How do you value yourself as a consultant?

[mindatrisk]

I'm about to work with someone as a consultant, but I don't know by what criteria I determine how much to charge and in what format, i.e. do I charge for an upfront payment, do I receive a wage, do I receive points on profit etc. etc.? I'm not business minded, but I have knowledge that this person doesn't and needs. So any help getting set up as a consultant would be appreciated. Thanks!

 

[AllUpHere]

It's a tough one. Usually there is an industry average, which you can use as a guideline, but it's only a guide.

A lot of people tell me I should charge in line with the value I add to a customers business. This is all well and good, and I'd love to, but I'd really struggle to find people who wouldn't collapse in a heap at the thought of spending thousands of pounds per hour.

Realistically, for most small service businesses (web designers / builders / locksmiths/ solicitors etc, etc it takes me a day or two to tell them everything they need to know to make an additional profit of about 10 - 20 grand per year, sometimes a huge amount more (but very rarely less). I'd really struggle if I set my day rate at 10 grand though.

It is said that the right price is the one at which both you and the client both 'suck your teeth' like a dodgy mechanic or builder does just before he gives you a price. You, because you think it's a bit low, and the client because he thinks it's a bit high.

 

[Alan]

There probably only two models that I'm aware of
1) Time & Materials - i.e. you get paid for the hours you work at the rate you agree
2) Value add - i.e. you get paid by measurable results

In option 1) you set the rate based on what the market can bear, and then adjust it based on how long the assignment is and your experience.
So for example, the market rate for an IT Project Manager may be £500 per day for a 3month contract, but for a 2 days assignment maybe £1500 per day because small jobs have 'overheads'

In option 2) an example might be a 'Business Rates Consultant', you have a rates bill, teh consultant get paid a % of what he reduces the bill by, lets say 10%, this is easy to measure, rates bill £500,000 to start with £300,000 after the consultant negotiates / checks with council - saving £200,000 - consultant gets paid £20,000

 

[Alan]

everything they need to know to make an additional profit of about 10 - 20 grand per year, sometimes a huge amount more (but very rarely less). I'd really struggle if I set my day rate at 10 grand though.

This is where value based pricing breaks down, if you tell me everything I need to know to add £20k profit, but I actually do it then its actually down to my action not yours, so you can't charge the full value add.

If you said that you would charge 10% of profit add, that has more meaning - but I would say OK I'll pay you in a years time, and only when the profit is on the books - and then I would either go away and do nothing, make zero profit and you get nothing, or make £20k and say well actually I didn't listen to your advice ....

Value based pricing is much easier on tangible numbers - e.g. contract negotiation

 

[mindatrisk]

Thank you everyone for your replies so far. I'll explain my situation in case that changes anything...

I went to stay on someones piece of land last summer in Spain, and thought it would be an ideal location to host yoga retreats. Now, the owner of the land is an entrepreneur, and saw the business sense in what I proposed. However, he knows nothing about this field, but I do.

The business is forecast as worth up to 250,000 euros revenue for this year. Of that i've calculated approx.150,000 euros would be profit. It's his land and his money that would be invested (perhaps 20,000 euros of development work to get the place in shape), but because he knows nothing about this market, I am the difference between this being a failed business, a 20,000 euros per year business, and a quarter of a million per year business.

I don't want to be partners, and I don't want a percentage of the profits at the end of the year. I just want to be paid what I am worth, and in a format that makes sense. As he is going to need ongoing consultant rather than just set up consultation, my instinct is to be waged by him, and I was thinking about 500 euros per week on a one year contract, and maybe a performance bonus at the end of the year as added incentive.

Does that sound reasonable or like a good approach to this? I mean, I really have no idea how to go about this or how to value myself. Thanks again.

 

[AllUpHere]

This is where value based pricing breaks down, if you tell me everything I need to know to add £20k profit, but I actually do it then its actually down to my action not yours, so you can't charge the full value add.

If you said that you would charge 10% of profit add, that has more meaning - but I would say OK I'll pay you in a years time, and only when the profit is on the books - and then I would either go away and do nothing, make zero profit and you get nothing, or make £20k and say well actually I didn't listen to your advice ....

