Becoming an independent consultant is a career move with a lot of exciting opportunities. You set your own hours, take on the projects that you choose, and be the one who profits from your success. But you’re probably wondering: How much will I be able to make on my own? How much should I charge?
In this guide, we break down how to set a freelance consulting rate and look at four pricing models for consultants.
How to Price Your Consulting Services
When you first go into business for yourself, it’s a challenge to figure out what your services are actually worth! You don’t want to undersell yourself and have your services perceived as low-value, but you don’t want to scare clients away with an overly high rate either.
The right price will accurately reflect the value you bring to your clients while enabling you to reach your financial goals. Getting to this number is a bit of an art as well as a science! It requires calculating hard numbers while also forming the right mindset about what you have to offer.
Calculate the income you need
Before you get into pricing strategies, determine how much you need to make as a consultant. Identify the income that would accomplish your goals — whether you’re planning on replacing your full-time salary or starting a side hustle.
Once you know your desired “take-home” profit, you’ll have to factor in all the expenses that come with being a small business owner. There are a lot of hidden costs involved — typically covered by an employer — that have to be added up to give you an accurate picture.
Overhead costs for consultants include:
- Office space
- Office equipment and software
- Time off
- Health insurance and other benefits
- Liability insurance
- Self-employment taxes
- Accounting and legal services
Next, determine your base hourly rate in view of your profit goal and anticipated expenses. Even if you don’t end up charging clients by the hour, knowing your base hourly rate helps you understand the value of your time and gives you a starting point to calculate project or retainer fees.
[Profit Goal + Yearly Expenses] / [Billable Hours] = [Base Hourly Rate]
Example: [$125,000 + $60,000] / 1200 hours* = $154/ hr
*24 billable hours per week, 50 weeks out of the year
Yearly wages are typically calculated assuming 40 paid hours in a week, 50 weeks of the year — coming to 2,000 annual work hours. As a freelance consultant, you’ll need to subtract hours to account for time spent working on your business and other time that isn’t billable.
What about part-time consulting fees?
Many consultants start their freelance journey by doing part-time consulting work on the side — often for a previous employer or someone in their network.
Start by examining your current compensation. Remember that a full-time employer pays more to have you on their team than what shows up on your paycheck! Factor in employer-sponsored benefits and the taxes paid by your employer to understand your actual hourly rate.
Once you understand your current compensation package, you can set a rate that makes sense for how many hours you’ll be working and any new expenses that you’ll incur.
And remember — you’re dedicating time outside of your normal work hours to offer consulting services. What is that time worth to you?
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Know your value to the market
Arriving at the number you need to make is only one piece of the puzzle. It’s essential to take a step back and assess the value you bring to the marketplace.
A good rate to charge for consulting comes down to how much value you provide your clients.
This is an important perspective shift for independent consultants, as it’s easy to undersell your worth. You are an expert, and people need your help — you deserve to be compensated for what you’re able to accomplish for your clients.
Here are a few questions to help you shift your mindset from service-based pricing to value-based pricing:
- What core problem do I know how to solve for my clients?
- What resources have my clients allocated to solving this problem?
- What is the solution worth to them?
- How difficult would it be to find someone else who does what I do?
- How many years of experience are behind my knowledge and skill set?
Building your consulting business around value will also position you to work with clients who share your perspective. Instead of catering to price shoppers, you can appeal to clients who want real results and who are willing to pay what those results are worth.
Increase your consulting rate as you grow
Your price as a consultant can’t be static. As you gain more experience as an independent consultant and navigate market changes, you have to be willing to adapt your price accordingly! A successful track record will drive up your value, and you may find that you’re able to maintain your income while charging higher rates for fewer contracts.
It’s also important to make a habit of reviewing your service packages for accuracy. Changes in your industry, or even in the economy, affect how much time you put into your projects and what business expenses you incur.
Does this project still take the same amount of time? Or does it demand more resources lately? Does my retainer fee reflect the support I provide my clients? Have my business expenses gone up this year?
Routinely asking these kinds of questions will help prevent you from losing your profit margin over time.
