Calculating your consulting day rate

Here's a quick, short extract from a longer piece I've written on calculating your consulting day rates. This is geared toward solutions-based consulting, rather than dollars-for-hours contracting but hopefully the core ideas will translate.

Disclaimer - none of this is financial advice. Please get professional advice for tax and financial planning

1 - Calculate the likely number of days you'll work

Start by thinking about the number of days you are likely to work annually. (When I say 'workdays,' I mean days you're billing clients.) This will fluctuate, but we can use the following numbers for our rate calculations.

Annual workdays = 260 (52 weeks times 5)
Target number of consulting days
High = 130 (50%)
Low = 85 (33%)

These numbers will seem low but keep in mind that 1) you're not going to be working continuously 2) you will have admin time between engagements and 3) shorter engagements need more admin time.

(Also, given that this is IndieHackers, a lot of folks will be thinking; 'only working 5 days per week? Slackers!' But remember, we're calculating days you'll get paid to work as a consultant, not days we're busy with our business.)

2 - Calculate your costs & rates

Calculate your day rates (we'll work out two rates) as follows:

• Start with your desired take-home pay - this will be your target net income
• Now add a % for taxes and other obligations (social security, for example)
• Then add your business expenses (scroll to the bottom for a quick check list of things to think about expense-wise)
• The final number is your target gross income
• Divide your target gross income by 130 and 85 for your day rates.
  These two numbers tell you what your day rate needs to be to make your target income, based upon the upper and lower range of days you're likely to be engaged.

Example - Bruno

Bruno is a designer and lives in an expensive city, so he needs a higher net income. Taxes in his state are high, and he uses several contractors for some of the graphics work he needs, which drives his expenses up.

• Target net income - $175,000
• Taxes (35%) - $94,230
• Expenses annual - $48,000
• Target gross income - $317,230

Bruno’s rates

• 85-day rate - $3,732
• 130-day rate - $2,441

3 - Differentiate between regular and project rates

You might be wondering how you use these low and high numbers when you're preparing a quote. After all, you won't know the number of days you've worked until the end of the year, so how will you know which rate to use?

The way I go about this is to think of the two rates as a 'normal' rate and a 'project' rate.

• My normal rate is whatever number I get when I calculate my 85-day number. That's a higher amount, and the one that I use for work that's not likely to be several consecutive days over a more extended period of time.
• When I get a piece of work that's longer and involves multiple consecutive days, I consider that a project and apply the project rate. Anything that will run for ten days or more in a single month would probably be a project, although this isn't hard and fast. The key tests are 1) that the scope of work has to be clear and 2) the scope is not liable to change for the work period, and 3) that the work will occur in a compact time frame. This concentration of effort is what allows you to offer what is essentially a discounted rate because you don't have to turn the work on and off. That's tiring and inefficient and can eat up a lot of time.

Again, this is geared towards day-rate consulting, not longer-term contracting but I hope the core idea of working from a costs basis helps you avoid starting consulting on an unstable financial footing.

You can read the full version of the article and find more of the Consulting Handbook I'm writing here

Good luck Indiehackers!
~Andrew

(I'm a 20+ year management consultant so definitely pulling the average age on the IH site upwards but hopefully some of that time was well-spent and will benefit some of the community who are thinking about taking the consultant route as part of their IH journey.)

Common business expenses

Monthly Recurring

• Email hosting
• Productivity tools (this can be anything from Microsoft 365 for docs and presentations to design software or project management tools)
• Phone and video call services -
• Contractor support - (this could be anything from an EA to a web designer. Calculate this as an annual amount and determine a monthly average of the requirement fluctuates.)
• Rent / coworking membership -

Annual Charges

• Insurance - (E&I at a minimum but check what else you might need for your particular industry)
• Professional memberships / licenses -
• Tax preparation / bookkeeping -
• Company registration -
• Legal fees -
• Web hosting / domain registration -

You can read the full version of the article and find more of the Consulting Handbook I'm writing here