Ask the grumpies: Consulting fees

We’re bumping this week’s Google Questions for a recently emailed Ask the Grumpies.  Because we need your help to answer it.

Dr. Koshary asks:

Out of curiosity, has either of you had occasion to work out what your consulting fee would actually be?  I assume it’s nuts to throw the question over to whomever might hire me, and that I would need to have some figures and rationales worked out.  So far, all I’ve seen online about this is oriented toward sales consultants who would do that for a full-time living.  I look to you both for this sort of wisdom: how should full-time academics – and yes, I hear you, I shouldn’t re-focus my time and attention on this – calculate what their time is worth for consulting?  I have a private fantasy of saying my time is worth $1000 an hour, but I fear to tell that to almost anyone else.

This question relates to an earlier post of Dr. Koshary’s about a potential consulting situation.

Unfortunately, we don’t have a good response for Dr. Koshary.  One of us is pre-tenure and the other has only been tenured for a year, so neither has really cultivated any outside consulting opportunities.

#1 does occasionally do some side-work, but it’s always something that would look good on her cv or is doing a favor for someone who may be able to help her out later, so the money is nice but not the only reason.  She hasn’t done anything for a for-profit company.  #2 has reviewed textbooks and things like that, but she doesn’t negotiate her fee.

One important thing when determining your consulting rate is to think long and hard about what *you* think your time is worth.  In economics, we say, what is the marginal rate of your time?  That is, how much would they have to pay you to work another hour on their project.  That should be your minimum walk-away point.  (We often approximate this with a person’s hourly wage on their regular job, but that isn’t really accurate as generally regular jobs don’t let you work hourly and you have diminishing marginal utility etc.)   However, if you just give them that figure, you may be severely under-cutting yourself (as many academics seem to have a masochistic streak when it comes to how much to pay for work).

I don’t see why not to use the same methods to calculate hourly rates that you’ve been finding online that people use for their full-time jobs.  Obviously, you do not have the same kind of overhead and there will be less paperwork than someone running a consulting company.  But other than that, why would the  calculation be different?

Someone in my partner’s lab now does full-time consulting and each time he gets a new job, he asks for way more money than he did on the previous job and they always say yes without blinking.  He suspects he’s been undercharging from the get-go.  But eventually he’ll hit the right point.

In terms of numbers, doctors and lawyers will often charge in the hundreds of dollars range for an hour of billable time.  So 1K may be a bit much if you’re giving an hourly rate.  Presumably your rate is somewhere in there.

So, to summarize, we have no idea.  But perhaps the Grumpy Nation can help Dr. Koshary out.

Grumpy Nation, have you ever done consulting outside your main job?  How do you figure out how much to charge?  How do you know the value of your time?

13 Responses to “Ask the grumpies: Consulting fees”

  1. Rumpus Says:

    Googling something like “consulting rate” will return many pages about this topic in general. The two suggestions I’ve received have been to figure your hourly wage at your current job and triple that to account for overhead etc, or to find out (somehow) what others are charging and just charge that. It seems that usually there’s someone in any commonly consult-able department who has consulting experience and you can ask them.

    Neither of those options get at how much is your consulting going to impact your client’s situation. For a good anecdote of how a programmer realized that key point, see Patrick McKenzie’s post (aka Kalzumeus blog)
    The only way to determine how your consultancy is going to impact your client is to build up a history of gigs and a network of contacts with which to discuss the matter. So experience and a focus on figuring out the answer even as your experience/history makes the number grow.

  2. Cloud Says:

    Well, the method I most often see to determine your full time contracting rate is to take your yearly salary in thousands of dollars and charge that in hundreds of dollars per hour. So if you make (or think you should make) $100k/year, your hourly contracting rate is roughly $100/hour. This conversion is a quick and dirty way to include downtime, insurance, etc., and make sure you have the take home pay you want while coming up with a number that won’t make people laugh.

    For occasional consulting, I seriously doubt I would take less per hour than I’d take if I were full time contracting, unless I really wanted to do the job.

    $1000/hour is pretty high- I have never seen anyone charge anything close to that. The highest I’ve personally seen is $500/hour, and that was for someone who was providing C-level executive advice/guidance. I work with a contractor who charges over $200/hour, and that seems a bit high but not unfair given his experience and expertise. Of course those exact numbers are undoubtedly highly influenced by my field.

