Bill Rate Calculation Strategies for Independent Consultants

Consulting Bill Rate Strategies Figuring Out What To Charge Welcome! The webinar will begin shortly. If you require technical support, please email bbazian@mbopartners.com with your phone and email contact information. Please mute your phone unless you are asking a question, and do not put us on hold! 1 Copyright © 2008 MBO Partners. All rights reserved.

The full screen icon maximizes the presentation area. The raise hand icon alerts the organizer that you have a question or comment. The chat box allows you to send a question to the presenter. 2 Copyright © 2008 MBO Partners. All rights reserved.

Our Mission “To make it easy for independent consultants and their clients to work together” “If you’re thinking about going out on your own, the MBO way is the way to go; just let them handle everything and it will make it easier for you and your client.” Dawn Alexander, Communications Attorney 4 Copyright © 2008 MBO Partners. All rights reserved.

Overview The Importance of Pricing  Bill Rate Basics  Terms to Understand Cost Based  How Low Can You Go  Planning for Profit  Caveats  The Calculator Your Strategy Market Based  When to Review  Defining What You Do  Putting it Together  Sources of Data  Tips for Tough Times  Pros and Cons  Marketing Your Services  Ensuring Client ROI Value Based  Overview of Value Pricing  Methods to Explore 5 Copyright © 2008 MBO Partners. All rights reserved.

The Importance of Pricing Terms to Understand Admin 15%  Standard Avail Hours  Billable Hours Training,  Utilization 8%  Realization  Minimum Bill Rate Marketing,  Salary Multiplier 12% Actual  Target Profit Rate Work 65% “How Do You Spend Time.” Adapted from Consulting Magazine Bill Rate Basics  Bill rates versus pay rates What’s in a Bill rate? (taxes, overhead, etc)   Rules of Thumb to convert salary to bill rate (.1% and the rule of 3rds)  Contractor versus Consultant: Who am I? 6 Copyright © 2008 MBO Partners. All rights reserved.

Cost Based Rates The most common method Determine the cost to recover Hours you can actually bill How low can you go – finding bottom Planning for profit Caveats to cost based rates  Does not consider value (undercharging)  Does not consider competitive landscape  Might be inflated (overcharging) 7 Copyright © 2008 MBO Partners. All rights reserved.

MBO Cost Based Rate Calculator Contact your MBO Partners representative, or email Steve at sarhancet@mbopartners.com to access our new cost based rate calculator. 8 Copyright © 2008 MBO Partners. All rights reserved.

Cost Based: Things To Remember Know your floor, to the penny  Always recalculate your survival rate if anything changes You won’t be working 40 billable hours every week  Utilization rate of 80% is optimistic – reality may be 65%  There are ways to reduce non-billable hours: find them. You need to make your pay, but also the overhead  Professional fees (legal, etc)  Communication and computer equipment fees Worker’s comp and business insurances: GL & E&O   Marketing costs  Travel and entertainment  Licensing, tuition, seminars, conferences, educational materials  Healthcare, retirement, and other benefits you set up  Taxes, and lots of them (include self-employment taxes) 9 Copyright © 2008 MBO Partners. All rights reserved.

Market Based Rates Market rates are based on supply and demand  Must have common definition to identify the work  Must have current reliable rate data Defining what you do  Skills-based rates (experience, industry, region, title)  Package deals (website build, logo development, training session) Getting good rate data  Competitive research  GSA rate cards  Payscale.com  RealRates.com  http://www.hotgigs.com/rates/  www.salary.com (must convert to bill rate) 10 Copyright © 2008 MBO Partners. All rights reserved.

Market Based Rates Pros of market rates  Price aligned with what the market says  You are within industry expectations  Easier selling process than other methods Cons of market rates  Defined yourself as a commodity  Positioned more as a contractor and not a consultant  If you provide strategy and value, you’re undercharging 11 Copyright © 2008 MBO Partners. All rights reserved.

Value Based Rates Value pricing overview  Least used, most difficult  Very specific to engagement, client, your contribution  Not definable by market rates  Price based on value created: ROI to client  Appropriate for consultants, not contractors  Consulting firms charge salary multiplier of 3-4x usually Bottom line is value to client  The only way to sell this model  Earn strategic positioning 12 Copyright © 2008 MBO Partners. All rights reserved.

Value Pricing Methods Fixed Price  Agree with client on price for approved deliverable  High risk, high reward  You MUST be experienced in delivering similar projects, and  You MUST be highly confident in predicting your effort  Not appropriate for small or low-end projects  Get partial payment up front Contingency Fee  True VC style arrangement where you earn a piece of the success  High risk, high return Easy to sell – gets you in the door   You MUST be confident in your success Caveat: client may not be motivated if no “skin in the game”  13 Copyright © 2008 MBO Partners. All rights reserved.

Value Pricing Methods Retainer Fee  Based on a budgeted amount  Requires “strings,” trust, and periodic review of profitability  Easier to sell since clients can budget Hybrid or Blended Rates  Combination of any of the above plus min hourly or retainer  Easy to sell with low entry cost for client  Reduces risk for consultant with a minimum fee or commitment 14 Copyright © 2008 MBO Partners. All rights reserved.

Your Strategy Review your rates at least annually  All aspects of your operating strategy  Changes in overhead  Economic changes  Inflation (or deflation)  Local market conditions  Competitor rates Niche specialization – de-commoditize   New expertise and certifications Put the pieces together  Calculate your cost, market, and value rate ranges  Get real about what’s required to succeed  Get ready to be agile 15 Copyright © 2008 MBO Partners. All rights reserved.

Marketing and Client ROI Am I consulting or contracting?  Position in the marketplace  If you don’t like it, change it Marketing and business development  Does my reputation support these rates?  Make sure references affirm the “value” you put in your rate Am I prepared to sell my rate?  Articulate value and ROI to client  Know the competitive landscape Am I building strong client relationships?  You need to provide long term client satisfaction  Usually built on results, integrity and trust 16 Copyright © 2008 MBO Partners. All rights reserved.

Tips For Tough Times Be prepared to cut costs  Survival rate: exactly how low you can go  Then go lower by reducing your overhead  Working smarter AND harder than your competition Price aggressively  Don’t be afraid to discount to win a new relationship  Make it clear the discount is initial project only – don’t get locked in the basement Try fixed price to reduce client risk  But you’d better be good  Remember to get something up front Knowledge is power  Know your clients’ situation: do your homework  Pay attention to their issues 17 Copyright © 2008 MBO Partners. All rights reserved.

Tips For Tough Times Be extra vigilant with cash flow  Bill frequently, collect diligently  Spend cash wisely Opportunities for small businesses  Federal programs that support small businesses Focus on existing relationships  Easier to sell new services to current clients  Harder to sell new services to new clients 18 Copyright © 2008 MBO Partners. All rights reserved.

Next Steps Get bottom line estimates  MBO Partners cash estimator  Access our new cost-based calculator If already working through MBO  Call your Business Manager to get new estimates For all others, contact us  Through the website www.mbopartners.com  Call 1-800-220-0469  Email Steve Arhancet: sarhancet@mbopartners.com 20 Copyright © 2008 MBO Partners. All rights reserved.

Bill Rate Calculation Strategies for Independent Consultants

by MBO Partners on May 11, 2009

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Bill Rate Calculation Strategies for Independent Consultants — Presentation Transcript