Cross post on Job Network

My father has been retired for about a year now and has been approached a few times about some consulting work and has decided to get back into it to keep himself occupied and cushion the estate a little more. He's not sure on what to charge as a consulting fee though. He's always been a salaried employee and has never ventured off on his own. The first client he's looking to take on has decided they wish to use him. Below is the scenario and he's trying to get an idea of how to build a consulting fee invoice.

The Job
Oversight of engineering and development of a greenfield specialty products manufacturing facility/site in a foreign country/market including establishing channels to market and product development.

Hourly rate that he wants to get paid x3.25 is what we used when I was doing engineering consulting. This covered overhead (office space, 401k, benefits) plus 30% profit margin.

I have seen solo consultants charge less because they have less overhead i.e. no secretary or fancy office building.

Yeah I think it depends on what type of arrangement he has with the client. Is he going to be in-house with them and essentially just be a contingent employee, or will he be utilizing his own office space and have to carry a larger overhead expense?

He will be in-house at times that will require 4-6 international trips (Far East) over the course of the arrangement. The other times he will be working at home or possibly have to go to California or Houston on occasion.

Crossbow's advice is reasonable. I consult in a different field but charge a rate based on a similar multiplier. The rationale is the same.

Just to be clear, are you suggesting that if someone wants to make $50/hour they charge $162.50/hour?

Unsolicited advice:
The job description sounds like it could carry some liability. I would advise him to talk to an attorney about setting up a business entity to do his consulting through.

He's forming an LLC.

(Salary at retirement/2080)*2.5

If international, then hourly rate + whatever number a day per diem + client pays all housing/airfare/transport



Keep in mine that he will need to cover SE taxes, so he needs to boost his rates to ensure he actually brings home what he wants.

quote:

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Just to be clear, are you suggesting that if someone wants to make $50/hour they charge $162.50/hour?

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Yes. That is how law firms operate due to the large overheads and necessary profit margins for the partners.

The associate that is billed out at $210/hour is paid in the neighborhood of $60/hour.

How does that change if it's one person shop without a bunch of overheard (I know they would still have taxes, ins, retirement, etc.)?

You charge less or make more profits depending on what you need to do. Charge less if you need more business or make more profit if you have a steady stream at your current rates. It depends on several factors and area of practice. That's why you see a lot of solos in certain fields (family/estate, crim, some smaller civil) and a lot of larger firms in others (corporate, large damage civil, etc.). People/businesses with different needs have different levels of money and view the "flash" of fancy offices differently.

Makes sense. Thanks.

Exactly. I undercut that multiplier starting out on my own in engineering consulting to get business based on price from more experienced people. Once I built my business I was able to charge way more than the multiplier for clients that only wanted to use me and would pay more to get to the front of the line. Then some young guys come along (like me 25 years ago) and undercut my rates significantly to try and gain my price sensitive clients. Part of the nature of the consulting business.

Companies on the coasts and large population centers mat pay way more than that multiplier easily for quality and convenience. They generally don't want to pay near that much in Albuquerque, Lincoln and Des Moines.

I'm starting a consulting gig myself. Taking the plunge next week, actually. I first calculated what I wanted to take home then mutiplied by 3. Then take that number and divide by the number of hours per year he plans to work. For me I guesstimated 900 billable hours per year (I'm budgeting business development hours, Continuing legal education, downtime, etc.)

Say he wants to bring home $100,000. That times 3 is $300,000. Divide $300,000 by 900 and the rate becomes $333.33. This is more art than science. He should be mindful of what the market will support.

I think I'm in a similar field as your dad and at muy company we are about a 3x multiplier. I think I'm charged about $150-$165 for my time to the clients. That's outside any per diem and other costs beyond office, computer, 401k, etc.

I work for a large epc firm in Houston.

~egon

Hourly Rate Excess Hourly Rate

Local Activity (LA) $200 USD/hour $275 USD/hour
(*****, TX and day trips 15 minute increments 15 minute increments
within 200 miles one way) no minimum no minimum

Domestic US Activity (US) $235 USD/hour $310 USD/hour
(trips beyond 200 miles and/or 15 minute increments 15 minute increments
involving overnight stay) 8 hour minimum 8 hour minimum

International Activity (INT) $280 USD/hour $355 USD/hour
(trips involving travel to 15 minute increments 15 minute increments
foreign countries) 40 hour minimum 40 hour minimum


This is what the old man came up with. The hourly rate is based on 60 hours/month/per client. Excess of 60 hours is the excess hourly rate. Word traveled fast (small industry) that my father was going to start consulting and he's had a few others reach out to him asking about his fee structure which is why he put together and excess hourly rate. Basically giving him an opportunity to capitalize a bit more with clients that want to use him the most.

I've discussed with him and he is willing to abandon the "consulting" aspect and go back on a part-time basis with the right company if they were to throw the right dollar figure at him.


Edit:
Sorry about the formatting. But I'm sure y'all can figure it out.

Also specify how you are going travel Business Class 4 star hotel or better ect..

That was covered. Business class for any flights over 5hrs and dad has always been a Marriott guy.