    The most common thing I see in people moonlighting or just doing occasional consulting is that they underprice their time. This is no big deal if they are happy with the amount they are bringing in, but in general is a sign that the person isn’t really in the consulting game for the long haul.

    • nicoleandmaggie Says:

      I like that heuristic! I wonder if an academic should inflate a 9 month salary to 12 months and then take *that* number divided by 100… (And of course, with experience the number will still go up.)

  3. Edie W Says:

    I have a friend who does consulting as her primary job, and she charges about $150/hour. She says this allows her to make a reasonable rate for all the things she has to do for a particular contract, but can’t bill for (organizing files, etc.). I’ve only done a little bit of consulting, but in my case it was helpful to think about the total amount of time I would need to allocate to the project and use that, compensated at roughly the same rate I get paid at my primary job. It worked out to what seemed like an awfully high hourly rate for the time I was actually on-site, but that was because I was also being compensated for my preparation time.

  4. bogart Says:

    I’ve actually been discussing exactly this issue in various context with academics recently. All the numbers (and heuristics) above look low to me relative to what these people are charging.

    One point on which we’ve all agreed is that it depends whether you want the work. If you don’t (particularly) want the work, for whatever reason, name a rate sufficiently large that even if you get the job, you won’t be kicking yourself for accepting it, but rather, figuring, oh what the heck, at least I’m making $1K per hour, or whatever. Conversely of course if they laugh at your rate and decline your services, you just shrug and figure you didn’t want the work anyway. Obviously (unless you really don’t generally want consulting work) you probably want to consider this in a big-picture sense, not just do you want this job, but do you want other jobs from this person/group and their network(s).

    As busy as most of us are, another way to frame the above might be what’s an hour of sleep worth to you? Because that’s what they’re buying, right, an hour of time you’d otherwise be able to spend asleep! Or whatever else is your most-neglected-but-valued activity.

    In terms of actual rates, the academics I work with and have seen or heard actual numbers for/from charge anything from $200 to $450 an hour. These are people employed at an R1 institution, all associate professor or above, and are mostly social science Ph.Ds, some quite quantitative, with the less quant. ones being on the lower end of that scale. A few are MDs, but they aren’t necessarily on the high end of the scale (the projects I’m seeing them on, though, are neither clinical nor basic science medical, but more social sciencey). The high-end folks are billing (consulting for) lawyers. Working out the rates for the ones I know, these numbers run from anywhere to the equivalent of 3 to 6 times what their hourly wage would be if they worked a 12-month contract, but it’s worth remembering that if the institution were charging their time onto a grant, it would be charging roughly double what they actually see as salary, taking that (12-month) hourly rate as described and then bringing in about 25% extra on top for fringe, and an additional roughly 50% of that 125% number for facilities and administration rates. So those 3 to 6 times numbers aren’t really as big as they look (relative to salary) after you factor in non-payroll compensation and the cost of having a workplace, administrative support, and so on.

    • Cloud Says:

      I’ve seen academic Scientific Advisory Board members get in the $300-$500/hour range, but they are meant to be THE experts in some field that a company is particularly interested in. Also, they don’t generally get used for that many hours.

      I think it depends on your seniority, your level of expertise in whatever you’re going to be doing, and the details of what you’re going to be doing.

    • Dr. Koshary Says:

      Thanks for posting the query, Nicoleandmaggie!

      Bogart pinpointed one of the ideas in my mind with that crazy-high rate: “I’m not exactly thrilled about taking time out of my day to deal with your business, so it had better be worth my while.” $1000 an hour is no doubt ridiculous, but those salary calculations I’ve found online all suggest an hourly rate for me of less than $100 an hour. It is literally not worth my time to consult for $100 an hour. If petitioners don’t want to pony up – which is a reasonable response – then I could shrug and go back to what I was doing before they called. And if they actually want to pay my rent check for a month or two, then heck, I’ll do that.

