Table of contents
When you start a consulting business, you need to be strategic about your fee structure. Charging high consulting rates risks excluding yourself from the market, while low rates may mean you’re needlessly shrinking your earnings and causing potential clients to question your value.
Let’s look at what influences consultancy fees, how to determine consulting fees and how to take payments once you’ve started working with clients.
What are consultancy fees?
Consultancy fees are the costs of hiring a consultant for their advice or professional services. Fees can be hourly, daily, per project or on a retainer basis.
There are no specific laws governing how much consultants can charge for their work. Instead, consultancy fees fall under general rules that apply to paying for goods and services – contract and competition law and VAT.
Your consulting fees should be based on the value of your work. And a wide range of factors influence your value, from the scope of the project to the broader competitive landscape.
Factors influencing consultancy fees
Consulting fees can vary significantly and are influenced by a number of factors. Understanding these will help you set and adjust your own fee structure. Here’s an overview of the main factors that influence consultancy fees.
Scope
Project scope isn’t just about hours worked. If your project carries significant risk, addresses high-level objectives or guarantees specific outcomes, expect a higher consultancy fee. The type of consulting work people specialise in generally falls into two areas:
- Strategy and management consultants focus on high-level business objectives and growth strategies. They help their clients become more efficient, competitive and profitable, and generally command higher fees than more specialised consultants due to their broad scope.
- Specialist consultants hone in on improving specific business strategies. They usually specialise in one discipline or industry, such as HR, IT, or healthcare.
Client size
Typically, large companies are more willing (and able) to pay higher fees, especially if the scope of the work is broad. Smaller clients may try to negotiate and look for leaner arrangements with a tighter project focus.
Experience
How much experience you have in your industry influences how much you can charge. The more experience you have, and proven results you can demonstrate, the more you can charge for your time.
Competition
The competitive landscape and your physical location will influence your consulting fees. While you don’t need to mirror your competition’s prices, it’s important to weigh up how much others are charging to remain competitive. Your general location will also play a part in your pricing – consultants operating in London, for example, can often charge higher consulting fees than those in smaller cities or rural locations (where demand from large companies is lower).
Industry
Highly regulated and complex technical sectors, such as aerospace and biotech, almost always carry a premium. Consultants usually have industry-specific qualifications and are required to meet rigorous compliance standards.
Expertise
Specialised knowledge significantly increases value, especially if consultants are in short supply. Clients may be willing to pay more for insights that are difficult to obtain.
Location and market conditions
Like any other goods or service, consultancy rates vary by region, market conditions and even cultural norms. Consultants working in major cities, or across multiple locations, tend to charge more.
What kind of fee structure should I use?
Consultants usually choose their pricing model or fee structure based on industry-specific best practices, with certain pricing models being well understood and widely used in different sectors.
These are the main structures that consultants use:
- Hourly rate: In this time-based arrangement, you bill by the number of hours worked.
- Project-based rate: Before the project begins, you and your client agree on a fixed rate based on the project.
- Combination fee: You and your client set a fixed rate for the project and an hourly rate for additional time.
- Performance-based rate: You charge the client based on the performance or results of your work.
You don’t have to use the same fee structure for all your clients. The goals of a fee structure are to make sure that you are compensated fairly for your work and that your clients feel comfortable paying you for that work, so it’s okay to adjust structures based on client or by project. Just make sure that you are clear about your fees before beginning any work.
How do I determine my consultancy fees?
Average consulting rates by industry in the UK are not widely published, and your own research will give you the clearest idea of what others are charging. As a guide, the hourly rate across all types of consultancy typically ranges from £50 and £350, with rates varying based on the factors we’ve outlined above.
It can be tricky to balance all of these factors, but there are a few steps you can follow to ensure an optimal pricing structure for you and your clients:
1. Calculate your hourly rate based on your experience and industry standards
If you’re just starting a consulting business, the best way to determine your rate is to calculate your hourly rate based on your former salary, which is easily done with an online salary calculator. Industry research will also ensure you aren’t overvaluing or undervaluing your level of experience.
