Setting Consulting Rates

Holly will see you in just a minute.

I had recently left WordPerfect and Utah and moved to the Seattle area where I was waiting out a 6 month non-compete period before going to work for Microsoft. (Don’t Want to Know How Much That Cost Me) Since my wife and I had both gotten a severance package plus WordPerfect was paying my salary for the period of the non-compete, I didn’t really need to go to work. But, I was bored. And I’d been raised to work. So, I decided to start consulting on the WordPerfect Office email program. This was just before it was rebranded as Novell GroupWise.

It’s one thing to decide you are a consultant. It’s another to get someone to pay you to consult. I talked to my friends who were in WordPerfect sales about whom I should contact. They directed me to a local consulting company. This is actually my preferred method for consulting. You can be the goto guy while handing off much of the overhead to someone else.

There’s a catch, of course. The consulting company has to get paid. They take a cut. I understood this idea conceptually, but this was the first time I’d been through it.

The biggest question for new consultants is “How much do I charge?” And in the days before the Internet and Google, it was a really hard question to answer. I’d been sweating over it for days. I finally settled on $70/hour. In 1992 this was an INSANE amount. I’d just come from a job where I was making about $35,000/year. That works out to about $17.50/hour.

Yeah, $70. . .But, what if they think it’s too high? What if it totally prices me out of the market? Seventy per hour is the equivalent of $140,000 per year. Can I really ask them for six figures? But, they aren’t paying it, the clients will. . .but, what if the clients think that’s too high? The consulting company has to add on their cut. Maybe I should go lower. . .

And so it went. I was doing a pretty good job of negotiating against myself. But, I really had no idea what was reasonable. Still, I kept coming back to the $70/hour number.

Just be confident. Act like you’re worth it!

I’d read somewhere that when making an initial offer, most people underbid. Take your number and add 10% and make that your opening bid.

Holly will see you now.

Okay, so $77. . .That’s stupid. It should be a round number.

Hello, Rodney. I’m excited to finally meet you. Your resume is certainly impressive and given your WordPerfect Office knowledge, I don’t think we’ll have any trouble placing you. Not too many Office experts here in Microsoft’s backyard.

Seventy-seven? That’s like $150,000. . .no, $150,00 is $75 per hour. Seventy-seven would be. . .let’s see. . .

All we have to do is get your billing rate.

A HUNDRED AND SIXTY THOUSAND A YEAR? That’s crazy. No way will they go for it. This is gonna be the shortest consulting agreement in the history of computers.

Rodney?

Okay, worst case? She laughs and we go back on vacation. I can live with that.

Eighty.

Excuse me?

Ah. . .my billing rate is eighty dollars per hour.

Here it comes.

That’ll work out great. We’re planning to bill your time out at $120/hour.

Even in 2013 it’s still a lot of money!

This week I will be focusing on the Consulting business. Yesterday I explained how consulting is like Feasting On Brownies. . .Every Three Weeks. Tomorrow, I’ll talk about how to bill for more than 24 hours in a day and why it’s a very bad idea.

Rodney M. Bliss is a blogger, author and IT consultant. Even after 20 years he struggles with the billing rate, but he’s better at it than he was. He lives in Pleasant Grove, Utah with is lovely wife and 13 children.