How to Figure Out What to Charge As a Consultant

by Nicole Vulcan

Striking out on your own as a consultant means you will be your own boss and set your own schedule, but it also means you'll have to make career decisions you didn't have to make before. One big dilemma for any self-employed professional is figuring out your fee. To determine how much you should charge per hour, perform some basic calculations based on what you want to earn for the entire year.

Come up with an estimated salary you'd like to make per year. For this example, let's say you want to earn a salary of \$50,000 annually.

Tally the costs of running your business, including the costs of office rent, supplies, electricity, Internet service, telephones, transportation, taxes and fees, marketing materials and insurance. Add that figure and your salary amount to come up with the figure that represents the cost of doing business. If you calculated that you'll have about \$10,000 worth of business expenses a year, your total cost of doing business would be \$60,000.

Determine how much profit you want to make from your business, on top of your usual salary. A profit margin of 10 to 20 percent is common, advises Nolo.com. For this example, say you want a 10 percent profit, which is about \$6,000 annually. Add that figure to your business costs. In this example, that would total \$66,000.

Determine how many hours you expect to work in the year. First, multiply the expected number of billable hours per week by the number of weeks you expect to work during the year. For this example, say you want 30 billable hours a week, and that you want to take four weeks of vacation during the year. This means you'd be working about 48 weeks each year. Multiply 48 by 30 to get to 1,440 total hours for the year.

Divide your total cost of doing business by your hours worked. For this example, you'd divide \$66,000 by 1,440 to arrive at 45.83 -- meaning you'd need to bill your clients about \$46 per hour and work 30 billable hours per week for 48 weeks to make \$50,000 per year in salary, cover \$10,000 in expenses and earn a \$6,000 profit for your business. This gives you a rough estimate of what you should charge, though another important factor is knowing what the market will bear.

Do some research to find out what other people in your line of consulting work are charging for their services. Ask a few business associates who do similar work, keeping in mind that some people might not be willing to share that information. Industry trade associations or networking groups are other resources to find out the going rate in your area, according to "Forbes."