It’s a good idea to consult a relevant professional body (such as a chartered institute), which may have a consulting fees guide, or even to reach out to peers in your field to get a picture of how your experience might translate to your project rates.
2. Estimate the time that will be spent on the project
Do some real thinking on how much time you will spend on a project. Make sure to estimate your hours for every stage of the project, including client analysis, research and interviews, as well as drafting, editing and creating any type of proposal or report.
3. Factor in additional consulting costs
On top of what you will charge for your time, you’ll want to factor in additional costs that may arise while you are working for your client. If you are spending any money on materials or transport for the project, include those in your fees. Think through logistical costs, the cost of business disruptions and other hidden costs that might pop up along the way.
4. Decide on a pricing model
After you’ve estimated the time you’ll spend and any additional costs, you need to decide how to translate that into a pricing model. Will you charge by the hour, per project, by outcome, or will it be a combination? You may want to adapt your standard approach based on the nature of the project you’ve been asked to work on, how your client works and the structure that you think will result in fair compensation for your work.
5. Consider retainers
Another option for charging your client is to propose a retainer. A retainer is a fee paid in advance in order to secure or keep services whenever they’re required. This may require you to work at a discounted rate, but the payoff is having secure, guaranteed work for the period you agree to with your client.
So, while you may be able to make £2,000 on five separate projects for one client within a month, with a six-month retainer in place with that same client, you can guarantee an income of £1,500 every month for six months, regardless of whether you work on five projects or one. Ultimately, this means you can spend less time looking for future work and more time making sure your clients are happy.
Once you’ve put together consulting fees for one client, you should be able to easily adapt the fee and fee structure for new clients.
How do I take my client payments?
Once you’ve established your consulting rates, you’ll need to think about how you’ll take payments from your clients.
A payments system that has the capability to accept all forms of payment, from contactless cards to mobile payments, will be most convenient for you and your clients. With the Square card reader, which works as a mobile, “pocket” point-of-sale system, you can take payments in person. You will also have access to other payment features, like a virtual terminal (for accepting payments over the phone), making the entire process a breeze.
Invoices are another popular payment method for consulting businesses to summarise work and charge clients, and they can help you get paid faster for your services. With online invoicing software, you can send invoices via email, and clients can pay via card online. Then you can track all of your invoices and payments through the software.
Square Invoices is set up to manage VAT payments, which you’ll need to charge if your taxable turnover is greater than £90,000. This isn’t uncommon for consultants, so ensure your accounting software can deal with complex taxes and combined payment structures.
How to determine consulting fees FAQs
What is a consultancy fee?
A consultancy fee is a per-hour or per-project fee that a client pays for professional consulting. Consultancy projects can range from a few hours of advice to a full package of services delivered over months.
How do I calculate and set my consulting fees?
Begin by identifying benchmark fees in your industry. The best way of doing this is to reach out to a professional association (such as a chartered association in the UK) and enquire about standard rates. In addition, consider asking a selection of trusted peers what they charge and calculate an average. If you don’t yet have a network, it’s worth reaching out to established consultants to explain that you’re looking for advice about how to price your services as somebody starting out. You will often find them accommodating.
Once you have worked out your target annual income, calculated your intended working hours, overheads and taxes, you have a basis for calculating an hourly rate. You can use this to map out a per-project fee, if you wish.
What is a typical consulting fee?
Fees vary significantly by experience, industry and specialisation, sometimes reaching thousands of pounds per hour. A typical range is between £50 to £350 per hour in most industries.
What are consulting rates by industry in the UK?
Consultants for large enterprise firms operating in complex, highly regulated industries tend to command the highest fees, which sometimes exceed £5,000 per day. Finance and management consultants often charge towards the upper end of the scale.
