6 Replies Latest reply on Apr 8, 2011 6:14 PM by Matthew Jorgensen

    Questions on Consulting Fees

    James Dean

      Greetings All,

       

      I have just been connected a chemical company and they would like to use me as a "consultant".  The job entails learning specialized software for the production of MSDS sheets from a mountain of raw data.  All of this data I will have to process by hand and enter into this program.  I met with the Boss Man today, all of the details were explained, I was introduced to the software and given a preview of the work.  Everything was great up to this point.   I have the knowledge, the software is not too challenging, and I want the work.  So with all of this in mind, the position is remote access, so I can work from home.  Rather than him putting me on his pay role, he wants the work to be "Contracted".  So I do the work at home and then bill him for my time.

       

      I like the sound of all of this and I am very lucky to have landed this, but I have no idea what is considered an appropriate amount to charge for this kind of work.  I am meeting with him again in one week to discuss my fee's and proceed from there.  So my question is; What is considered a reasonable rate of pay for this kind of work?  I don't want to give the man a heart attack with a number, but I also don't want to cheat myself.

       

      Any input would be greatly appreciated.

       

      Thanks,
      Alex

        • Re: Questions on Consulting Fees
          David Harwell

          Alex,

           

          By paying you as a contractor, the employer will not be paying for insurance and other benefits.  Therefore, you will need to charge enough in your fee to be able to buy your own insurance, pay for wear and tear on your equipment, etc.

           

          Dave

          • Re: Questions on Consulting Fees
            Lisa Balbes

            I am not an accountant, however,

             

            There are a number of variables to consider.  As Dave said, you will be providing all your own equipment and supplies, so need to be able to pay for those.  However, as a contractor, you can deduct them as businesss expenses.  You will have to pay estimated taxes every quarter, and probably file a schedule C with your 1040 form.

             

            See also http://www.irs.gov/businesses/small/article/0,,id=179118,00.html for information on the employee vs contractor distinction. 

             

            All that being said, there is a rule of thumb for determining rates.

             

            If an employee would be paid $X,000 per year to do the same job, a contractor should be paid $X per hour.  This is based on 2,000 working hours per year (50 weeks x 40 hours/week), and the fact that as a freelancer only about 1/2 of your hours are billable.  The rest are taken up with billing, continuing ed, running the business, and especially finding the next job!

             

            The client should also have an idea of what they're willing to pay. 

             

            Hope that helps!

              • Re: Questions on Consulting Fees
                Bryan Balazs

                Alex, Lisa's answer is consistent with my experiences and, also from my (limited) experience in consulting, you might be pleasantly surprised at what companies consider an affordable hourly rate for consultant work.   Don't be afraid to ask what you think you're truly worth when all factors are considered.

              • Re: Questions on Consulting Fees
                Robert Lichter

                To these very good suggestions, let me add what works for me. My consulting tends to be on intermediate- to longer-term projects, where tracking hours quantitatively is challenging. Hence, I use a daily rate, but this is really only a starting point for the inevitable negotiation. I estimate (based on my experience) what total time (in days) I anticipate the project will take and come up with a number for the entire project. Whether that number includes operational expenses (travel, office supplies, communications) depends on the type of project, but in the end the entire number is mutually agreed upon after negotiations. Once that amount is set, my responsibility is to complete the work plan in the time allotted. If it takes me longer, I don't charge more: clients should not have to pay because I erred in my time estimate. By the same token, however, if the client asks me to do more, then we undertake additional negotiations.

                 

                The consulting agreement must be written out in detail and signed by all parties. Verbal understandings can lead to unhappy outcomes, as I discovered early in my consulting path.

                • Re: Questions on Consulting Fees
                  James Dean

                  Thanks to everyone who replied.  This is all really good advice and was very helpful.  I greatly appreciate it.