The Problem With A Consulting Hourly Rate (And What To Do Instead)

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If you’re using a consulting hourly rate for your services, you likely could be making 3-5x as much — for the same services.

In our 2023 Consulting Fees Study, we learned that 29% of consultants use an hourly rate.

That means it’s the 2nd most popular pricing strategy for consultants.

However, after spending over 13 years coaching consultants to raise their fees by 30%-400%+…

…we’ve learned that charging an hourly rate is one of the worst ways to command higher feesespecially if you’re an experienced consultant.

In this article, I’ll break down:

What Is A Consulting Hourly Rate?

A consulting hourly rate is a pricing method where you charge by the hour for your consulting services.

You set an hourly rate, track your hours, and then bill your client based on the hours you’ve worked.

However, if you’ve developed deep expertise in your field, we recommend you DON’T use the hourly billing method.

The Hourly Method Formula For Setting Your Hourly Rate

If you are a beginner who’s new to consulting and you want a quick and easy way to price your services, you can use the steps below:

Step 1. Open up Google and search for the average salary for your position. Write that number down.

Example: “senior marketing manager average salary” = $98K.

Step 2. Enter the average salary in a salary to hourly converter.

For work hours per week, enter “20.”

As a beginner consultant, you’re typically not working 40-hour weeks.

You’ll spend just as much time winning projects as you do delivering them.

For work weeks per year, enter “48” (or however many weeks you want to work, subtracting the number of weeks you want to take off).

(You can also use our Consulting Fees Calculator which will help you figure out what your hourly fee should be in the early days of your business. Note: I say “should”, this is based on what we’ve seen thousands of consultants do over the years. But none of this is financial advice and shouldn’t be taken as such, as we don’t know your specific situation. )

consulting hourly rate calculator

Step 3. Round your new hourly rate up or down in $25 dollar increments.

Example: A salary of $98,000 equates to a monthly pay of $8167, weekly pay of $2042, and an hourly wage of $102.

$102 = $100 per hour.

This is your starting hourly fee.

If you feel like it is too low, raise it. But don’t lower your fee.

Consulting Hourly Rate Data & Examples

What are consultants charging per hour?

  • 39% of consultants charge between $100-$250 per hour.
  • 25% don’t use hourly fees.
  • 19% charge between $250-$500 per hour.
  • 12% charge less than $100 per hour.
  • 4% charge between $500-$1000 per hour.
  • And 0.5% charge $1000+ per hour.

If you’re using a consulting hourly rate for your services, you likely could be making 3-5x as much — for the same services.

Here’s a breakdown of a few different factors that impact your hourly rate as a consultant:

  • Specialist consultants have a higher hourly rate than non-specialists. 28% of specialists charge $250+ per hour. Only 7% of non-specialists charge $250+ per hour.
  • Male consultants are slightly more likely (5%) than female consultants to not use hourly fees.
  • Of consultants making $2K-$5K per month, 64% of them are charging less than $250 per hour. For consultants making $10K-$45K per month, 37% of them are charging less than $250 per hour.

(Source: 2023 Consulting Fees Study)

This simple, easy method is a good choice for beginners who are working on their first few consulting projects.

Project based billing and productized offers are harder to price accurately if you haven’t provided the services at least once. That’s because you don’t know how long things will actually take and what will really be required…until you’re doing the work.

However, if you’ve developed deep expertise in your field, we recommend you DON’T use the hourly billing method.

In the next section, I’ll explain why hourly rates penalize expert consultants.

Why You SHOULDN’T Use An Hourly Rate

The problem with hourly rates is twofold:

  1. Hourly rates do not incentivize you, the consultant, to deliver results quickly. And the quicker you deliver your results, the better off your client is.
  2. Hourly rates do nothing to communicate the value you’ll bring.

Allow me to demonstrate with a short story.

A few years ago, I spoke with several international tax consultants about helping us with our taxes.

One mistake that many of them made was simply telling me their hourly rate with no discussion of the value they would bring or how long it would take.

And I’ve seen many consultants make this same mistake.

One of the tax consultants told me that his hourly rate was $450.

Now, $450 an hour might sound like a premium.

But when you come out and say that your fee is $450 an hour, it doesn’t convey a lot of value.

And this results in you leaving a lot of money on the table.

Why?

The $450 per hour price tag alone isn’t a compelling reason to buy. In fact, by itself, it can scare people away.

