Small But Mighty
Are you keen to swap your public sector career for one in consultancy? Your first hurdle will be what to charge. If you’ve taken the leap into the brave new world of solo consulting and are struggling with what to charge and how to quote, then you’re not alone. The good news is it’s not as hard as you might think, writes business and health services consultant, Jacq Hackett.
Figuring out what to charge was certainly a big learning curve for me when I first started out – going from collecting a regular salary to operating a time-for-money business was completely foreign.
In my experience, it’s something that every new consultant struggles with; and for those of us coming from the public sector, it can be especially challenging, because talking openly about money and what value we add has definitely not been part of our workplace culture.
There are two main pain points you’ll likely encounter:
- The thorny (and for many people, uncomfortable) question of how much to charge – essentially, deciding your daily rate.
- Learning how to accurately quote for a project.
It’s not surprising that figuring out these things is outside your comfort zone when you’ve spent your working life in public sector organisations; but you absolutely need to tackle it to build a successful consulting business.
Setting your consultancy rate
Should you set hourly or daily rates?
A common question is should you charge hourly or daily?
While figuring out an hourly rate is helpful – it’s really a daily rate you’ll require. It’s simple – if you don’t have a daily rate, you can’t bid or quote for consultancy projects that take more than a few hours. So, setting your daily rate is one of the things you need to do quickly once you’ve decided to move to consultancy.
Here’s a great international calculator that outlines the current hourly rates for various industries and locations – and accounting for your experience level – around the globe. You can also have a play with Finder’s hourly rate calculator which allows you to deep-dive into your business and personal costs for a more detailed overview of a suitable hourly rate for you.
From here, you can start to work out a reasonable daily rate for your services.
Work out your market range
The next thing you need to figure out is what is the market range for public sector consultants in your sector/jurisdiction?
If you have contracted consultants in previous roles, you may be familiar with the average daily rates. If not, ask colleagues who have used consultants, or approach consultants you know and feel comfortable to ask what rate they started out on. While it’s not a hard-and-fast rule, consulting rates in the public sector tend to be lower than in the private/corporate sector, so make sure you factor this in when you’re figuring out the market range.
Why you can’t charge big bucks straight away
To some extent, your daily rate will depend on your level of experience and your seniority prior to leaving employment. It just makes sense that if you’ve been a senior executive or a senior manager of a large service, you can set a higher daily rate than if you’ve been a senior policy officer or middle manager.
Once you know what costs the market supports, you need to pick a rate that’s somewhere between not too high and not too low. Remember that even if you bring a wealth of experience, you are still new to consulting. If you don’t have any runs on the board, you can’t charge premium prices just yet.
But don’t make the mistake of setting your rate too low either, because that will look unprofessional, and potentially have prospective clients questioning your capacity to do the job.
By way of example, I know that in New South Wales where I’m based, consultants in my sector charge anywhere between $1,000 – $2,000 per day. It’s quite a range, and the rate someone sets will depend on things like their seniority prior to consulting, their years of consulting experience, and the calibre of the reputation they’ve established.
If you’re just starting out, you should aim for somewhere towards the lower end of that spectrum, and over the years aim to slowly increase your rates
Quoting for projects – estimating your costs
Once you’ve decided your daily rate you’re in a position to quote for projects. Essentially, you work out how many days a project will take to complete, and multiply it by your daily rate.
Preparing consultancy proposals is challenging when you’ve never done it before, and estimating the project costs is one of the most difficult aspects.
Recently, a consultant who was just starting out booked a mentoring session with me to look over his first consultancy proposal. The costs he had estimated didn’t seem quite right and when I asked him how he had come up with those costs, he said “I just guessed”. Rookie mistake and a very important one not to make.
Quote too much and it will exclude you from the race; too little and you’ll be out of pocket and working some of your days with no pay.
Here are three tips to help you avoid costing mistakes:
Tip 1: Work your way through the project and identify major tasks
Break the project down into key phases. In my experience, the following works well for the majority of projects:
- Preparation and planning
- Information and data gathering
- Analysis
- Report writing
For each project phase, think through what major tasks you will need to undertake. For example, in phase 2 you may need to conduct a stakeholder consultation process, administer an online survey, or hold a stakeholder workshop. Identifying the major tasks allows you to then walk your way through the process steps involved.
Only once you’ve done that will you be in a position to more accurately estimate how much time you will require.
Tip 2: Do some basic calculations
Some consultancy tasks are difficult to quantify – but others are actually pretty straightforward. So hone in on those where doing some basic maths will assist.
Stakeholder consultations are a good example; work out how many people will be interviewed, and whether consultations will be face-to-face or by phone, as well as individual or in small groups. Once that’s clear, it’s really a simple matter of adding up the time required for each interview and multiplying it by the number of stakeholders.
Tip 3: Apply a basic formula across the project
When I was first starting out, my mentor taught me a formula she used to work out whether she was on track with time (and therefore costs) across a consulting project. I’ve honed it further over time and while it’s not foolproof, it’s incredibly useful.
Going back to those four project phases I suggested, when you look across an entire project, here’s roughly how you should be spending your time:
- Preparation and planning – 10% of total project time
- Information and data gathering – 30% of total project time
- Analysis – 30% of total project time
- Report writing – 30% of total project time
One of the most common areas where consultants underestimate time required (including me!) is in analysis and report writing. So this formula acts like a checklist – if you estimate you need five days to conduct stakeholder consultations (remembering that this is fairly easy to estimate with some accuracy), then you need five days to conduct the analysis, and a further five days to write the report.
The transition from salary to time-for-money can be challenging. But you need to bite the bullet on a daily rate, and then quickly become an expert at quoting, or you’ll be out of pocket and potentially, out of business.
Article originally appeared onhttps://www.flyingsolo.com.au/sales/pricing-strategy/how-to-calculate-your-daily-consultancy-rate/