Value based pricing is much easier on tangible numbers - e.g. contract negotiation

Exactly. This is exactly why results based fee's don't really work for the kind of work I do, and I'm much better off with an hourly rate that everyone's happy with.

 

[Socio South West]

For this sort of business I would be sceptical that the business is going from zero to €250k in year 1, but that is aside from your question.

€500 per week equates to 25 hrs @ €20/hr or 12.5hrs@€40/hr.... etc.

It's likely that you will need to put a lot more time than that in initially, but conversely the business won't have the cash flow to support large consultancy payments: I think it's a case of negotiation with the business owner dependent on the input he requires once the initial set up is done.

 

[mindatrisk]

Indeed, the business won't make 250k in the first year. But the value I offer isn't just for one year. If the set up is successful then this could be 250k every year for X years. Also, there is the potential to set up more retreat centres.

The reason I suggested 500 per week over a one year contract is because of the uneven spread of the workload. Initially I might work many more hours than 500 euros worth, but there will be weeks within the year where I do very little work. But, given the nature of this particular market, the ongoing development that will be required, the owner will need ongoing consultation, and he'll need it on tap.

He is a good and successful business man, no doubt, but his character is not at all suited to this field, and to succeed in something so customer orientated with so much weight on the customer experience, he is going to need a lot of guidance a long the way.

A related but separate question... How do contracts work? Should lawyers be present when they are signed? How much value do they have? If the owner signs a one year contract is he bound then or can he just break contract with no repercussions?

 

[Annoying Donkey]

These at least seven charging models...
Time and Materials.
Per Project.
Per Package.
Retainer.
Value based.
Performance based.
A hybrid of two or more of the above...
All have advantages and disadvantages.

You don't need a lawyer to create a contract. A contract is simply an agreement between two or more parties and can be verbal or written.
No lawyer will be able to create a totally watertight contract.
The terms (and repercussions) where one party can break the contract is or should be defined within the contract, and sometimes defined/overridden by legislation.
A contract is only as good as the parties involved. And how much money you have behind you to enforce any breach...
Having said that, having it in writing is better by far than assuming everyone understands the terms.

 

[Socio South West]

My suggestion would be a Letter of Engagement rather than a contract which says that you will provide consultancy services at £xxx and you will invoice weekly/monthly whatever and the terms of payment.
As @WeblinkPlus says, no contract is watertight - Contracts were made by solicitors for solicitors and I would keep the terms and targets are simple as possible.

Be careful you don't leave yourself open to claims from the other party if things turn out disastrously and the other party ends up well out of pocket based on your advice.

 

[Julia Sta Romana]

It seems like you're really attached to the idea of working on retainer, which is good because from what you've explained, that would seem like the best arrangement.

When working on retainer, yes you do need a contract, mainly to define what tasks or responsibilities that retainer would cover, or time periods (like you can only work during the summer or do no more than 2 weeks worth of work per quarter).

Any work beyond what's define in the contract would then be charged separately.

 

[Pembroke99]

Assuming you're based in the UK you might also want to base your charges on the elephant in the room of what happens after March 2019 (Brexit), as it may well be harder for UK nationals to work visa free in the EU countries after that date.

 

[The Byre]

If I lift a rock in our yard, I find all kinds of creatures under that rock.

Some rocks have a middle-aged disk-jockey under them. Some have wannabe rock guitarists under them. Others have web designers under them. Many have incipient, yet sadly impecunious entrepreneurs under them. There are rocks with whole gaggles of sound engineers and would-be film directors under them - so many, that they have to share a rock. Some rocks have platoons of squint-eyed fat girls, stacked ten-deep, who think that they are the next Adele or Taylor Swift, but sing flat and can't read music.

There are also many rocks with yoga gurus under them. They, like the DJs and the rock guitarists, are ten-a-penny!

I have yet to find a rock with a guy or girl with money and the business acumen to get a new enterprise off the ground. You have to go out looking for those!