures – Do as the little general said; “Divide and conquer”. In its simplest form this means to break large complex projects and task down into a series of smaller easier to manage smaller subtasks. This has the most important benefit of allowing you to track your progress and progressive status.

Oft times clients like to know “How is it coming along?” or “What have you done?” and “what’s left to do?” Without sub-tasking you will have great difficulty in producing satisfactory justified fact-based answers to these types of questions.

The solution here is as simple as implementing a project management system. In fact Microsoft’s MS Project software is ideal for most scenarios. It also has the benefit of Microsoft supplying a rather large library of templates add-ons etc. Yes there will be a learning curve if you have never used this type of software before. You may also prefer to use another product such as Mindscape or even a basic spreadsheet package customized to suite the peculiarities of project management.

Work breakdown structures are a long established tool that have been widely used in the development, implementation and ongoing maintenance of many a complex system. Networking, security and information technology in general are beginning to use project management software as standard operating procedure in most cases these days so it would be a good idea to get up to speed with the basics.

Another thing that the divide and conquer strategy will enable you to do is to produce itemized billing invoices for those who require them while at the same time giving you greater cost control to prevent any given job from having hidden obstacles or elements that might blow-out development costs to such a degree as to render the project uneconomical from your perspective. In the long run this will help you avoid any billing issues that might arise “after the fact”.

It is best to do with the possibility of the blow-out scenario and discuss tactics and fees with the client up front. If unhappy with the outcome of these discussions either you or the client or both can opt out of progressing any further with the project. This is known as cutting your losses and getting out of a bad idea before it drags everyone and sundry down with it.