Transcript FeeSetting02-27-2003A

Setting and Maximizing Price of
Your Consulting Services
Laurence W. Nagel
Omega Enterprises
Randolph, NJ
2/27/2003
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My Background
• Graduated from University of California, Berkeley in 1975
• Worked at Bell Laboratories for 20 years in the areas of
Analog Integrated Circuit Simulation, Semiconductor
Device Modeling, Analog Integrated Circuit Design
• Worked at Anadigics for 3 years in the area of RF Circuit
Simulation and GaAs device modeling
• Started Omega Enterprises in 1998 to provide consulting
services in the fields of Analog Integrated Circuit Design,
Semiconductor Device Modeling, and Expert Witness
support of patent litigation cases
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Who Sets A Consultant’s Fees?
• The Consultant?
– Sets the breakeven rate
– Responsible for marketing the service
• Other Consultants in the Field?
– Their rates establish what is reasonable
• The Consultant’s Client?
– Makes the final hire/no hire decision
– Must be convinced the value is worth the rate
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The Consultant’s Point of View - 1
• There are 241 days in a year after
subtracting 104 days for weekends, 10 days
for holidays, and 10 days for vacation
• That means you could bill 8 x 241 or 1928
hours in a year
• In reality, if you work really hard you will
book about half that number (say 1000
hours)
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The Consultant’s Point of View -2
• Assuming 1000 billable hours, then
– Revenue = 1000 x Rate
• Consultants in electrical engineering charge
rates of from $ 50 per hour ($ 400 per day)
up to and exceeding $ 250 per hour ($ 2000
per day).
• Hence, consultants’ gross revenues range
from $50K to in excess of $250K (per year)
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“The More Things Change, The More They Stay The Same . . .”
French Proverb
Fee chart originally prepared in 1994 by CNNNJ member Werner Engelmeir
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The Consultant’s Point of View -3
• Profit = Revenue - Expenses
• Expenses
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Your salary
Staff salaries and fees (bookkeeper, accountant)
Retirement Plan Contribution
Taxes
Insurance (medical, liability, E&O)
Office expense (rent, equipment, supplies)
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Factors that Effect Your Rates
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Your experience
Your knowledge
Your credentials
Your field(s) of expertise
Your availability
Referrals from previous clients
Referrals from peers
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Other Consultants - 1
• Let’s say, after some calculations, you’ve
figured that you can just scrape through if
you charge $ 500 per hour for your services
• The next step is to check with other
consultants who do work in your field and
find out what they charge
• Chances are, you’re going to need to rethink
your rates!
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Other Consultants - 2
• Your peers determine a range of what is
reasonable to charge for your services
• Before talking to prospective clients, do a
sanity check and talk to other consultants
about what their rates are
– CNNNJ and other networks are perfect for this
• Sometimes a client will tell you what he or
she pays for consultants
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The Client’s Point of View - 1
• Assume that the client knows the going rate
• Clients are willing to pay more than the
going rate, but only to obtain tangible added
value
– Example: Expert witness consultants with a
proven track record for convincing judges and
juries may win a case worth millions!
• The consultant has to show the added value
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The Client’s Point of View - 2
• It costs a client more than salary to have an
employee on board. The loading factor is
the number that, when multiplied by the
salary, is the cost to the client
– Cost of Employee = LF x Employee Salary
• The loading factory is typically around two
but ranges from 1.8 to 3.0
• The client knows the loading factor --- ask!
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The Client’s Point of View - 3
• With a load factor of 2, an employee
earning a $100K salary costs your client
$200K per year
• If you can perform the work of a full time
employee with 1000 hours per year, then a
$200 per hour rate is breakeven rate.
• Breakeven Consulting Rate =
Equivalent Annual Salary / 1000
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Are Fees Negotiable?
• Yes, to a degree
• Have a standard rate in mind and quote that
rate
• If you have recently increased (or
decreased) rates, explain why to the client
• If there are circumstances that justify a
lower or higher rate, explain those
circumstances to the client
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Consultant’s Fee Setting
• Minimum fee is set by the consultant’s cost
structure
• Typical fee is set by what comparably
qualified consultants charge for comparable
work
• Maximum fee is set by the added value the
consultant can demonstrate to the client
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