Becoming an independent consultant gives you unparalleled freedom and flexibility, the ability to focus on the work you enjoy, and the opportunity to make more money. However, there are aspects of working independently that can be especially challenging to learn.

Pricing is a good example. When working at a large consulting firm, fees are usually set by Partners, and payment is managed for you. But as an independent consultant, you need to handle pricing on your own — which can be difficult and time consuming. Especially since you are often competing with other consultants on pricing when really, you should be focused on spotlighting proven experience. 

That’s why we’ve compiled this list of ways to manage fees as an independent consultant or boutique consulting firm. 

Table of Contents

1. Jump to: Selecting Your Fee Structure
2. Jump to: Establishing Your Rates

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How to Manage Fees as an Independent Consultant or Boutique Consultancy

1. Select your independent consulting fee structure. 

First, select your fee structure — this informs how often you’re paid and on what basis.

Fixed Fee Structure

The most common fee structure for firms large and small — and the structure that best aligns with client-consultant incentives — is a fixed fee structure. This approach is project-, engagement-, or deliverable-based and payment happens at the conclusion of each agreed-upon milestone. Before kicking off work, it requires you and your client to identify those specific milestones that, upon hitting, you’ll request payment. 

Although a variable or hourly fee structure may seem like a simpler option, fixed fee structures are preferable. They’re popular because they: 

• Allow consultants to get paid faster.
• Align incentives between clients and consultants.
• Lead to higher overall rates for consultants. 
• Avoid potential conflict with your client. 
• Remove administrative work since there’s no need for time sheets.

Here are some examples of what a fixed fee structure might look like: 

• Request half of the total project fee up front and the remaining half at project completion. 
• Request 25% of the total project fee at kick-off, 25% at mid-point, and 50% at project completion. 
• Request payment after you submit each major component/deliverable of the project.
• Request payment on the first of every month for that month of upcoming work (instead of establishing an hourly or daily rate).

In general, many consulting firms bill for a significant portion of the project (at least 25% and sometimes as much as 50%) at project kick-off. The most successful independent consultants do the same. This is justified because there is a significant amount of work in understanding the problem and structuring the approach to the work. 

Variable Fee Structure 

A variable structure means you’re getting paid based on the hourly, daily, or weekly cost of a project — making it less predictable than a fixed structure. It requires you and your client to determine 1) how long you believe the project will take you to complete, 2) how much you will be paid for the project, and 3) how often you’ll get paid. 

For example, maybe you estimate a project will take you a total of three months to complete. But after getting into it, you realize you’ll be able to finish the project in two-and-a-half months. With a variable fee structure, your client just pays you for the two-and-a-half months of work. Only getting paid 75% of what you originally planned on booking makes things difficult from a cash flow perspective. (So instead of charging a variable fee structure, you might consider charging a fixed rate or flat monthly rate to improve cash flow and predictability.)

Some consultants like a variable fee structure because it’s straightforward. However, it can lead to misalignment between the consultant and client (negotiating an hourly or weekly rate can be challenging). It can also make it more difficult to justify an hourly fee than a fee based on the value of a completed deliverable. 

Success-based Fee Structure

Success-based fee structures are less popular than fixed and variable fees because they have the potential to cause more friction between you and your client. That’s because you’re paid based on the overall success that your work delivers, and delivered after the completion of a project. It can often be difficult to measure the success of a project effectively. 

For example, if you submit a deliverable to your client and it results in greater value than planned/expected, your fee will be higher — which sounds appealing, right? In practice, this is actually more challenging than it sounds. That’s because it often takes a long time to realize value and it can be difficult to appropriately measure value for many engagements. Additionally, in many cases, it’s difficult to attribute value to a single project. 

However, it’s important to note that if you’re working on a project that has an outcome that’s easily measurable, (e.g., an improvement on a marketing channel or a reduction of costs), success-based fees can be an attractive option. You can also combine a success fee with another fee type.

