What a project comes to
An hourly rate multiplied by an estimated number of hours. The multiplication is trivial; the two inputs are where consulting engagements go wrong, and the sections below are about each of them.
The formula
Worked example: $150 an hour for 120 hours
- Fee: $18,000
The rate is not the salary equivalent
$150 an hour looks like $312,000 a year at 2,080 hours. No consultant bills 2,080 hours. Sales, proposals, admin, unpaid gaps between engagements and training typically leave 1,000 to 1,400 billable hours.
| Billable hours | Gross at $150 | After ~30% self-employment costs |
|---|---|---|
| 1,000 | $150,000 | ~$105,000 |
| 1,200 | $180,000 | ~$126,000 |
| 1,400 | $210,000 | ~$147,000 |
To match a $110,000 salaried role with benefits, a consultant at 1,200 billable hours needs to charge close to $150. The rate that looks high is the one that breaks even.
The hours are the risk
120 hours estimated becomes 150 hours delivered on most projects. Billed hourly, the client pays the overrun; billed as a fixed fee, the consultant absorbs it and the effective rate drops to $120.
Fixed fees transfer risk from client to consultant, and should be priced 15 to 25% above the hourly estimate to carry it. A fixed fee equal to hours × rate is a discount the consultant did not intend to give.
Value pricing
If the 120 hours save the client $200,000, an $18,000 fee is 9% of the value created. Some consultants price on that basis rather than on time, and the client often prefers it because the cost is known in advance.
It works when the value is measurable and attributable. It fails when the outcome depends on things the consultant does not control.
What this calculator leaves out
Expenses, which are usually billed separately; payment terms, which on 60-day invoices mean financing the client for two months; and scope creep, which is not an hours problem but a contract problem.
Retainers
A monthly retainer trades a lower effective rate for predictable income. 40 hours a month at $150 is $6,000; a retainer for the same access might be $5,000, and the consultant accepts the discount for not having to sell those hours again.
The trap is the unspecified retainer. Without a stated hour ceiling it becomes unlimited access at a fixed price, and the effective rate collapses. Define what the retainer buys, in hours or in deliverables, before agreeing the number.
Day rates
Many engagements quote a day rate rather than an hourly one. A $150 hourly rate at eight billable hours is $1,200 a day, but a day rate usually assumes some hours will be unbillable, so $1,000 to $1,100 is the common equivalent.
The difference matters when a client asks for half a day. State what a day means before agreeing the rate, or the half day becomes five hours of billing for six hours of work.
Related calculators
- Billable hours calculator — how many hours a year actually get invoiced
- Bill rate calculator — the rate needed for a target income
- Hourly to salary — comparing an engagement against employment