Consultant Salaries: What Consultants Don’t Tell You About Their Day Rates

Do you ever wonder how much money consultants make and why it’s so hard to figure out average rates? For most professions, you can just Google it and pretty much find out an average answer.

Not so with consulting.

Depending on who you ask, consultants earn anywhere from £50k a year to well beyond seven figures, so what gives? There are three things going on:

1. What ‘consultants’ ‘do’ (what they deliver to companies) is all over the place. Some consultants just come in and install new IT hardware, others can only work with HR departments or advise on corporate mergers. Some, however, advise on all of that at once and more. Obviously, these different consultants aren’t going to take home the same fee.

The consultants who make the most don’t earn a ‘salary. As we will soon get to, full-time independent consultants pull in some of the highest annual incomes in the sector — often well in excess of six-figures. But, these consultants work for themselves and make their money mostly based on day rates, not a ‘normal’ salary.

3.

Consultants like to keep their fees secret, and that isn’t about tax avoidance! It’s about price gouging! Different types of businesses, and businesses of different sizes all have different abilities to pay consulting fees. Consultants work damn hard to keep their prices secret so that they can charge different clients exactly as much as those clients are willing to pay.

4.

If you are looking to break into consulting, this can all make it quite difficult to figure out how much you should be charging. Let’s get more into the details so that you understand how to best calibrate your fees as an independent consultant.

Independent Consultants vs. Big Firm Analysts

The big divide in the salary of consultants sits between independent consultants and analysts at big consulting firms.

If you work as part of a larger firm, you’re going to receive a basic salary with potential for bonuses. But, you won’t be able to break out of that pay grade and there’s little you can do to earn more. You will also be working as part of a team and probably only delivering on a segment of the overall project. Even if you were allowed to set your own rates, the total value of the project would have to be split across every member of the team.

Working under a brand means playing by the rules. Everything you do is going to be monitored by senior members of staff and you’ll always have someone looking over your shoulder who is earning more than you. Most of the figures you will find about consultant salaries under £100k reference these analysts.

On the other hand, independent consultants can generally charge what they want for their services. Effectively, there’s no cap on what an independent consultant can earn. What clients will realistically be willing to pay comes down to what you can deliver. There are really two ways in which you can make a lot of money in independent consulting. One is to just be really good at something that few other people truly understand. The other is to possess a wide range of skills that allow you to tackle an entire project on your own.

Because what clients will be willing to pay is tied directly to outcomes, the biggest variable in consulting salaries is the skill set you possess. The fee you will be able to collect will depend on the number of aspects of a project on which you can consult and the value of those outcomes to the client. You either need valuable skills, or the ability to deliver on multiple aspects of a project. That will either make you ‘in-demand’ for that one thing or able to triple/quadruple the money you would make as part of a team by delivering on all of those roles by yourself.

Client Capabilities: Big Companies and the Rest

It’s normal to base your fee on something you can measure such as the hours you plan to work and the number of different fields you’ll be consulting your client on. But, the other big secret to earning a higher salary is figuring out what your services are worth to your client.

A lot of this comes down to capability and scale. Bigger businesses both have more money and reap larger rewards from small changes. Delivering a small efficiency increase in a company of 30 people will have far less cumulative impact than the same change in a company that employees thousands. At the same time, creating that change in a large company will likely be harder and take more time. But, that same large company will also likely have more capital to invest in you on a per day basis.

The lesson here is that big companies pay more. That is partially because they benefit more and partially because they simply have more money at their disposal. So, if you ask for more, they will pay more. There are always exceptions (some sectors have a lot more money than others), but higher fees for bigger companies is a good rule of thumb.

This does not mean, however, that you need to focus all of your efforts on big businesses to maximise profits. For one, it is hard to land contracts with big businesses. They have a lot of stakeholders that you need to win over and their extra resources and size can predispose them to hiring teams of analysts from large consulting houses. You also need to think about who you want to work for. Some consultants just prefer working for smaller businesses and are willing to take a slight pay cut to do so.

Projects for big businesses can also take a long time to complete, being complex organisations with a lot of moving parts. That can seem beneficial, but it comes with opportunity costs. In fact, this is another reason that consultants sometimes charge these companies more. Which brings us to …

Not Wanting to Get Locked Out of the Market

If you are a successful consultant, you will probably receive job offers. Even more common will be offers for long-term projects. In the eyes of clients, this will often seem like it warrants some kind of discount. But, to the consultant, it makes sense to charge more for a longer service.

Consulting is all about networking. The more people you work for, the more happy clients you will have that can be leveraged for networking purposes. Although long-term jobs can seem like the route to job security at first glance, the real way to develop a stable consulting business is to create a robust and diverse pool of clients — none of whom you are dependent on to keep your business afloat.

If you lock yourself to a single client and work on a long-term contract that you keep renewing, you effectively become an employee. You will miss out on opportunities to spread your wings and network. In other words, your client is going to hook you in and keep you on a leash, and this is definitely not something you want. If a client wants to work with you as part of a long-term contract, charge them a premium and demand more.

Secrecy Allows For Flexibility

As you can see, calculating rates as a consultant isn’t easy. You’ll work with clients of different shapes and sizes, and you’re going to charge clients more if you know they can pay it. It’s important to keep your options open and to examine everything about a client before you make a decision on how much your time and advice is worth.

The consulting day rates that you charge a client will fluctuate based on many different factors, so let’s review those factors:

• Consultants earn different amounts based on their employment status.
• An independent consultant will earn more than one that works for a large firm because they’re expected to handle multiple specialisations instead of focusing on a single aspect of a project.
• The more aspects of a project you can deliver yourself, the more of the total project fee you will be able to keep yourself.
• Particular specialist skills can make you highly valuable.
• Businesses care about outcomes, not how much individuals make.
• Consultants should charge what they think their service is worth to the client and what they think their client can pay.
• Big businesses benefit more from improvements and often have more resources.
• Consultants shouldn’t work long-term with a single client unless they are willing to pay a premium for locking you out of other opportunities.
• Ideally, you should be taking on multiple jobs in order to grow your network of contacts and find more opportunities in the future.
• The more opportunities you have, the easier it will be for you to pick the most lucrative or otherwise attractive projects.

Consultants will rarely be open to revealing their day rates because the industry isn’t as simple as most people make it out to be. What you charge is always relative to your client and the outcomes. Consultants don’t publicly discuss their rates because it makes it harder to be flexible. Secrecy comes with the job title.

Cutting Through The Nonsense

So, you made it to the end and still don’t know how much consultants charge or where to even start when thinking about your rates — exactly where established consultants want you to be! But, I am going to break this rule and shine some light on this question.

As an independent consultant, my go-to number is £2k a day. For a smaller business (or a job that just seems really interesting) that figure might drop as low as £1,400, and I might push it up to £3,500 if the opportunity allows. When I was just getting started, I was looking at numbers around £1,000 to £1,500 a day, and I know consultants who will work for as little as £500. On the other hand, I have heard of day rates as high as £10k and consultants who can regularly charge £5k per day. But, shooting for an average of £2k per day is not a bad goal for an independent consultant in the UK.

If you can tie that figure to a range of outcomes that you will personally deliver within a project, there are plenty of businesses that will see the value in that offer. What that translates into in terms of a consultant salary depends on how much you work. Making the career choice to be an independent consultant means being a business owner, setting your own hours and being your own boss. That means you decide when to look for new clients, when to take a new consultant job and the amount of money you will make.

As you build a brand and master more skills, you will be able to charge even more. Stop reading about it and start speaking to people. You need a network before anyone will pay you anything for a project.

Originally published at https://blog.positivemomentumpartners.com.