Going from full time to consulting - what to charge?

[Anonymous]

Anyone have any tips or resources for figuring out how much to charge hourly for consulting? I'm currently full time and will be leaving and doing some consulting - basically the same work just not full time. Any thoughts? I'm assuming you use your annual salary in some way but how do I take into account the fact that they won't be paying retirement, health care, etc anymore?

TIA!

[Anonymous]

My company took your annual salary divided by hours worked annually (you could use 40 per week x 52 weeks) for a hourly rate.

You have to pay your taxes, so if you have an accountant I would figure out that expense and try to add it in to the hourly rate. I wasn't so smart when I did it. Now I would charge more. You may also want to see what the hourly rate out on the street is. Also make sure you have a contract that lays out, among other things, how you will submit invoices and payment. I wish I had asked for % pay increase each year in the contract - I stayed at the same hourly rate for years. And I am assuming my salary would have increased each year.

Good luck!

[Anonymous]

OP,

You absolutely want to see what the going rate on the street is. Have you researched the range that folks might be willing to pay for your services? Everyone wants to get a deal and to pay as little as possible.

[Anonymous]

Tough call. I consult and my hourly rate varies by client. But, unfortunately when you try to establish a "reasonable" hourly rate, you can be perceived as not as valuable. So, although it's counter-intuitive don't undermine yourself with a low hourly rate.

[Anonymous]

OP here. I'm actually not looking to get clients (at least not now) - I am moving out of the area and my current employer wants to keep me. So I think I'm in a 'make your own rate' kind of a position. I obviously want to get a good rate but have no idea what is 'good'. They wouldn't be looking at others for this position - I have historical knowledge and experience that is invaluable.

I guess I'm wondering if there is a formula where I can take my current salary and find the 'consultant' equivalent?

[Anonymous]

I'd probably double your hourly rate, since you're saving the company so much overhead. I do think I've read what percentage of overhead there is, and it might be around double.

[Anonymous]

Each year our company provides a total compensation statement - salary, healthcare, etc. For example, if my salary is $100,000, my total compensation is $150,000.

I would breakdown that $150,000 line to an hourly rate by dividing by 2080 hours. That should at least be your starting point. Then as others have said see if you can see what the going rate on the street is.

[Anonymous]

I think it is pretty common that when being paid hourly as a consultant, you would charge double the rate you get as an employee. Like PP said, the big difference is overhead costs. The employer does not have to pay for benefits, office supplies, office space, etc.

I think a combination of what is the going rate for consultants in your field and at your level, and about double what you are paid as an employee, is in the right ball park.

Or if double sounds too high, at least add back in the fringe costs, figuring out what the employer pays for staff - employer taxes, health insurance, 401K, etc. I think fringe is often about 25% or 33% as a general rule. So I think you have to start at 125% of your current hourly rate as an employee just to get the same as you are getting now.

[Anonymous]

I've heard of the rule of a thousand. Whatever you were making before: XX,000. Now XX is your hourly rate.

[Anonymous]

I think it really depends on your skill set and how hard it is to find. If I had an employee that wanted to go from full time in the office to remote in another city and they wanted to get paid double their current salary that would not go over well! If they were easily replaced I would tell them not to let the door hit them...

[Anonymous]

Agree with posters advising to gross up your salary. The other thing to factor in though is the hours base. The 2080 hours per year includes holidays, vacation and sick time. Presumably they wont be paying you for that. Plus there is always admin/less productive time during the day and they probably wont be paying you for that either. So I would use a productive hours estimate to figure your current base cost (your grossed up salary divided by productive hours). Then I'd add an overhead factor since you will have technology costs and other cost to operate as a consultant.