How much do independent consultants really make? The answer: it depends! If you have even a little experience, you can generally make more than an equivalent employee. And if you have a lot of experience and a good track record, the sky’s the limit – up to multiple 6 figures and beyond.
This is one of the most common questions I get asked. Understandably, because even if you’re just toying with the idea of becoming an independent consultant, you want to know that your income won’t take a step backwards…
The good news is that, if you have some experience and a good track record, you can almost definitely make more (and often much more) than you could as an equivalent full-time employee. Or to look at it another way, and this is the goal for many people too, you can earn the same amount for less work. Depending on the rate you can command, you could even work for 6 months every year whilst making the same as a full-time employee doing the same work.
Factors Affecting Your Rate
There are several factors that affect the rate that you are able to charge as an independent consultant.
A big one is your level of experience. Generally, the more experience you have, the more you can charge. This is closely related to another factor, your track record. The more you can show a history of successful assignments, the more you will be able to charge.
Another two related factors are your specific area/type of service, and the average salary/rate for that service. For example, a strategy consultant will generally be able to charge more than a HR consultant.
Your location also affects how much you can charge. Different countries, and even different states within each country, have different average rates.
And finally, the type of clients you are targeting or generally work with can affect your rate. A small business or local government department may not pay the same as a multinational company, for example.
And having said all of that, remember that this is just a guide – at the end of the day, the market will determine how much you are able to charge.
Things to Consider
There are a few things that you have to consider when comparing your income as an independent to that of an employed consultant.
1. You will usually collect GST (or your country’s equivalent), and you have to pay that to the government (unless you’re working via an agency, and they handle that for you)
2. You will also be paid a tax-inclusive amount, meaning you have to set aside and regularly pay income tax (unless you’re working via an agency, and they handle that for you)
3. You need to manage/pay your own superannuation out of your income
4. You need to cover your own annual leave and sick leave
5. It’s also prudent to allow for the occasional gap between contracts
You need to allow for all of the above when setting your rate, and determining how much you need to work (i.e. how many weeks per year) – in order to cover yourself in areas that an employer would normally manage.
Calculating Your Rate
There are many ways to charge for your services, with the most common being:
Per hour, per day, (monthly) retainer, per project/assignment, or value/profit/ROI based.
Most consultants start with an hourly or daily rate, although many aspire to charging per month or per project. I’ll cover the different methods in detail in another post, but regardless of how you charge for your services, you have to make sure you cover your needs in terms of the items mentioned above.
A rule of thumb I advise my clients to use is to assume you’ll work an average of 30 hours per week, for 46 weeks of the year. That allows for some annual leave, sick leave, and non-billable time – and gives you the absolute minimum you should be charging. I generally then round that figure up to the nearest $50 (if we’re talking hourly rates).
If you are a beginner consultant with not much experience, drop the expected hours per week to 25 or even 20, as you will spend more time winning work/projects.
Let’s say you’re a project manager with less than 5 years of experience, currently earning $100,000 per year (inclusive of tax and super).
$100,000 divided by 46 weeks and 30 hours per week equals $72.46 per hour. Rounded up to the nearest $50 gives you $100 per hour. If you were to work 46 weeks at 30 hours per week, you would earn $138,000 (inclusive of tax and super).
Now let’s look at a senior IT leader with 12 years of experience, currently earning $180,000 per year (inclusive of tax and super).
$180,000 divided by 46 weeks and 30 hours per week equals $130.43 per hour. Rounded up to the nearest $50 gives you $150 per hour. If you were to work 46 weeks at 30 hours per week, you would earn $207,000 (inclusive of tax and super).
These examples are generalised, and don’t take into account any specific services or target clients – use them as a guide only. If the average consulting rate for your area of expertise is higher than your calculated rate, don’t be afraid to increase your rate. Just don’t decrease it.
And remember to regularly (at least annually) review your rate, and increase it if you feel it’s justified.
So How Much Can You Earn?
As I said at the start of this post, and as I have hopefully made clear above, it depends!
In almost every case, however, you can earn more than you can as an employee, and the potential to increase your earnings (as you get more experience and more runs on the board) is virtually unlimited. Coupled with a more flexible lifestyle, it’s hard to argue against.
One thing is for sure – there has certainly never been a better time to be an independent consultant.