      A specific concern I had about the heuristics was that, although my equipment/support staff overhead would be virtually nil, and my time is worth whatever I think it is, there is a kind of hidden overhead in the form of my years of professional training and their associated expenses, some of which I continue to pay in the form of student loan repayments. Both as a matter of recouping those major expenses and as a matter of telegraphing to petitioners that my expertise is a lot more substantial than simply having a job at a university, it seemed to me that this stuff should figure into the heuristics. (I’m a bit surprised that those sales consultants don’t factor in the cost of an MBA or whatnot.) That’s actually most of why I posed the question: my gut feeling is that the sales-consultant heuristics don’t fit the circumstances of a Ph.D. in a social science who essentially spent an entire decade in training before hanging a shingle. It took a lot of blood, sweat, and cash to make me a qualified expert, and thinking in terms of my current university salary is all but beside the point to my mind.

      • nicoleandmaggie Says:

        Well, the hope is that one’s academic salary (in Cloud’s heuristic) reflects some of the previous training… but obviously not so much. I think that heuristic comes a little low for me too, but not as low if I do the 12 month inflation on what I think I ought to be paid for my dayjob rather than what I’m actually paid…

      • Cloud Says:

        The heuristic I gave only works if you know what you think a fair yearly salary would be for the sort of work you’re consulting to do. It is a formula people in my general industry use to figure out a consulting rate if they are thinking of switching from full time employment. I’ve seen scientists and software engineers use it successfully (as in they get consulting jobs and have a standard of living similar to what they had before going solo- sometimes better). I have no idea if it is applicable to social sciences consulting, but I don’t see why it wouldn’t be, as long as you can figure out what you think the fair yearly salary would be.

        For the record, I also have a PhD, and the heuristic works just fine for figuring a fair consulting rate for my time in my current field.

  5. Comradde PhysioProffe Says:

    Whatever number “sounds right” based on any heuristic or computation you choose, start by asking for twice that.

  6. Debbie M Says:

    I’m consulting right now! Sadly, another factor besides your worth and the demand for your services is the level of resources available to those who demand your services. My clients can do better than many who desperately need, say, the services of a social worker. But they still can’t afford what I’m worth. Most of them have come out with a lower hourly wage than my original job only with no benefits. Frankly I’m shocked anybody found extra money during what is still recessionary times at my employer, but so far, three colleges (of the 14 I used to work with) have done so.

    Another issue for me is that I don’t just want the jobs for the money or the fun, but because I feel sorry for my clients and want to help them.

    Note: I’m not an academician–I’m an expert at my university’s home-grown degree audit systems (we’re transitioning from one to another right now, while they’re still building the new one–excruciating).

  7. First Gen American Says:

    My company hires consultants and its generally at the rate 1.5-2x the the salary of a full time employee in that field.

    I think your hourly wage depends on 2 big factors. 1. Supply and demand and 2) the impact your time will have on the organization. In General, I’ve seen $500 be the max except in one case. I have engineer friends who are expert witnesses in product failures. Ie, the civil engineer who determines why a bridge failed. The impact of a wrong answer is huge and supply of these people are low, so they get the crazy rates. Also, the witness’s liability could be high if they provide a wrong answer, so they have large overheads when it comes to insurance.

    I personally would not quote a figure like $1000 for 99% of jobs. What if they laugh at the offer and then you need that income/connections down the road? I would not burn a bridge in that way. The way you quote your work is a reflection on yourself.

  8. Gresley Wakelin-King Says:

    Find a salary equivalent to what you are, without underselling yourself. Calculate what day rate that is equivalent to by subtracting the non-working days (365 – weekends – public holidays – annual leave – sick leave – long service leave accruals etc). How many days that is depends on where you live. In Australia, that leaves 221 days. Now, ADD to that day cost the cost of your superannuation bill (and health insurance if you live in a country where the boss supplies health insurance), and the organisational cost (office, admin support, IT equipment support and software, etc). Organisational costs run to between 15% to 50% on top of the salary (depends if you run a bare-bones office, or have expensive libraries and laboratories). Also, if you hire out equipment (like your vehicle for field work) you should charge expenses plus an overhead for wear and tear, plus somethiing to accrue towards vehicle replacement. If you don’t charge for ALL these things, your work is subsidising their project. This is a minimum rate, only suitable for organisations where you don’t get paid if you’re not doing billable work. This is why big consulting firms charge lots more than this – their employees expect job security and steady wages even in the fallow times.

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