Software Developer Consultant, San Diego, California

How much should I charge?

If you are new to consulting, what are some factors to consider in determining what rate to charge for your services?

To determine an hourly rate as an independent consultant, one general rule of thumb is to take the amount you would expect to earn per hour in a full-time salaried position and multiply by two. Why would a rate for independent consulting be so much higher than for full-time salaried positions? There a number of reasons.

Vacation days, sick days

For one, with a full-time salaried position you will typically have vacation pay and sick pay. As an independent consultant, you will still have days you cannot work due to illness or vacation, but now you will not be earning any income for these periods. Your consulting rate will have to be high enough to compensate for this time.

Giving away time

Add to that the fact that as an independent consultant, you will likely not be billable 40 hrs per week for 50 weeks out of the year. Oh, you may still put in those hours, and then some. You just won't be getting paid for them. Why? You may find yourself "giving away" a substantial amount of your time.

For example, you may give away some time initially as you talk with prospective clients about what they would like to have done. Then there is the time you devote to marketing yourself so as to find prospective clients in the first place. For existing clients, do you bill for every "quick question" from them received via email or phone calls? Not likely. Depending on the number of clients you support, the time you spend responding to these "quick questions" can very "quickly" add up. You may have a web site promoting your services and this takes time to maintain. Also, there is the matter of ongoing training. (And as a consultant you are often expected to be even more up-to-date on technologies than a comparable employee working for an end user company in a full-time salaried position.) On top of everything else, you will spend some time simply running the business with tasks such as billing, accounting and other recordkeeping.

Expenses

What about expenses? If you develop software with a variety of Microsoft technologies, you may have an MSDN subscription with annual renewal fees of around of $2,400 or higher, depending on the level of your subscription. If you use tools, technologies, or online services not covered by the MSDN subscription, or if you use additional non-Microsoft development tools, don't forget to consider the cost of annual license fees or upgrade costs for these products as well.

Maintenance

Do you maintain multiple development machines, or multiple development virtual environments? You may spend some time maintaining these or configuring new machines / virtual machines that you use to develop and test solutions before deploying them to your clients.

Slow spots

Something else to consider is that over time, you will likely encounter some "slow spots". These may sometimes drag on due to temporary downturns in the economy, or may be very short term such as during a holiday period. Your regular clients may experience temporary downturns in their particular industry, during which times there may be a temporary hold or at least a reduction in the amount of work they have available for consultants. After all, it only makes sense that if any temporary "belt tightening" should take place within one of your clients, consulting services will likely be cut before considering employee cutbacks. Also you may have clients that have exhausted their budget for the fiscal or calendar year a little early and must wait for the beginning of the following budget year to start any new projects.

These slow spots are in addition to the gaps you may naturally experience between consulting assignments. Usually the nature of your work as a consultant is that it is temporary. Temporary workers need to earn a little more per hour than regular full-time employees to compensate for gaps in their work schedule.

To weather the "slow spots" you will need to maintain sufficient resources to carry you over to times when work is more plentiful. Keep in mind too that although your income may hit a "slow spot", your expenses may not.

One bright spot in this is that slow periods caused by economic downturn or by slowness in your client's particular industry can sometimes create a "pent-up" demand. Companies put off projects that they know they will really have to get done eventually, and this can create a bit of a backlog for them. Once conditions improve, there can be a flood of work. Even if a given upturn in economic factors doesn't directly affect the type of clients you typically service, it can have a positive indirect effect, in that it takes other programmers "off the street". This reduction in "programmer supply" and increase in demand can bode well for finding new clients as well as for finding work at your desired rate.

Other factors

Of course, there are many other factors that may affect your decision as to what rate to charge for your services. Rates can vary by geography, by type of work, by length of assignment, and other variables. And keep in mind that no matter what you may believe to be the "going rate" for your services, there will always be a wide variety of expectations as to rate in the mind of each particular client. No matter what rate you set, some will consider it high, some will consider it low.