Understanding consulting fees

Ever wondered how to set consulting fees or how to compare different quotes between consultants?

There is a method! Consultants don't set fees by plucking a number out of the air, or guessing at what the client might be expecting.  Or at least they won't once they know how to approach calculating fees.

For freelancers and consultants
There is a clear method to set and calculate your daily or hourly rates.  You should be taking into consideration the amount of money you need to earn (your "salary"), your business overhead costs, and of course, taxes.

I learned this by reading this excellent book "Consulting Start-Up and Management: A Guide for Evaluators and Applied Researchers" by Gail V Barrington.  If you are a freelancer or a consultant - and not just a researcher or evaluator, this advice applies to all - then you should be investing in a copy of this book. It contains worksheets and a clear explanation of everything you need to be thinking about, to set your rates and start your business.

For project managers and procurement teams
If you've read the above, you know that freelancers and consultants are taking into account more than just their take-home figure.  These are folks who not only are delivering value for your projects, they are running a small business. They have overhead costs to consider.  For those working in the international humanitarian or development sector, they may also be a small business absorbing fluctuating exchange rates.

Comparing the daily rate of a freelancer or consultant to a staff member is not comparing apples with apples - a staff member's salary doesn't identify the costs of overhead associated with their position. Comparing consultants to consultants when applicants are from different tax regimes or countries is also not comparing apples with apples. A fee will depend on a person's expertise of course, but also the cost of living and doing business in their home location, what tools they need to do their job - for example, what analytical software products are you expecting them to use? What communications tools? - and the tax rates in the location they are a tax resident.

All of that makes understanding and comparing quotes, as well as setting rates, a tricky process.  But I believe that by understanding the structure and process of setting a daily fee,  people on both sides of the transaction can make better decisions and understand where these figures come from.