How to Calculate Your IT Consultant Pay Rate


September 22, 2023eye-icon-image0

For IT consultants and even anyone working within the freelance economy, setting the right consultant pay rate for your services can be a daunting issue. This is because your situation is different from that of an employee whose wages or salary is paid at a specific rate and time. Typically, a freelance consultant’s pay rate is dependent on various determining factors, ranging from the time involved to the resources invested, and so on.

Independent consultants are paid on a project or contract basis. This means that, for every client you work with, you decide how much you want to be paid. As a result of this, determining a proper price tend to be an uphill task. Sometimes you wonder if you’re undervaluing your services. Sometimes you’re careful of overpricing. As such, it all becomes a battle of decisions, especially if you’re just switching from a full-time employee IT role to being an independent consultant.

Of course being a top IT professional may not translate to knowing how to price your services when you go into consulting. But no need to worry. This blog has been prepared to show you how you can decide your IT consultant pay rate rate. So walk with us.

3 Ways to Calculate your IT Consultant Pay Rate

Hourly IT Consultant Pay Rate System

One way you can set your rate as an IT consultant is to choose to calculate your earnings based on the number of hours expended. As such, you are looking to price your service on an hourly basis. This way, the precise amount you earn on different projects tend to be influenced by the amount of time those projects take.

Wondering how to arrive at your hourly consultant pay rate? You could simply use your former salary to calculate that or the full time equivalent salary of the consulting job you are pursuing. and are great sites for looking up salary information. Once you have a salary, you divide the salary by 2080 which is the number of work hours – excluding days – in the year to determine your base hourly rate. Next you add the hourly equivalent of the additional costs that you incur in being a consultant i.e. medical benefits, insurance, transportation costs etc.

Like any business you want, factor in your cost of doing business into your “price.” To determine these costs, you simply sum them up for the year and divide them by 2080 hours, just like you did with your hourly rate. A somewhat simpler approach is to refer to these costs in your previous year’s tax return.  And an even simpler approach is to take 25% of your base annual rate which is the industry average markup for consulting costs.

In any case, a combination of your base annual rate and additional consulting costs (on an hourly basis) should give you a good idea of what you should charge for your consulting business. And if you feel that you are on top of your game, a 10 to 20% increase in this rate would not be reasonable.

One-Off Pay Rate System

The one-off rate system is project-based. That is, you and a client have to agree on a particular price before you begin the client’s job. So, from the outset, there is a fixed fee. Should another job be introduced along the line, another fee is negotiated entirely.

On average, a consultant can decide to charge a flat fee ranging between $95 and $350. But then, the price can even be much more.  It generally depends on the IT consultant’s level of knowledge, experience and skills. Nonetheless, how big the client is or the time sensitivity of the underlying project, may also be another factor determining the specific amount you may quote as a consultant.

Note, however, that, similarly to the Hourly Rate System, you may have to factor in whatever amount of time and resources the job will cost you, when determining the amount you’re taking for the given project. Then you markup your rate based on your level of expertise. This is because, once you and your client have agreed on a particular price, there may be no chance to review the fees.

Performance-Based Rate System

If you think you are well-experienced and self-confident enough, then this is for you. The performance-based rate system is result oriented. Thus, it is dependent on how effective your service can be. In other words, you don’t get paid until your client records significant results or improvements in his or her business.

Therefore, for this pricing style, you sure have to bring in your A game. Your input is seen in the light of investment, and has got to yield a high return on investment (ROI) for your client. Ultimately, the client has to clearly see that they got the real value they needed from you.

For those just starting out as independent consultants, you should note that this pricing style may not be the right fit, as it is not advisable to test the waters with such. However, all consultants should strive to attain this level pricing as it is the most in line with the job of a consultant which is to generate notable value for their clients. Also, in most cases, clients won’t object to this form of pricing, provided the promised value is realized.

Overall, it is essential to note that there is a variety of things involved in setting a consultancy rate. The ones discussed above are just a part of a whole lot more. Ultimately, setting your rate depends on you, and you can step it up as you go further in your new IT consultancy career. You should understand, by the way, that clients are different; while some might mention a standard rate they work with, some could be waiting on you to shoot. Either ways, it’s up to you to be confident about the rate you want. Good luck!

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