4 pricing models for consultants
As a freelance consultant, not only can you set your own price for your consulting services, but you have the freedom to choose the best price structure for your business and clients. Here are four of the most popular pricing models used by consultants:
| Pricing Model | Advantage | Challenge |
|---|---|---|
| Hourly | Straightforward and flexible | Not scalable, focuses on time instead of value |
| Project | Scalable and value-based | Requires accurate estimation of time, effort, and resources |
| Retainer | Brings in consistent income | Clients must be willing to pay a recurring fee |
| Performance-based | Can be highly lucrative | Risky and difficult to implement |
Read on to learn more about the pros and cons of each fee structure. (And remember that you can offer multiple types of pricing models to accommodate different client needs.)
Hourly rate
Charging clients by the hour is the basic pricing strategy where new consultants typically start. However, most consultants will eventually move beyond this strategy as their business grows.
Example: A project management consultant charges $200 per hour to oversee the implementation of a new software system for a healthcare organization. The hourly rate allows the client to scale the consultant’s involvement based on project needs, such as during key phases like system integration and employee training.
How to calculate an hourly rate for specific services
[Profit Goal + Expenses] / [Billable Hours] = Base Hourly Rate
To calculate your hourly rate, start by identifying your profit goal as a freelancer. Whether you work as a full-time independent consultant or this is your side hustle, determine the amount that will meet your needs. Next, factor in your expenses — from software costs to paid time off. Then divide the total revenue you need to earn by the number of billable hours you plan to work. This is your base hourly rate – the amount you have to charge to make sure you’re earning your goal income. From there, you can mark up your hourly rate to account for high-value projects, holiday hours, or other factors that influence your price.
Consultant Hourly Rate Calculator
Base Hourly Rate:
Advantages of an hourly rate
This straightforward pricing model compensates you for the amount of time that a project takes and affords flexibility for projects that are difficult to estimate ahead of time. Charging an hourly fee is common for short-term engagements where the client needs your expertise for a project that doesn’t require ongoing services. Even if you expand to other pricing methods, an hourly consulting rate can always be a helpful add-on to your usual project rate or monthly retainer fee.
Challenges of an hourly rate
Hourly services are very difficult to scale. You only have so many billable hours in a day — and if you intend to hire employees at some point, you will have more expenses than what can be covered by an hourly rate. This pricing strategy also risks tying your worth as a consultant to the number of hours that you spend working instead of the results that you get for your clients. Some projects won’t take a significant number of hours, but the quality of the work still demands a premium price!
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Project fee
A project-based rate is one of the most popular pricing strategies, implemented by all types of consultants. This pricing model is based on deliverables — clients are charged a flat fee for a designated scope of work. The price you set for a consulting project should factor in how many hours you expect to spend on it, but unlike an hourly rate, project pricing doesn’t have to be calculated strictly based on time.
Example: A business consultant charges $20,000 to develop a market entry strategy for a company expanding into a new geographic region. The project scope includes market research, competitor analysis, and a detailed go-to-market plan.
How to calculate a project fee
[Hourly Rate] x [Estimated Billable Hours] + [Markup] = Project Fee
To calculate your project fee, multiply your hourly rate by the number of hours that you estimate the project will take. The estimated billable hours should include buffer time for unexpected complications. However, remember that your project fee is the price of the whole package. It doesn’t necessarily correspond to a specific number of hours. For example, you can mark up your fee for projects that demand a higher level of expertise or urgency.
Advantages of a project fee
This pricing structure gives you the freedom to set a rate that accurately reflects your value, regardless of time spent. The client is paying for an end result, not a specific number of hours! Charging by project also helps to factor in business expenses (especially if you add people to your team), since you don’t have to cover every cost through an hourly rate.
Challenges of a project fee
Unlike an hourly rate, which is flexible and open-ended, a project has a fixed scope and an upfront fee. This means you need to know the amount of work that a project will demand from you ahead of time so that you are compensated fairly. If you run into unanticipated complications, you can end up losing money on a project because it wasn’t estimated correctly!
Retainer fee
A retainer pricing model involves charging an upfront fee for a set number of hours or tasks during a given time frame (often per month). Calculating a retainer fee works the same way as calculating an hourly or project rate, but the goal is to offer long-term consulting services. It’s common for consultants to offer a monthly retainer after they’ve established a relationship with a client and proven the value of their services.
