Affected by a Downsizing? Starting a Consulting Practice Could be a Viable Option

Have you been laid off recently? A consulting practice could be a viable employment option for you. Determining potential revenues is a critical step in deciding whether or not entrepreneurship makes sense for you. Moving from a paid employee to an entrepreneur consultant can be both daunting yet exciting because you are charting new territory. Many find it challenging to set their fee structure because they are not sure how to do so, and other consultants are also wary about sharing their rates for fear of being undercut by new consultants, therefore they vigilantly guard their prices. On top of that, you have to decide if you want to be paid hourly, daily, by the project or with a retainer. Setting a fee structure can be a simple process, here’s how:

• Begin with the salary you were earning from your last corporate position. Let’s say that you were paid a base annual salary of $90,000. Adjust your fees based on your expertise, and on the type of services you will be performing.
• Figure out your overhead expenses to operate your new consultancy. Overhead expenses include office rent, marketing, office supplies and equipment, utilities, taxes, insurance and so on. For the purposes of this example let’s assume your overhead is $65,000.
• If you worked five days each week for 52 weeks that would be 260 days each year. But that is not realistic because you need time to recharge (10 days for vacation), holidays (10 days), time for business development, time to perform administrative functions. You will likely be performing only 110 days of actual consulting.
• Your daily rate [($90,000 + $65,000)/110] is $1400.10
• You have to markup your services to make a profit, so that you feel that you are being paid fairly for your services. The markup range is 15% to 30%. For this example, let’s markup your fees by 25%. This means that your new rate is [350.02 profit + $1400.10 original daily rate] $1750

The figure may appear high to you, but typical consulting daily rates range between $1,000 and $2,000. Surprisingly, well established consultants charge that amount each hour. The reality is that that most consultants underestimate how much it will cost to operate a business and price their services too low, which makes it difficult to increase the prices later. Now that you know how to calculate the fee structure for a consulting practice, if you are honest with yourself, is an entrepreneur consultant a viable employment option for you? And, no matter what price you charge for consultation, it is imperative that you deliver impeccable service so that clients feel as if they got what they paid for.