The ways of billing clients are numerous. There are hourly, by-the-job fixed rates, contingency or performance arrangements, flat fee plus expenses, daily fee plus expenses, and many other methods of payment for your advice. Which one is best?
Let us consider some ways of billing for your time.
1. Hourly or daily rate
Many consultants charge by the hour or day. Establish an hour or daily rate, they try to calculate the number of billable hours in a year. Many hours will be spent marketing and in administrative and other functions, so this time can not be borne by the client. As well, vacation time, vacation, sick days, and so on, is not directly billed to the customer.
Consultants, like other businesses, must charge enough to cover their fixed costs and also earn a profit. If a consultant wants to earn twenty-five dollars per hour of working, he (or she) may have to charge one hundred U.S. dollars per hour to the client. This assumes one half billable hours and fifty percent overhead and profit.
Your hour or daily rate may be limited by what your competition charges, especially if you have not positioned themselves as different from them.
2. Fixed or Flat Rate
Some consult
ants charge by the job or a flat rate. For example, a tax consultant tax three hundred U.S. dollars to prepare a tax return for you and your spouse, including an audited income statement for your business from information from you. If the consultant takes only one hour to do this, he grosses three hundred U.S. dollars per hour. But if tax consultant miscalculates the required time, he could take twenty hours to complete the job and make only fifteen dollars per hour.
Of course, consultants also make a profit on the labor of their employees or subcontractors.
Many consultants claim to do more at a flat rate than on an hourly basis. Advantages include the ability to make an offer to the customer up front and less disputes on price (as the total bill was agreed in advance).
To protect yourself in real tasks, always limiting the extent of your commitment to something, you can calculate easily.
For example, if you are asked to make a bid on setting up a website for a company you can break this project into smaller tasks.
Firstly could you give a quote for preliminary studies and recommendations. Estimate the time needed to meet with the client, learn about its activities and objectives, develop strategies and budget and prepare recommendations on how to proceed. Then give the client a quote (perhaps in the form of a single page letter agreement or proposal). After acceptance by the customer in writing, you can proceed with this phase of the project.
Some consultants collect half of their fee up front and half when the transfer is completed for each phase of the consulting project.
If the customer does not like your recommendations, at least you get paid for the work you did. Maybe you can charge him to prepare alternative suggestions.
If your website project was not broken up into smaller steps or tasks, you may find that you spent far more time on the project than expected.
Also, you can not find out before you present your bill for the whole project that your client will not pay, either because he is not satisfied with the outcome, or because he is unable or unwilling to pay.
Dividing a project into smaller tasks helps you to assess more accurately and reduce your financial exposure.
3. Contingency or Performance Arrangements
Sometimes clients will ask you to be their partner. If you do, you're no longer an objective consultant.
What if your client asks you to do management consulting for twenty-five percent of the net profits? Will there be any gains by the time he deduct from his car, home office, entertainment, travel, pay for themselves and family members, and other expenses? On the other hand, if you're a marketing consultant who is absolutely sure that you can increase a customer's sales, you can be sure to charge a fee based on increased sales of the client. Are you sure your client will work with you to achieve this goal?
Some consultants charge a flat rate plus a percentage of ownership or profits for their services.
Fees based on contingency or performance arrangements are risky. Most consultants are better off charging a fair price for their services and leaving risks to the customer's business for the customer.
4. Value Based Fees
Sometimes consultants can justify fees based on their value for the customer. For example, if you save one client million dollars in taxes, your fee may be higher than normal to reflect the value of the services rendered.
You might pay an accountant or lawyer a fee of fifteen hundred dollars in time for certain tax-related services. What would you be willing to pay to legally save an extra million dollars in taxes? Ten thousand dollars, one hundred thousand dollars or more?
Can you use this information to your own consulting practice? Is there some particularly valuable service that you can do that would justify tariff increases?
But and what you charge, be sure that your fee is a good value for your client and also compensates you fairly.
