Many consultants start out working from home. They do so either for lifestyle choice, or to reduce their overhead. Their reasoning is simple; no need to pay rent for an office, no need to spend time commuting, no need for additional computers or phone systems, just buy a desk for the spare room and hang out a shingle; “Consultant”.

Now the first reality bite hits; “Who am I going to consult to? I need some clients.” So you join get some cards printed, join a networking group, maybe do a little website and some adverts and suddenly you have an enquiry. Someone wants to buy your expertise!

The next reality bite comes when they ask about your fee structure. How much to charge? The answer to this question will have a profound impact on the future of your business and this is where most new in business make their biggest mistake; they charge too little.

Instead of charging a commercial fee, they charge a domestic fee. Let me explain…

If you do a simple profit and loss statement for your business as part of your business plan, you would start by calculating how much profit you want from your business after all costs, wages and taxes. Next, as you’re the principal (and probably the only) consultant, you need a wage. That wage is probably the single biggest cost your business has to cover.

Consider now that your wage has to compensate you for all three roles you perform for your business, the roles of Finding, Minding and Grinding. Finding is the time you spend actively looking for clients, Minding is the time you spend looking after them and Grinding is the time you spend actually doing the work and the associated billing and collection activities.

You won’t be spending 100% of you time doing the work! In reality, you will be lucky to spend 50% doing the work, so your hourly fee must be sufficient to cover the rest of your time.

Some basic maths… Let’s assume you want to pay yourself $52,000 per year, $1,000 per week before tax. You’re charging 25 hours of your time to clients and you have $1,000 per week in overheads; car, phones, insurance, marketing etc., so you need to bill $3,000 per week in order to pay yourself $1,000.

But you’re only doing 25 hours of chargeable work so your fee needs to be $120 per hour ($3,000 / 25) simply to break even. You can’t afford to take a vacation and you won’t be making a profit and you won’t have much of a lifestyle because $1,000 before tax doesn’t buy much (at least not where I live!)

Far too many consultants charge less than this early in their careers. Then, as they get busier, they realise they can’t sustain the business, they can’t hire others to help and they haven’t the confidence to increase their fees either.

You must start out by charging a sustainable fee, one that shows you are confident and capable and that indicates you are serious about your business. Using the example above, at $160 to $200 per hour, you can afford to take a vacation, pay a bookkeeper, a virtual pa and still make a profit. Better still, you’ll have more time to do the work and you’ll probably be dealing with a higher calibre of client too!