Example: A financial consultant charges a monthly fee of $2,500 to provide ongoing advisory services for a mid-sized company’s cash flow management and investment strategies.
How to calculate a retainer fee
[Hourly Rate] x [Estimated Billable Hours] + [Markup] = Retainer Fee per [Period of Time]
A retainer fee is calculated the same way as a project fee — multiply your hourly rate by estimated billable hours (including buffer time for complications) and mark up the rate as needed for demanding or high-value projects. The only difference is that a retainer fee covers a specific period of time and is charged on a recurring basis.
Advantages of a retainer
A retainer brings stability and consistency to your cash flow, giving you predictable income every month. And because a retainer model is built on long-term client relationships, you can focus on being a valuable partner for a select number of clients instead of continually onboarding new clients.
Challenges of a retainer
Offering consulting services on a retainer means fewer sales but bigger sales. You have to demonstrate to prospects that your services are worth paying for indefinitely. You may need to supplement retainer contracts with hourly or project-based work, as not every client will require your continued availability. Some consultants offer discounts to incentivize clients to pay for a retainer but keep in mind that lowering your rates can hurt your long-term growth.
Performance-based rate
A performance-based fee gives the consultant a percentage of the measurable outcome that they achieve for the client (such as an amount saved or revenue earned). This pricing model can be strategic for consultants who drive measurable results for their clients — such as marketing or financial consultants. However, we don’t recommend a performance-based rate for most consultants because unforeseen circumstances or events that are out of your control make it risky.
Example: A marketing consultant charges 10% of the revenue generated by a new campaign over a 12-month period (i.e. if the campaign drives $150,000 in sales, the consultant earns $15,000). This arrangement ensures the consultant is compensated based on measurable results tied to revenue growth.
How to calculate a performance-based rate
[Percentage %] x [Project Results Expressed in Dollar Amount] = Performance-Based Rate
To calculate a performance-based rate, simply take a percentage of the results that you achieved for your client (expressed in dollars). A performance-based rate can be estimated ahead of time, but the actual fee isn’t determined until the project ends. How much you are ultimately paid depends on the success of the project.
Advantages of a performance-based rate
When successfully implemented, this pricing strategy has the potential to be very lucrative for independent consultants. That’s because performance-based pricing is entirely based on results. If you know that you can make a big difference in your clients’ bottom line — and you have a foolproof way to measure those results — you might be able to earn more with this type of pricing strategy than others. Performance-based pricing also reassures potential clients that their investment will pay off.
Challenges of a performance-based rate
A performance-based rate poses a lot of risks for the consultant. If there’s any uncertainty around the outcome being measured and how the outcome relates to the consultant’s services, it’s all too easy for the consultant to get the short end of the deal. This pricing model demands that the consultant and client have crystal clear expectations for the project, a very specific goal that can be measured, and a bulletproof contract to protect the consultant from being underpaid.
Hybrid pricing models
While a certain pricing structure may work best for most of your clients, it’s a good idea to have a variety of packages available. For instance, you can present a client with a retainer option after their project has ended to maintain the client relationship. Or, upsell hourly services to clients who have hired you for a project but need additional support.
Example: An SEO consultant charges $1250 for a keyword gap analysis that identifies opportunities for the client to gain future rankings in organic search. After the project is completed, the consultant offers a $2,000 monthly retainer for ongoing SEO content development.
Advantages of hybrid pricing models
A hybrid pricing model is helpful to both the consultant and their clients. Offering multiple types of pricing models not only helps you meet a wider variety of client needs, but it opens up opportunities to upsell, cross-sell, or downsell consulting services to your current clients. Maximizing revenue from existing clients means earning more without increasing your rate or onboarding new clients!
Challenges of hybrid pricing models
The main challenge of incorporating multiple pricing models is that they can be complicated to administer. Instead of having a standard set of packages that clients can choose from or a straightforward hourly rate, you will need to keep track of more customized client contracts, balancing both long-term and short-term arrangements.
Check out our guide on how to start a consulting business
Check out our guide on how to start a consulting business
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