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2/27/20031 Setting and Maximizing Price of Your Consulting Services Laurence W. Nagel Omega Enterprises Randolph, NJ.

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Presentation on theme: "2/27/20031 Setting and Maximizing Price of Your Consulting Services Laurence W. Nagel Omega Enterprises Randolph, NJ."— Presentation transcript:

1 2/27/20031 Setting and Maximizing Price of Your Consulting Services Laurence W. Nagel Omega Enterprises Randolph, NJ

2 2/27/20032 My Background Graduated from University of California, Berkeley in 1975 Worked at Bell Laboratories for 20 years in the areas of Analog Integrated Circuit Simulation, Semiconductor Device Modeling, Analog Integrated Circuit Design Worked at Anadigics for 3 years in the area of RF Circuit Simulation and GaAs device modeling Started Omega Enterprises in 1998 to provide consulting services in the fields of Analog Integrated Circuit Design, Semiconductor Device Modeling, and Expert Witness support of patent litigation cases

3 2/27/20033 Who Sets A Consultant’s Fees? The Consultant? –Sets the breakeven rate –Responsible for marketing the service Other Consultants in the Field? –Their rates establish what is reasonable The Consultant’s Client? –Makes the final hire/no hire decision –Must be convinced the value is worth the rate

4 2/27/20034 The Consultant’s Point of View - 1 There are 241 days in a year after subtracting 104 days for weekends, 10 days for holidays, and 10 days for vacation That means you could bill 8 x 241 or 1928 hours in a year In reality, if you work really hard you will book about half that number (say 1000 hours)

5 2/27/20035 The Consultant’s Point of View -2 Assuming 1000 billable hours, then –Revenue = 1000 x Rate Consultants in electrical engineering charge rates of from $ 50 per hour ($ 400 per day) up to and exceeding $ 250 per hour ($ 2000 per day). Hence, consultants’ gross revenues range from $50K to in excess of $250K (per year)

6 2/27/20036 “The More Things Change, The More They Stay The Same...” French Proverb Fee chart originally prepared in 1994 by CNNNJ member Werner Engelmeir

7 2/27/20037 The Consultant’s Point of View -3 Profit = Revenue - Expenses Expenses –Your salary –Staff salaries and fees (bookkeeper, accountant) –Retirement Plan Contribution –Taxes –Insurance (medical, liability, E&O) –Office expense (rent, equipment, supplies)

8 2/27/20038 Factors that Effect Your Rates Your experience Your knowledge Your credentials Your field(s) of expertise Your availability Referrals from previous clients Referrals from peers

9 2/27/20039 Other Consultants - 1 Let’s say, after some calculations, you’ve figured that you can just scrape through if you charge $ 500 per hour for your services The next step is to check with other consultants who do work in your field and find out what they charge Chances are, you’re going to need to rethink your rates!

10 2/27/ Other Consultants - 2 Your peers determine a range of what is reasonable to charge for your services Before talking to prospective clients, do a sanity check and talk to other consultants about what their rates are –CNNNJ and other networks are perfect for this Sometimes a client will tell you what he or she pays for consultants

11 2/27/ The Client’s Point of View - 1 Assume that the client knows the going rate Clients are willing to pay more than the going rate, but only to obtain tangible added value –Example: Expert witness consultants with a proven track record for convincing judges and juries may win a case worth millions! The consultant has to show the added value

12 2/27/ The Client’s Point of View - 2 It costs a client more than salary to have an employee on board. The loading factor is the number that, when multiplied by the salary, is the cost to the client –Cost of Employee = LF x Employee Salary The loading factory is typically around two but ranges from 1.8 to 3.0 The client knows the loading factor --- ask!

13 2/27/ The Client’s Point of View - 3 With a load factor of 2, an employee earning a $100K salary costs your client $200K per year If you can perform the work of a full time employee with 1000 hours per year, then a $200 per hour rate is breakeven rate. Breakeven Consulting Rate = Equivalent Annual Salary / 1000

14 2/27/ Are Fees Negotiable? Yes, to a degree Have a standard rate in mind and quote that rate If you have recently increased (or decreased) rates, explain why to the client If there are circumstances that justify a lower or higher rate, explain those circumstances to the client

15 2/27/ Consultant’s Fee Setting Minimum fee is set by the consultant’s cost structure Typical fee is set by what comparably qualified consultants charge for comparable work Maximum fee is set by the added value the consultant can demonstrate to the client


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