How much should consultants charge?
Whether you call it contract work, freelancing, or consulting, this is how to get paid what you’re worth for your years of experience on the job.
After years of experience in the workforce, you’ve got a valuable bank of knowledge that companies are eager to pay good money to leverage. Consulting jobs, freelancing, and contract work are hot topics and poised to get even hotter. As such, although these's no hard and fast contractor salary out there, you’d better have an answer to the question, “What’s your rate?”
As of 2017, 57.3 million Americans were doing this kind of work (that’s 36% of the U.S. workforce, with 29% doing it full-time), according to the annual study, “Freelancing in America.” And if the trend keeps growing at its current rate, by 2027, a majority of the country will be freelancers. (Want more proof? Check out the thousands of freelance jobs available on Monster right now.)
In other words, there’s a good chance that if you’re not already doing contract work, it could be in your future. So if you have aspirations to take on such assignments, it’s important to understand what you’re worth so you can figure out what to charge clients per hour. This is how to find out.
Know your market value
Trying to get a fair price for freelance jobs can be tricky. Bid too high and the client may walk away; bid too low and you could leave serious money on the table. And if you leave it up to the client, there’s a good chance that they’ll try to pay you peanuts.
Instead, follow these steps to figure out a fair going rate for your line of work:
Step 1: Evaluate the services you provide, your experience level, and what the full-time salary for an equivalent position would be, says Bob Criscuolo, president and COO of WAHVE (Work at Home Vintage Experts), a staffing firm that places workers over 50 in contract roles. So if you’re a marketing consultant, what would be the average salary of someone with your years of experience working full-time for a large enterprise in your region?
Step 2: From there, Criscuolo, who is also a CPA, recommends adding at least a 30% to 35% markup to that base salary. This will account for the employer-paid items you’re missing out on like health care benefits, a retirement 401(k) match, taxes, paid vacation, etc.
“You have to understand what your monthly overhead is when setting your rate,” agrees Jennie L. Phipps, owner and editor of Freelance Success, a subscription newsletter and online community for professional freelance writers. “If you’re a writer working for a publication, you would probably get vacation time, sick time, half of your social security and Medicare paid for, and more. You have to figure all of that in,” she says.
Here’s a numerical example: If you earned an $80,000 salary at your last job, tacking on 30% more to cover the benefits adds another $24,000, bringing your contractor salary to $104,000.
Step 3: Divide your total by 2,000 hours (which assumes you’re working 40 hours per week for 50 weeks). A $104,000 salary breaks down to $52 an hour. You can play around with the numbers, such as reducing the number of hours to account for additional paid holidays/sick days you’d normally get.
Once you have a number, you’re off to a good start, but it’s not set in stone. Remember: The above is just a simple calculation to help you get to your baseline contract rate. In many cases, companies are willing to pay you a higher-than-market value because they are not subsidizing your benefits.
Plus, you can add on a premium for a variety of reasons, such as if you have a unique perspective or additional skill set to bring to a project, or if you’re working non-traditional hours or have a rushed deadline. Learning to become a good negotiator can be one of the most valuable skills you have.
What about project rates?
With certain types of work, sometimes clients may ask you to suggest a project rate, rather than an hourly rate. Then what?
“It all comes down to figuring out how many hours it’s going to take you to do the work, so that in the end, your hourly rate for the whole project is fair to them and fair to you and makes ongoing sense,” says Phipps.
The key is to try to account for all of the working hours needed to land and complete the job. For instance, if you create a proposal up front that takes you two hours, or if you have to hop onto phone meetings every couple of days (and those 15-to-20-minute calls add up!), you should be paid for that time. “Once you’ve set a rate, it’s pretty difficult to change it, so think it through,” says Phipps.
How to ramp up your rate
To increase your hourly rate, you have to do one or more of the following: develop skills or an expertise that people are willing to pay more for, seek out clients with bigger budgets, or learn to work faster. In short, your mindset needs to go from “I am a consultant,” to “I am a business owner.” Here’s how to increase the return on your time investment:
Get professional guidance. If you’re going solo, having to pay your own taxes will play a big role in your earnings, as will keeping track of business expenses, saving for your own retirement, and more. “In the end, you don’t want to pay the IRS more than you have to” says Phipps. “Doing that requires knowledge and good records and often some kind of professional advice.”
Find satisfying, but lucrative work. Contract workers that are successful keep an open mind to broad range of opportunities. “You’re never going to make it just freelancing for your local newspaper,” says Phipps. “Embrace work that has the potential to pay enough to earn you a decent living and identify clients who will pay you a sufficient amount.”
Put in some sweat equity. To make it as a consultant, there’s a marketing component that you’re not going to get paid for, says Criscuolo. But putting in the time can pay off dividends when a great client discovers you.
Hone your craft. The more quickly and efficiently you can work, the more you can earn for your contractor salary. You’ll also get better at vetting clients and estimating project lengths over time, but expect that it will take some trial and error. The important thing is to get value out of each job you do, whether it’s a great paycheck, a bridge to better paying work, or a hard-earned lesson about knowing your worth.
Join freelancer groups in your field. Networking with other solo professionals can help you get a feel for what to charge, learn where to find good-paying clients, and maybe even garner you some referrals.
Setting a fair contractor rate is a business decision that shouldn’t be done haphazardly. “It’s not enough to just accept what somebody else wants to pay you,” says Phipps. By following the strategies above and turning in consistently great work for your clients, they’ll be more than happy to pay you what you’re worth.
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Making it so that you can live on a contractor salary is tough work, but it's definitely doable with the right plan in place, and a large part of that is determined by the fluctuations of your industry—and the workforce as a whole. Need some help with that? Join Monster for free today. As a member, you'll get career advice and job search tips sent directly to your inbox. From trends and reports to leading companies and in-demand skills, Monster can keep your finger on the pulse while your hands are full. (No magic involved.)