Retainer Fee Structure

A retainer fee structure works well for longer-term engagements. You might be working on multiple projects over an extended period, or both you and your client want to leave the door open for ad hoc work to be added to your plate. It also works well for advisory roles — for example, if you’re hired to work as a fractional leader (e.g., interim CFO) for a six-month window, you might be on retainer for a client who pays you upfront. 

Some independent consultants make their retainer fee their only offering for clients. That’s because if you’re able to get hired on a retainer structure by several clients at once, you can maintain steady, predictable cash flow and work flexibility.

2. Establish your rates.

What is a “rate”? It’s the amount you charge for your work, expertise, and time. 

While you will likely think about rates in terms of time when you’re scoping or estimating a project and putting together a proposal, we encourage you to establish your rates based on value created, not simply time spent. This is also how large firms price. While it requires up-front work, establishing rates based on the value your work provides helps with discovery of the problem and determining whether you are the right person for the job.

In general, a consultant should target fees that are 10-15% of the value of the work, though that can vary depending on the level of expertise required and the timeframe for value realization. A project that demands highly specialized knowledge can garner a higher percentage, as can work that results in the client seeing an immediate return on investment. Read this article for a more in-depth discussion on how to establish a value-based fee.

Establishing your rate is part art, part science, and never absolute. You can expect your rates to change over time as your experience grows and demand for your skillset changes. It’s important to ensure that your rate reflects the value you bring, covers expenses, and enables you to remain competitive. 

Formulas for Calculating Daily and Hourly Rates

Here are some commonly-used formulas to calculate a daily or hourly rate.

Daily Rate

Use a daily rate when you need to cover benefits and downtime in between jobs. To calculate it, take your daily salary as a full-time employee and add a 25-40% premium to it depending on your level of experience and the value of your work to account for the cost of benefits, taxes, or overhead.

Half-Day Rate and Hourly Rates

To get your half-day rate, take 75% of your daily rate. And to get your hourly rate, take 30% of your half-day rate.

Rather than charging precisely 50% of your daily rate when calculating your half-day rate — and performing a similar calculation to identify your hourly rate based on your daily rate — account for the fact that it’s hard to find another half-day of work. It’s also difficult to find a job with the exact number of hours in a typical workday. So you’ll naturally need to change your client upward of 50% of your daily rate when it comes to your half-day rate. The same goes for your hourly rate. 

For example, say your salary as a full-time employee was $200,000. Multiply that by 2 to get a total of $400,000. Then divide by 250 to get your daily rate of $1600. Your half-day rate would be $1200 and your hourly rate would be $360.

3. Set client expectations around the timeframe for the project and cost.

It’s important to set expectations with your client about the amount of time it will take you to complete a project and your fee for that work. Before kick-off get aligned on the scope of the work, project outcomes, and your fee. To justify your pricing, make it clear that you understand how to tackle this body of work and that you’re ready to begin work immediately. Share past project deliverables with your client so they know that what they’ll be receiving from you is a high-quality deliverable. 

When possible, avoid overestimating how long it will take you to complete a project. Independent consultants often do this and then choose to reduce their rates to stay within the client’s budget. But realistically, you may be able to finish the project within the proposed time frame and keep your rate as is.

4. Raise your fees thoughtfully and fairly. 

As you continue your work as an independent consultant, you may want to experiment with raising your rates. The key is raising them thoughtfully and fairly as you become more experienced at what you do.

For example, if you’re going to extend work with a client, or plan on working with them again, you may want to keep your rate as is. If you choose to raise rates with a client you’ve worked for before, be communicative about why your rates are being raised to maintain your relationship with them. 

There are several reasons you may raise your fees — here are some examples:

1. Market conditions and inflation (we see consultants on Catalant’s Expert Marketplace consistently increasing fees alongside inflation).
2. More relevant experience in your segment — which, in turn, allows you to deliver more value.
3. You’ve conducted market research and feel confident that the fair market rates are higher than what your fees are.
4. Other consultants performing work similar to yours are charging more than you are.