If you want to earn higher fees and win more business with your offer…

…you must package it in a way that your buyers perceive it as a high-value investment.

In this case, what could this international tax accountant have done to make me perceive their service as having higher value?

Rather than saying, “My hourly fee is $X,” think about creating a consulting offer.

If this international tax accountant had said, “You know Michael, I have a specific program where I will take you through A, B, C. It’s going to save you $500K per year in taxes, and the fee is $10K — and we’ll get this all done for you in 4 weeks” it would feel like a no-brainer.

Even though that is more expensive than the hourly rate, it’s much more attractive to me.

Why?

Because I see the value in it. It’s a significant ROI for me.

But all he said was, “My fee is $450 an hour.”

That might sound like a premium fee. But there is a lot of ambiguity around how long it’s going to take. And the price alone doesn’t give me any reason to take action.

You want to shift the buyer from thinking about the cost to seeing the potential return on investment.

The lesson here is this: pricing is more than choosing an hourly rate.

Pricing IS positioning and marketing.

And your clients are going to see more value in a different pricing form — like packaged consulting offers or value-based fees where you communicate the value you’ll create for them.

If they perceive higher levels of value, they’ll be willing, even excited, to invest a higher amount.

In the next section, I’ll discuss a few alternatives to a consulting hourly rate that create better incentives AND communicate more value.

Alternatives To A Consulting Hourly Rate

Here are 5 alternatives to a consulting hourly rate that will help you maximize your fees.

You want to shift the buyer from thinking about the cost to seeing the potential return on investment.

1. Project-Based Fees

What it is: This model involves charging a fixed fee for a specific project, regardless of the time spent. It’s often used when the scope, deliverables, and timeline of a project are clearly defined.

Example: A marketing consultant in the digital advertising industry could charge $60,000 for a comprehensive three-month campaign development and execution project. This fee would cover market research, strategy development, content creation, and campaign monitoring.

2. Value & ROI Based Fees

What it is: Here, fees are based on the value or return on investment (ROI) the consultant provides, rather than the time spent. This model aligns the consultant’s incentives with the client’s success.

Example: A business growth consultant in the manufacturing sector might charge 20% of the revenue increase they help achieve. If they assist a client in boosting revenue from $500,000 to $1M the consultant’s fee would be 20% of the $500K increase, equating to $100K.

3. Consulting Monthly Retainers

What it is: This model involves a fixed monthly fee for ongoing services. It’s suitable for long-term projects where the consultant provides continuous support or services. These can either be pay for work (the client pays you for ongoing deliverables) or pay for access (the client pays you for ongoing access to your expertise).

Example: An IT consultant specializing in cybersecurity might offer a monthly retainer of $5,000 to a small business. This fee could cover regular system audits, 24/7 monitoring for security breaches, and ongoing staff training on security best practices.

4. Productized Consulting Services

What it is: Productized consulting packages turn services into fixed-scope offers with set deliverables and prices. This approach simplifies the buying process for clients and will streamline your service delivery.

Example: A human resources consultant could offer a “Hiring Process Makeover” package for $8,000. This package might include revising job descriptions, optimizing interview processes, and implementing a new applicant tracking system for their specific industry.

5. Consulting For Equity

What it is: Instead of monetary compensation, consultants receive equity in the client’s company. This model is common in startups and can be lucrative if the business succeeds.

Example: A strategy consultant in the tech startup space might agree to help a new company develop its business strategy over 6 months in exchange for a 5% equity stake. If the startup later gets valued at $2 million, the consultant’s equity would be worth $100,000.

Get Help Commanding Premium Consulting Fees

Do you feel stuck with your consulting hourly rate?

Like you want to experiment with a more advanced, higher-leverage pricing strategy…

…but you don’t know how to put your ideas into action?

If you’d like personalized coaching and the support of an entire consulting community to help you raise your fees, we can help.

In our Clarity Coaching program, we’ve helped over 1000 consultants to build a more strategic, profitable, and scalable, consulting business.

LEARN MORE ABOUT CLARITY COACHING

Whether you’re struggling to price your services based on value, want to build in more recurring revenue, or want to know how to structure an equity deal properly, our program will help you increase your pricing with confidence.

You’ll learn how to make more money with every project you take on — and how to land more clients than ever before. Learn more about Clarity Coaching and get in touch to talk about your situation and goals.

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