How much do consulting companies charge?

The professional services industry is very competitive and the competition continues to grow. Therefore, improving margins and cash flow should be a priority for any organization. Finding the right pricing strategy and focusing on the appropriate metrics can help professional services firms stand out from the competition and achieve sustainable growth.

In this article, we focus only on consulting company pricing.

Typically, consulting firms bill their clients using average daily rates (ADRs) or hourly billing rates. For smaller businesses, average daily rates are more commonly used when a project proposal is sent to a client. The ADR parameter aims to be transparent with the client about the added value of the team of consultants working on the project.

A consulting firm can assign 3 tasks to the client:

1. Project-based fees: Consultants are given a specific project to complete and are paid a fixed fee, irrespective of the time spent on the project. In the customer's proposal, consultants indicate the number of days they estimate they will need for the project. The number of days is multiplied by each team member working on the ADR project. We describe below how ADRs are set up.Number of days (estimated) x Average daily rate = Project-based fee.If the consultants manage to finalize the project in fewer days than quoted, the consulting company will show a positive result. On the other hand, if the consultants take longer, it will be at a loss for the consulting firm. Tracking a project's progress against the initial plan is therefore a good practice to ensure that projects remain profitable.
2. Time and material charges: as opposed to fixed charges, time and material billing means that consultants charge on the basis of the actual time and expenses required by the project. This type of billing is generally used for seconded consultants working on long-term projects that are likely to change over time. Many IT consultants, for example, bill on a time-and-materials basis.
3. Performance-based rate: part or all of the project is invoiced on the basis of project results. For example, in a cost reduction project, the success fee may be a percentage of the savings achieved, or in the case of a product launch, it may be a percentage of the revenues generated by the product.

See below for some examples of consultation fees (per day):

VIEW AVERAGE DAILY RATES

Note: These numbers are averages to give a general idea. Depending on the company, the type of project, the seniority of the consultants, they can vary considerably.

TECHNICAL DEVELOPERS AVERAGE DAILY RATES

Define the hourly wage you would expect if you worked for another company. Add up the benefits and taxes a company would pay if you were employed: Consider your overall salary, the value of benefits, the number of annual work days and the number of hours worked per week.

Ex:

Annual salary: $70,000 Benefits (total annual value): $20,000

Number of days of absence / year (illness, vacation, training): 20

Hours worked per week: 42

Votre salaire horaire de base est de: 44,64 $ = {(70 000 + 20 000) / [(52 x 42) – (42/5 x 20)]}

Adjust it to account for non-billable time and expenses

If you have to pay expenses and if you are self-employed and spend time prospecting for new clients, you should factor this into your hourly rate. For example, it is common to consider that one third of the rate corresponds to the base salary, one third to expenses and one third to administrative and commercial tasks. You must therefore multiply your basic hourly salary by 3: $44.64 x 3 = $133.89

Adjust it to one business day

In some cases, you will choose to charge for a full day or half a day. Simply multiply by the number of hours in a workday, i.e. 8 hours: $133.89 x 8 = $1071.12

I suggest approximating both the hourly rate and the average daily rate to the nearest $10: $1070 in this case.

Sources:

https://www.forbes.com/2006/11/06/bostonconsulting-marsh-mckinsey-ent-fin-cx_mc_1106pricing.html#9b61ef067812
http://consultantjournal.com/blog/setting-consulting-fee-rates
https://www.consultingsuccess.com/2017-consulting-fees-study
https://www.wavestone.com/app/uploads/2016/07/SOLUCOM_SFAF_RA201314_04062014_VF-Web.pdf[